The regulatory framework for financial advice and planning has the same origins as financial advice and planning itself – the sale of life insurance and, later, investment products.

In the past, up-front commissions were high and churning was rife. The increased focus on the disclosure of fees being charged to the client’s account was a reasonable solution to the problem and certainly had the effect of reducing churning (perhaps not so much with life insurance sales).

Back then, the switching of financial products was easy, and the multiple charging of up-front commissions was a genuine problem that needed to be dealt with.

The industry’s solution to the problem of churning was to start to pay a trail commission in the hope that it would disincentivise the constant rolling of products. This change certainly did have the effect of reducing the churning, but the disclosure was a one-time disclosure. It was never intended to be a fee for service, and this is perhaps why the regulator excluded these payments from the FDS requirements for so long.

The Statement of Advice became the primary disclosure document, and we were told to stop calling our financial plan a financial plan and instead use the specified but legalistic term “Statement of Advice”.

As a disclosure document, it was taken over by the lawyers who to this day insist that if something is disclosed, there is no responsibility for it – despite the courts and other lawyers insisting that this is not the case. Hence the document morphed from a simple document that outlined what was being recommended into a legal document that often ran to over 100 pages.

Don’t get me wrong, this is not all the fault of the lawyers. Advisers and planners started charging fees for the preparation of this document, and often these fees were not justified by the value of the recommendations, and so they began to charge based on ‘weight’. A big thick document must be worth at least three or four thousand dollars – right?

And then there is the issue of education. We got it quite right towards the end of the last century when the Diploma of Financial Planning was the pre-eminent qualification. Run by a University (Deakin) and sponsored by the FPA or taught at the Securities Institute of Australia by experienced industry leaders on a face to face basis. It was a full eight-unit program that covered all the main areas of financial planning and advice.

Then the Federal Government opened up the Registered Training Organisation (RTO) debacle, and the free-for-all race to bottom began. Why do an eight-unit two-year diploma when you can do the ‘same’ diploma in 6 months (or four weeks)? Even ASIC got in on the act by introducing RG146 which said that any course was adequate provided that the licensee was satisfied – effectively wiping their hands from any form of quality control. Many still did the full eight-unit diploma, but they were being undermined by the ‘new standard’ of RG146.

So that’s the history lesson – where to from here?

Well – up-front commissions are a thing of the past as they are banned regarding superannuation and investments. Commissions for life insurance recommendations have been standardised and reduced significantly, which overcomes one of the main issues with commissions – the allegation that agency theory suggests where advisers look for the products that pay the highest commission. I realise that there is still an issue of potentially over-selling insurance, but this is much less likely in the era of the best interest duty.

Trailing commissions have all but ended, and many advisers have moved to a ‘fee for service’ method of charging clients. Disclosure of these fees has become either once, twice or thrice-yearly, and there is a definite move towards annual disclosure and engagement.

Education is being substantially increased technically, although the majority of professional advisers will find it difficult to learn anything materially from the current courses on offer as these courses, despite being degree level or equivalent, offer less relevant information than the original DFP from 20 years ago.

Notwithstanding this, at the end of this year or next, we will have all proved that we could act ethically and understand the regulatory framework that we have been working within for the past number of years.