The advice industry should consider the unintended consequences that might arise if it becomes a recognised profession according to Hon. Justice Sarah Derrington, federal court judge and President of the Australian Law Reform Commission.

Speaking to open the 2021 Professional Planner Licensee Summit in Katoomba Monday morning, Derrington said advisers need to question how they want to be regulated and what broad changes to current arrangements might mean for their advice delivery models.

If advisers want to be regulated on a professional level, she believes, this will probably bring with it a higher level of fiduciary duty than the industry currently owes its clients.

“I’ve noted from the press that professionalism is something that’s really important to you,” Derrington said. “And if that’s the track you want to go down, you’ve got to be careful and think about the unintended consequences of doing that, because you might well find yourself in the same position as the lawyers and the doctors with a new load of fiduciary obligations.”

Many observers regard individual registration for advisers and an unwinding of the current licensing regime as a significant step towards professionalism for the industry. If that comes to pass, Derrington told Professional Planner, advice regulation could take a different shape entirely.

“If [advisers] do look like going down the track of becoming true professionals they’re open to a broader range of ethical duties and obligations that are typically associated with the professions like law and medicine,” she said. “So that’s a question for the industry to think about.”

The way advisers are regulated is central to a review the ALRC is undertaking to simplify and clarify financial services regulation, in particular the Corporations Act. The ALRC is due to hand down the first of three interim reports in November this year before filing its final report in 2023.

The work the ALRC is doing is likely to have a major bearing on the advice industry’s fate. In May ALRC Commissioner Justice Hon. John Middleton said pulling Chapter 7 out of the Corporations Act was “on the table” – a move that will likely prompt a review of whether individual adviser registration would be a better fit for the industry in the long term than the current AFSL model.

If individual adviser registration was legislated and implemented, any subsequent lift in professionalism would also bring with it a higher standard of fiduciary duty, Derrington said, which could “change radically” the structure of advice service deliver.

“It’s not just that you must act in the [client’s] best interests, you must act only in their interests, and not in your own interests,” Derrington explained. “So it’s not just that you must manage conflicts and avoid conflicts, you have two primary duties; not put yourself in a position of conflict with your client, and not to profit from that position.”

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 tah[email protected]
2 comments on “Professionalism: Be careful what you wish for”
  1. I must have missed the memo on how pulling Chapter 7 out of the Corps Act leads to individual adviser registration. Significant re-right would be required.
    As for Advisers having a greater “fiduciary and ethical responsibility to clients” if the system moved to individual registration, that is what the industry wants/needs. Advisers know their clients a lot better that the Licensee who spend their days playing cat and mouse with ASIC. If advisers “have skin in the game’ of regulatory responsibility, I would say that will induce a significant behavioural shift.
    Ideally the industry bifurcates into strategic and product advice. For strategic advisers, the product is a part of the solution and in many cases best left to specialists. Likewise with the other main specialisation risk advice. Creating this as a distinct specialisation rather than a part of the “bundle” seems to make sense. The expertise to understand insurance advice is as hard as it gets and clients are better served by those that work exclusively in this field.
    Lawyers have done well out of Chapter 7 and are as much a part of the problem as any of the “rouge advisers” that the RC pulled out.

  2. Avatar Brett Wright

    If you are professional, educated, taking the risks of running a business, employing staff, paying tax, helping your clients get into a better position, making sure everything is affordable for clients, providing a valuable service etc; why can’t you make a profit to keep a roof over your family’s head and to hopefully be able to retire comfortably like everyone else?

    Other professions make a profit for their efforts. For example, where is the fiduciary duty in the massive legal bills served in family law, I’m thankful we have Medicare to cover the bulk of my medical expenses and I want my doctors to be rewarded (financial advice isn’t subsidised by the tax payer though, so it’s hard to compare our businesses to medicos), and I know my accountant makes a profit, because I do his insurances.

    Sad fact is, that it is now too hard to help 80% of Australian’s, meet all of the paperwork/compliance obligations and break even (let alone make a profit) all at the same time.

    The issues driving up unnecessary cost, complexity and regulatory/compliance risks for advice providers need to be fixed now, not in 2023.

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