Andrew Inwood

The lack of governance and oversight of the self-licensed advice sector could pave the way for the next industry failure.

CoreData Research global CEO Andrew Inwood said the overwhelming majority of self-licensed firms were “exceptional businesses” but there is a sizeable cohort that could cause issues.

“I would argue the next failure is in the individually licensed practices,” Inwood said at the Professional Planner Licensee Summit.

“Let’s say seven out of 10 are great and then two out of 10 it’s a bit hard to see, and one out of 10 they probably shouldn’t be in business. Those numbers are pretty rubbery to be honest, but the capacity for those [few] to destroy value for Australians is relatively significant. I’m not sure how the regulator is going to deal with that.”

Inwood noted ASIC asked for money in the last Budget to monitor self-licensed advisers, which they weren’t given.

“The people who are there and working on it take it incredibly seriously and are doing their absolute best but regulating 4000 people going in different directions doesn’t sound like something that is feasible and practical,” Inwood said.

“The only way to do that is through hardline, black-letter law legislation and to limit the range of things people can do.”

In a later session, ASIC senior executive leader for financial advisers Leah Sciacca said the regulator aimed to police the advice sector equally, regardless of licensee size.

“There has been a focus post [Hayne] royal commission in terms of enforcement of the large licensees,” she said.

“But if you look across our enforcement book and the other work we’re doing at the moment, we do have a cross section across the industry,” Sciacca said.

Inwood’s insights into the CoreData research come amid the passing of the Compensation Scheme of Last Resort and an increase in the ASIC adviser levy.

While it had been noted in other sessions that it was easier to remediate customers when misconduct occurred in large institutions, the CSLR had been set up as a last resort for firms that didn’t have the capital or assets to remediate misconduct.

“It’s actually about helping victims of bad financial advice which has then gone through an AFCA determination and AFCA then found out the adviser had closed up shop and flown off to Mallorca,” the former Minister for Financial Services Jane Hume said during legislative debate on the CSLR bill last year before the federal election.

Light at the end of the tunnel