As the industry wrestles with the concept of individual licensing for financial advisers, stakeholders are debating licensing models that could reinvent the regulatory landscape and completely reshape the role of licensees.

The notion of individual licensing came back into focus recently after the heads of six respected dealer groups criticised the Financial Planning Association for recommending “individual registration and oversight” for advisers in their 5-year plan, in lieu of the current AFSL system.

While the FPA pitched the plan – and has done so for years – as more befitting the direct relationship between clients and their advisers, the licensees’ alliance collectively called FPA chief Dante De Gori’s comments “at odds with the facts”.

The idea of advisers being individually and directly reportable to the corporate regulator is controversial, yet not novel. According to Pamela Hanrahan, Professor of Commercial Law and Regulation at UNSW, “people asked it in 1997 and have been asking it ever since”.

Before we get wrapped up in the prospect of individual licensing as an inevitable end-point, Hanrahan argues, the idea needs to be approached holistically.

“Arguably, because financial advice is not a profession, there is no reason to regulate at the practitioner rather than entity level,” Hanrahan says. “The choice is about which structure is optional to achieve regulatory compliance at the customer interaction at the least overall cost…”

That individual licensing would improve financial advice is not a given, Hanrahan says. She quotes Allen Consulting, who did work for the Victorian Government on “occupational” licensing in 2007 and concluded that there was “the potential for occupational licensing to cost more in terms of higher prices, reduced competition and poorer consumer choice…”

And before that, she adds, the Ripoll Inquiry in 2009 highlighted the immense cost of a proposed change to the licensing regime, with then-Labor MP Bernie Ripoll concluding: “The committee is also of the view that licensing individual planners would be far too costly to justify any regulatory improvements that may result.”

Hanrahan isn’t against a move to individual licensing per se, and she acknowledges that such a move would afford efficiencies, especially as technology gives the industry more to leverage on an individual level.

But she raises the right point; would it really be worthwhile?

The only path to professionalism

According to Tom Reddacliff, individual licensing, along with the completion of the education mandate, would put advice on par with peer professions like accounting and the law.

Reddacliff, the chief executive at Encore Advisory Group, believes the financial advice industry should actually follow the lead of accountants on their path to professionalism. While accounting isn’t perfect, he says, “it’s a pretty good professional model for financial planners to aspire to”.

Once education standards are in place, Reddacliff says, the case for professionalism can be made. From that point a “gap assessment” can take place between advice and accounting.

The primary gap to be addressed, he says, would be a move to individual licensing. “If you’re against individual professional recognition you’re against financial planning becoming a profession by default,” he notes.

Licensees, for their part, would still be valued for their ability to provide scaleable B2B service options. Moreover, he says, without the “risk burden” of licensing they would be able to focus more on these services.

Individual licensing could lead to “huge chunks” of AFSL-related regulation being taken out of the Corporations Act, in particular the focus on retail product advice. The tax deductibility of advice could also be reassessed on par with the move to professionalism and in line with the status of accounting.

Advisers would maintain discipline under the Government’s as-yet-unseen code monitoring body, Reddacliff continues, similar to how accountants operate under professional body audits and a code.

Indeed, he adds, the existing Code of Ethics is tailored to advisers and not licensees.

To make monitoring even more efficient, he says technology could be leveraged to keep ASIC closer to the work of advisers.

“Financial planning should have compulsory data uploads to ASIC each year which would add more protection than any other profession you can think of,” he says.

ASIC in the middle

For its part, ASIC has so far demurred on the topic of individual licensing for financial advisers and left it to policymakers. Sources say that ASIC is content to let the issue sit for now but does not relish the idea of regulating the entire adviser workforce.

While this is understandable, it’s worth pointing out that the gap between the licensee cohort and the adviser workforce is narrowing. There are no longer 30,000 advisers in the country, the figure is around 23,000 and tipped by Adviser Ratings to drop to 15,000.

And there aren’t a few hundred licensees in the country any longer; there are 4,000-odd, most of them self-licensed.

The question for the regulator is then this: is the delta between advisers and licensees so great that the efficiencies afforded by the current system outweigh those of a theoretical individually licensed one?

The answer, for now, is most likely yes, and it may remain so for some time given the costs associated with such a significant change.

A bigger question, perhaps, might be whether this will always be the case.

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at tahn.sharpe@conexusfinancial.com.au
5 comments on “Licensing models get the tug-of-war treatment”
  1. Avatar Jeremy Wright

    The old adage, Be careful of what you wish for, is especially relevant in the Financial Planning Industry.

    There is an inconsistency in what we need, what we have and what we are aiming for.

    With the current projections of 15,000 advisers left after the exodus of thousands of great advisers, who are just worn out with the constant change and uncertainty, this leaves insufficient advisers to guide and manage clients.

    If we throw out the baby with the bath water, it is self defeating.

    It is nice to be called a Professional, though I know many Professional advisers with great Business acumen and exceptional service principles, that will fail the high altar due to a missing piece of paper.

    Likewise, there are many Professional people that have the required degree and educational standards, though fail miserably as true service providers to their clients.

    The real cost in all this debate without proper, realistic guidelines, will be the destruction of thousands of great advice businesses and the loss of the vast majority of Australians ability to attain advice, which is already happening.

    Complexity, breeds uncertainty, inaction and litigation.

    Lawyers are paid vast sums for doing work that many could argue, is counter to what is required, which is, clear, concise, workable regulations to improve outcomes.

    After countless sums of money being directed at the Legal Profession to improve outcomes, a simple question needs to be asked.

    Have we as a society been impacted positively with the maze of Laws and regulations and how many people apart from Lawyers, actually understand them?

  2. I’m enjoying the discussion, thanks for the deeper analysis Tahn.

    Tom Reddacliff’s points are all good ones, but I would go one further and suggest that moving much of financial advice out of the Corps Act, as he sensibly proposes, puts ASICs involvement in a different light.

    I think of it in terms of the regulation of the medical profession. Or any other profession, really.

    My understanding is that, following a rigorous level of education (as per our degree, exam and experience requirements), doctors then register with their state Medical Board to practice (this would be the role of the yet-to-be-established disciplinary body).

    Boards then have disciplinary and expulsion powers (as would the new body).

    This role is supported/aggregated under the AHPRA (this may not be required given our body would be a national organisation, not a series of state ‘boards’).

    Medication and treatment ‘products’ are then regulated by the Therapeutic Goods Administration.

    I imagine ASIC would fulfil this role in regulating the products used by financial advisers as part of their practice (remembering that not all advice involves product – contrary to the Corps Act definition).

    This would lessen ASICs workload and better separate ‘advice’ and ‘product’.
    There is, of course, much work to be done to progress this idea.

    But I question the motives of those protesting – loudly – against this logical step towards true professionalism. A quick glance at their annual reports suggest millions of reasons to pushback against this idea.

    I’m also keen to learn how removing a layer of costs from advice could increase the cost to clients.

    I imagine a calculation of the total paid in licensing fees by advisers each year might help contextualise this discussion.

  3. Great thought provoking article, thanks.
    It has helped me understand the disconnect I have between the current interim ‘code monitoring’ arrangements and the established AFSL regulation. Licensees are trying to understand where their responsibilities lie (read potential liability) with legal counsel seeming to be falling on the side of an individual responsibility for Code compliance. It is almost a hiatus or, press the pause button, until we can work this out environment.
    Coming from the accounting profession, I agree that individual ‘licensing’ is the better path for Planners. Not a mirror of what is there now, but as said in the article, monitored by professional bodies. It’s hard work to get the designation required to get into a professional body and most don’t want to readily give it up.
    The important role that licensees provide to the industry now will still be needed however, unshackled from compliance being the #1 on daily to do lists, you could imagine a thriving new business model that provides support services to the professionals in what ever business model they operate from.
    We already have seen the remarkable tech solutions for compliance that are being developed and rolled out. Even AI that can scan SoAs to pick out issues, etc. As has been said in this forum on many occasions, tech is a big part of efficiency gains for financial planning and, in my view, compliance should be the focus. Whilst robot investment strategies are out there and gaining some interest, I think many advisers come to work to do this themselves and take the clients on the journey whereas the compliance – necessary evil – is a headache and could be better done by machines.

  4. Avatar Christoph Schnelle

    Tom Reddacliff is right. There are 160,000 *individually* licensed electricians in Australia, There are some 120,000 individually certified medical doctors, 76,000 lawyers, and 20,000 chartered engineers.

    Licensees made sense while they held all the liability. Now, with advisers equally liable and a code of ethics that only applies to the advisers, it makes a lot less sense.

  5. Avatar Tom Reddacliff

    Tahn, I think this is a healthy long term debate and importantly key stakeholders are talking through the issues. This proposal is very long term and it would make sense to link it to the 2026 education dates ( if that happens). The lead argument is not cost out, it’s the benefits of being a profession, which can only occur with a proper professional structure. Cost out benefits won’t occur from simply removing the AFSL layer but from everyone working together to also reform the law and associated areas such as insurance. If every other profession looks like this why can’t financial planning as well. To the licensees, I see a bright future in this for the quality operators. They will become valuable advice groups or central hubs.

Leave a comment