Self-licensed advisers the ‘next failure’

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

Inwood’s depiction of self-licensed advisers stood in contrast to AMP, which has been the face of misconduct in the industry since the Hayne Royal Commission.

CEO Alexis George was appointed in mid-2021 with the responsibility to reset the culture and profitability of the whole organisation, but Matt Lawler had been appointed months earlier as AMP Advice CEO, tasked with re-building the licensee business into a sustainable, service-based model.

Inwood noted the licensee research from CoreData showed the work done by Lawler and George has created inroads into the advice profession. “The data is showing us that’s improving significantly at AMP,” Inwood said.

Lawler reflected on when he joined in July 2021 and every indicator in the company was not looking healthy.

“Adviser sentiment was horrible, it was a toxic environment and therefore our people satisfaction was very low as well, [and] we had six incidents that we were working through with the regulator,” Lawler said.

“It was a hard place. People had been beat up for the last couple of years. We set about re-building the business and getting closer to the advisers and we’ve gradually moved the sentiment.”

Lawler said AMP is not back at the level they aspire to be, but it has moved considerably over the last two years.

“We finished a survey where about two-thirds of the network have said they are ‘satisfied’ or ‘very satisfied’ which is a pretty good result from where we were,” Lawler said. “Consequently, our people are feeling better.”

Coming towards the tail end of AMP’s remediation of misconduct, Lawler said the industry should raise its voice on emerging issues and better self-regulate.

“I’ve been in this industry for too long, when things like Storm and Dixon happen people come up to you ‘I knew that was going to happen, I could see this coming a mile off’,” Lawler said.

“If we’re going to be the profession that we want to be, when we see things that are emerging, we need to get together, we need to talk about them and self-regulate because we know if someone else gets to it, we’ve see the impact of it being far harder and far greater than what we would have done ourselves.”

Back to business

Lawler described himself as “passionate about the advice sector” and driven to turn AMP’s advice arm into a standalone, profitable business.

“That’s where I’m coming from, I’m very passionate about the advice sector,” Lawler said.

“I think about the advice sector first, the role that I’m playing now is to make sure AMP plays an important and integral role in that profession.”

Lawler echoed previous comments made by his CEO on the challenges of being profitable as a licensee. “It will be difficult to get to breakeven or profitability on a sustainable ongoing basis… that’s a very similar discussion I have with many licensees around the marketplace,” Lawler said.

While AMP has praised the Quality of Advice Review recommendations, Lawler said it impacts the adviser, and the licensee regime needs its own review.

“[The QAR is] important because we want our advisers to be successful, we advocate for them, but the conversation we haven’t had is there needs to be a review of the licensee framework,” Lawler said.

“Maybe we don’t need the government [elected officials] to do that, maybe that’s something we can do together with the regulators and Treasury.”