Proposals from the Financial Services Council latest green paper in advice haven’t been dismissed but some in the profession are sceptical of the motives behind the policies.
The FSC released The Value and Future of Advice Licensing green paper this week, which recommends introducing an adviser skills and performance registry, an accreditation framework for third-party compliance service providers and a tiered licensing framework.
But Sean Graham, managing director of compliance firm Assured Support, said that while the paper posed “some great questions” it also represents revision from the “top of end of town”.
According to Graham, the FSC has “misremembered the Hayne royal commission”, forgotten the conflicts and cultural failures in the industry and ignored ASIC’s criticism of large licensees’ ineffective compliance arrangements in Report 515.
“I recall the Hayne royal commission slightly differently to the authors because I remember its focus on licensee management and their errors, omissions and mismanagement,” Graham said.
“In fact, this context seems to have been entirely overlooked in a paper that heralds the transformation of the ‘financial advice industry into a profession’ while lamenting ‘increased regulation and compliance costs’ without acknowledging and accepting responsibility for their contribution the failures and conflicts that required ‘increased regulation and compliance costs’.”
Graham added that it is ironic that the solution proposed is more regulation and increased costs.
“I can only presume the statements that ‘larger licensees provide more extensive support to their practices for meeting compliance obligations’ and the recognition of ‘the more stringent oversight imposed on larger firms’ is more aspirational than gaslighting,” Graham said.
“But they are observations that need to be critically considered in the context of consumer harm and the capability, conflicts and competence of the licensee’s ‘compliance resources’.”
Despite the council’s agenda, Graham said there are good ideas in the paper and that his firm is “thrilled” the FSC has echoed their call for a public register of responsible managers.
“To its credit, the FSC seems to want to extend that register to include the management teams of licensees as well,” Graham said.
“That’s a significant extension, but I respect their ambition. Why should the executive managers who created the arrangements that led to the misconduct escape responsibility for their decisions?”
The Financial Advice Association of Australia declined to comment, saying they were yet to review the policy paper in detail.
Tony Gillett, a director and adviser at self-licensed practice Retirewell and an executive committee member for the Boutique Financial Planners association, said that he sees merit in the ideas but was cynical of their source.
“Because of their size [the FSC] were able to get the ear of government,” Gillett said.
“They’ve never been a friend of the adviser or small AFSLs. With that cynical view I look at what they propose.”
Traditionally representing retail super funds and asset managers, the FSC has since grown to include membership from major licensee groups Entireti, WT Financial Group, Count, Rhombus Advisory and Infocus.
But Gillett said he was supportive of some of the proposals, saying it was a good idea to move more responsibility to the adviser as well as introducing the multi-tier licensing regime.
“That is a good idea so I can support them in that but then that decreases their risk and therefore cost and liability,” Gillett said.
“But the adviser has then got to stand up do all the right things, be accountable and responsible. I can support that.”
Gillett said the higher licensing standards would also prevent the “phoenixing” noted in the report where individuals with compliance failings leave a licensee and go on to re-establish themselves under a self-licensed or smaller licensed entity.
“I believe there should be some changes to ensure the liability and the responsibility remains,” Gillett said, noting the impact smaller AFSLs that close up shop has on the Compensation Scheme of Last Resort.
“Just because they resign their membership of AFCA, they had in their licensee and they’re free and clear. My cynicism towards the big end of town – they’re coming at this with largely good intentions but they’re trying to diminish the ability for future competitive growth among small AFSLs.”
AdviceIQ general manager John Sullivan, who leads a co-operative licensee model with 18 advisers, said different advice practices have different needs and they endorse a system that provides a range of licensing options which includes self-licensing.
Sullivan was also a former head of Macquarie’s practice principals’ community, the Virtual Adviser Network.
“We applaud any initiatives that seek to improve outcomes for clients of financial advice but would be wary of reforms that come at the cost of reducing licensing options that legitimately cater to different licensing needs or overly favour larger licensees without a solid rationale,” Sullivan said.
