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.