Madison Financial's Kerry Thomas and Tom Reddacliff from Encore Advisory

The Australian Law Reform Commission’s revelation that pulling Chapter 7 out of the Corporations Act is “on the table” as part of its review into financial services regulation could lead to an unwinding of the advice licensing system as we know it.

If the commission is looking at repositioning Chapter 7, it’s likely to do a robust analysis of whether the licensing regime within it is best placed to serve the system for years to come.

The ALRC will also be aware that between now and 2023 – when its final report is due – the regulatory framework for advice is due to undergo significant upheaval.

Headlining the changes will be the wind-up of FASEA, with its role divided up between Treasury and ASIC’s Financial Services and Credit Panel, which will become the industry’s new Single Disciplinary Body.

According to the Financial Planning Association, this alone should serve as a catalyst to introduce individual adviser registration. On Tuesday the FPA said a “professional registration system” for advisers is the “missing piece to the puzzle”.

“The FPA strongly supports a model in which registration is the personal responsibility of each financial planner and is not connected with their employment or authorisation under an AFSL,” chief executive Dante De Gori stated.

The heart of the problem

While the FPA sees the Single Disciplinary Body’s advent as a catalyst for individual adviser registration, the ALRC has a broader mandate – to review the entire legislative framework for financial service regulation, with the aim of identifying any “potential simplification of laws”.

Advice will be a focal point. In the ALRC’s January interim report all five industry examples given related to financial advice, prompting the commission’s special counsel Andrew Godwin to reveal the advice industry will take “certain prominence” in the review.

If the ALRC is to go as far as canvassing whether Chapter 7 should be ripped out of the Corporations Act, as it said on Tuesday, the Act’s core element – licensing – will surely come under the microscope.

To unravel what Financial Services minister Jane Hume coined the “Gordian knot” of advice regulation, the ALRC may well take a first principals approach and decide that if the AFSL system is the core issue, any recommendations that don’t start with its repeal would just paper over the cracks.

“If chapter 7 is going to come out it won’t be just lifted out as is,” says Kerry Thomas, head of governance at licensee Madison Financial.

“Nothing’s off the table for the ALRC review. The terms of scope include looking at the structure of the legislation across all of Chapter 7, so [the ALRC] could definitely recommend changes to the AFSL system.”

Licensee perspective

The concept of individual adviser registration hinges on attaching responsibility to the individual adviser and eliminating what some see as an unnecessary middle layer between advisers and regulators.

The FPA has long advocated the idea, most notably in its submission to the Hayne royal commission, but it wasn’t until the association included it in its 2020 policy platform and drew the ire of fee-paying licensees that the idea gained prominence.

Opponents of the concept, including these licensees, point out the “education, risk mitigation, compliance, consumer best interest measures and commercial support” dealer groups provide.

Many licensees now offer these services sans licensing, however, to the burgeoning self-licensed advice community. A path to an alternative, post-licensing business model for these groups is already paved.

“If there are changes to the licensee system that doesn’t mean there’s no role for those organisations to play,” Thomas says.

Getting buy-in

If the ALRC recommends unwinding the AFSL system, that doesn’t guarantee it will gain the necessary support to be implemented.

“It’s an opportunity but it would also require stakeholders to get on board, including the government and ASIC,” says Encore Advisory director Tom Reddacliff. “That’s the element I would probably have doubt on.”

ASIC could baulk at the prospect of regulating 20,000 individual advisers, he adds, without the tech solutions in place to make it workable.

“They can’t do it manually, it would require a significant data strategy,” he says.

Reddacliff, along with Madison’s Thomas, will appear on a panel at Professional Planner‘s 2021 Licensee Summit on June 7 in Katoomba.

4 comments on “Chapter 7 repeal could pave the way for individual adviser registration”
  1. Avatar

    This is an excellent and terribly exciting development. Not heading down this path dooms is to many more years of regulatory uncertainty and legislative interference.

    I will make one point though – there’s absolutely no reason ASIC has to be the body registering advisers. They don’t register lawyers, doctors or engineers.

    The only reason they have a role in our licensing is Chapter 7. Remove that from the Corps Act and everything changes.

    We could have a centralised, non-government, body responsible for standards and registrations like the other professions.

    These are big changes that will require courage, vision and boldness, as well as a willingness to stand up to the status quo.

    I hope we’re up to it.

  2. Avatar
    Christoph Schnelle

    Good points though lawyers are a good example. They are fully liable for their advice, though barristers can’t be sued for their conduct in court.

    Advisers are more than fully liable as both the regulator and the licensee can decide what remediation measures are undertaken and licensees claw back costs from advisers. Advisers pay but don’t have a voice in what costs are incurred.

    Not only are advisers who work for product providers servants of two Masters (licensee and clients) but all non-self licensed advisers are at the mercy of two Controllers – ASIC and their licensee.

    Individual licensing would give advisers one Master and one Controller.

  3. Avatar
    Jeremy Wright

    We have a congo line of vested interest groups, all promoting their viewpoints and yet, it seems once again, that the end recipients of all this “Advice,” are being sidelined out of the conversation, being the Advisers themselves.

    It really does not matter what all these associations and vested interest groups say, if they continue down the same path, which is just to tinker and ignore the real issues.

    Taking out a small portion of Legalese, when there are millions of other words that can catch advisers out due to interpretive design, is not going to free up Advisers to Self License and carry all the risk, only for some one else to attack them based on other illegible parts of the Law and Regulations that no-one understands, yet will still drag an Advice practice down as surely as the current regime.

    It is very “admiral” to put all the onus and legal liability onto the Advisers, though has anyone bothered to ask the Advisers how they feel about that, knowing they could be held ransom to and dragged under by a system that has survived and thrived by creating complexity, red tape, Legal interference and huge costs to all Australian Business and all Australians.

    Advisers are snowed under now and are struggling. How do you think they will cope with more complexity and uncertainty.

    There is a simple solution, though this will be howled down by those entities and Public servants who are beneficiaries of the current unworkable state of affairs, and that is for advisers to talk to clients and in simple words and simple documents, provide them with choices on what advice they want and how they want to proceed with it.

    It amazes me, how Australia has become a Country of not focusing on fixing the real issues, rather, we put in vast amounts of red tape and make it “appear” to be fixing things, which of course, has led us to the ridiculous position we now face, where thousands of experienced and ethical advisers are exiting the Industry, the cost to attain advice is now out of reach for most Australians and some of the largest growth Industries, being Compliance, Audit and Legal, Industries that have stymied Business and applied the economic brakes, are now being asked to fix issues created by themselves.
    It is a classic Fox looking after the hen house scenario.

  4. Avatar
    Christoph Schnelle

    There are 140,000 electricians, presumably all licensed. There are 76,303 practising lawyers, and about 220,000 professional accountants. It should be possible to license 17,000 or fewer financial advisers.

    One issue that needs considering is that the current licensees own the clients. That could be difficult to reconcile with the professional status of individual advisers.

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