Quality of Advice Review lead Michelle Levy (left) and FPA chief executive Sarah Abood.

The Financial Planning Association has called on the Quality of Advice Review to limit use of the terms financial adviser and financial planner for relevant providers only.

In its submission to Treasury the FPA supported a two-tiered personal advice model that also gives a framework for non-relevant providers.

“Only ‘relevant providers’ who meet the professional standards should be legally permitted to use the terms financial planner and financial adviser and like terms,” it stated.

The FPA submission also pointed to the UK as an example of using clearer examples for relevant providers, drawing similarities to the submission from a working group of consulting firms.

“Similar to the UK model of ‘restricted advisers’ and ‘independent advisers’, an alternate term is required to differentiate non-relevant providers from relevant providers, but also from unlicensed providers such as finfluencers,” the FPA submission stated.

The association also expressed concern that the Red October suite of regulatory changes have not been fully battle-tested to provide certainty they can provide appropriate consumer protection.

Cultural change

The FPA stated the reforms “may require cultural change” from licensees and ASIC which the association said have been reliant on the current licensing system which involves a “tick-a-box” compliance approach.

“Additionally, in the past, licensees have created their own rules and additional requirements if they believed the legal requirements exposed them to too much risk, particularly in relation to potential consumer complaints, AFCA action or hardened professional indemnity insurance conditions.”

The FPA pointed to a lack of precedence for AFCA determinations which has created uncertainty for dispute resolutions, which is further compounded by the fact the new approach will be less prescriptive.

“PI [professional indemnity] insurance is the most significant business expense for small and medium sized financial planning licensees,” it stated. “It is unclear how AFCA and PI insurers would adapt to principles-based regulation for the provision of financial advice.”

Cautious welcome

The association has largely welcomed the proposals from review lead Michelle Levy which it said will move to a more principles-based, outcomes focused approach to regulating the provision of financial advice.

“The intent of the reform package has the potential to change the focus of the law from the inputs into the advice and the advice process (conduct, research, etc), to focus on the outputs (the quality of the advice),” it stated. “This is a positive outcome and in line with the regulation of professions.”