Today’s concept of a licensee in financial planning could ultimately become a thing of the past, a prominent wealth management consultant has outlined.
“In the long term, I’m advocating licensees don’t exist and financial planning looks more like accounting, with a public practising certificate structure through a professional body, recognised under the professional standards legislation,” Encore Advisory Group chief executive and director Tom Reddacliff says.
In the meantime, Reddacliff, who was formerly managing director of National Australia Bank-owned Godfrey Pembroke and general manager of MLC’s broader self-employed financial advice network, says licensees will live and die on their value proposition to advisers. This, he says, means providing valuable client-facing tools, enabling efficient client reviews, running a better business and providing a strong professional culture – not product aggregation.
“They [licensees] should play no role in product aggregation to subsidise the fees to access professional services,” Reddacliff argues. “This will create an even playing field and true competition on value. In time, advice groups that add value won’t fear the end of licensing.”
Call for a new framework
Reddacliff has been a strong advocate for individual licensing but not under the current industry framework. Associations will first need to be fortified by a relevant professional standards scheme to be taken seriously as disciplinary bodies, he told Professional Planner recently.
Licensees’ ability to stand on their own merits by supporting the professional mission of advice practices, rather than the priorities of product manufacturers, should also lead to much greater efficiency in the entire system, Reddacliff notes.
“It’s madness that it costs a licensee almost $35,000-$40,000 per authorised representative to break even,” he says. “If you strip back all the costs in recent years, you will find a greater proportion has come from compliance-related impact. The regulator doesn’t trust the licensees and they don’t trust the regulator. It’s…creating substantial cost and angst for all, with the consumer eventually paying the costs…This is clearly evident at the [Hayne] royal commission.”
Under the current system, advisers provide data to licensees, who then hand it to ASIC, Reddacliff explains.
“Under a direct certification system, if ASIC wants data from an advice business, why can’t the business give it directly to the regulator? Even better, what if all the stakeholders started working on a way to make that data exchange efficient and simple for advisers and the regulator?” Reddacliff poses.
The liability issue
The biggest perceived roadblock to individual certification, and the abandonment of the licensee as we know it, is the issue of professional indemnity (PI) and liability, Reddacliff acknowledges.
Moving to a proper professional framework and placing financial planning under the Professional Standards Legislation would change the conversation around liability, he notes. This would put financial planning on the same footing as accounting. Financial planners with a public practising certificate would access a scheme limiting their liability on civil proceedings.
“If financial planning moves to individual certification, it’s my view the professional associations, PI brokers and insurers all need to come together to form proper grandfathering of events prior to a commencement date,” he says. “[E]veryone I speak to amongst the stakeholders tells me it’s complex, difficult, but possible. Some see these problems as impossible; however, the right people, with the right purpose, intent and ability to enact change could solve it.”
Those in the industry who believe the approved product list will sustain licensees in the future are probably mistaken, Reddacliff states.
“There is actually no requirement under legislation for a licensee to have an approved product list,” he says. “Really, it’s been a mechanism for some licensees to control the product equation, which has in turn driven aggregated product economics. This system stemmed from FSR [Financial Services Reform] and acts as a roadblock to professionalism.”
Many questions remain around individual licensing and direct certification; most of these relate to whether this is an area policymakers will prioritise and how such a system might be regulated.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry interim report due at the end of September will provide clues about the speed with which the role of the licensee as we know it will change.