If self-regulation is a bridge to far for the financial planning industry, at least for the time being, then a co-regulatory model might be an achievable step in that direction in the shorter term.
The majority of respondents to a Professional Planner poll in January said that self-regulation for financial planning is not a realistic goal or, if it is a realistic goal, it isn’t realistic just yet.
Read “Is the industry strong enough to embrace real self-regulation?”
A co-regulatory approach to governing financial planning was placed firmly on the agenda last year when the Financial Planning Association of Australia (FPA) for the first time explicitly linked restricting the use of the term “financial planner” or “financial adviser” with membership of a recognised professional association.
Such a move would potentially open to door to regulation of the financial planning profession jointly by a professional association and the Australian Securities and Investments Commission (ASIC).
The FPA had previously advocated restricting the use of the terms, and legislation was drafted by the previous government to restrict the use to individuals engaged in the provision of personal financial advice. That legislation did not make it to the Senate.
Submission
In a submission to the Senate inquiry into the performance of ASIC, the FPA went a step further, and recommended only individuals who are members of “a regulator-prescribed/recognised professional body” be allowed to use the term.
In its submission, the FPA quoted ASIC licensing data showing that there are 5027 Australian Financial Services Licence (AFSL) holders, and 51,147 authorised representatives of AFSL holders who are “licensed to provide ‘financial product advice’ as defined under the Corporations Act”.
This number included “bank tellers, product provider call centre staff, financial advisers, or fully-fledged financial planners”.
It added that of an estimated 15,000 to 17,000 “financial planners” in Australia, about 10,000 are members of the FPA itself and about 2000 are members of accounting professional bodies, leaving as many as 7000 financial planners “providing financial planning advice to consumers without a requirement to comply with the additional standards of ethics, conduct and education” provided by a professional association.
Added protection
The FPA said co-regulation of financial planning by a professional body and ASIC would deliver added protections to Australian consumers of financial advice, and that “mandating professional membership in the law will ensure providers are obliged to adhere to professional obligations, which will broaden the reach of the overall regulatory system and strengthen consumer protection”.
Appearing last month before the Senate committee conducting the inquiry, the chief executive officer of the FPA, Mark Rantall, said that ASIC’s role as regulator “extends beyond the financial services sector to govern all corporations and companies”.
“While the FPA’s submission draws on our experience as a professional body in the financial services sector, the issue we articulate and the recommendations we propose offer regulatory enhancements and efficiencies for all industries governed by ASIC,” he said.
Most valuable role
Rantall said a co-regulatory role between ASIC and a professional association such as the FPA “will support and redirect the regulator to focus on its core and most valuable consumer protection role of preventing and prosecuting matters of dishonest and fraudulent conduct”.
“The FPA submits that, with a closer two-way working relationship and collaboration with professional bodies, ASIC could more effectively discharge its legislative mandate to support investor confidence, freeing up the regulator to enable it to expand its legislative responsibility into areas currently lack regulatory oversight,” Rantall said.
