Choose your next licensee carefully

Matthew Smith

By

June 29, 2018

Adviser mobility and education standards are two important factors in assessing quality and the potential risk in joining Australian Financial Services licence holders, new data shows.

Since the collapse of troubled dealer group Dover Financial Advisers in June, advice businesses have been on high alert for signs their own licensees could be in a high-risk category and, therefore, already in the sights of the regulator.

An Australian Securities and Investments Commission spokesperson confirmed for Professional Planner that Dover had been under investigation for more than a year at the time of its spectacular fall; the regulator stated that it would have moved “within a matter of months” to revoke Dover’s licence if the founder, Terry McMaster, hadn’t pulled the pin himself.

McMaster sent an email on the Friday in June before the long weekend, informing Dover representatives they’d need to find another licensee. Many ex-Dover reps have since had difficulty finding a new home.

The Dover collapse throws the importance of choosing a licensee carefully into the spotlight. By measuring key contributors to risk and quality of Australian licensee groups, Adviser Ratings founder and former ratings agency executive Mark Hoven said, it’s possible to assess whether licensees are at high or low risk of failing or attracting attention from ASIC.

Risky business

At the time of Dover’s collapse, 11 licensees were higher on Adviser Ratings’ risk hierarchy than Dover.

The Adviser Ratings risk hierarchy takes into account the average education level of advisers at licensees and the average number of licensees at which advisers have been representatives, among other data, to come up with its rankings.

The risk ranking is based on publically available ASIC numbers and has no qualitative overlay, Hoven confirms.

Hoven said there was a direct correlation between low levels of adviser education, high licensee per adviser averages and disciplinary actions brought by ASIC.

Lionsgate Financial Group, the licensee at the top of the Adviser Ratings risk ranking, declined to comment when contacted by Professional Planner.

Hoven, who previously worked for 10 years at ratings agency Standard & Poor’s, admitted the rankings were imperfect because they relied on data that might not be entirely up to date; however, he stood firmly behind the correlation borne out in the data between licensee risk and education levels/adviser mobility.

Do your homework

Incoming Financial Adviser Standards and Ethics Authority (FASEA) educational requirements will only continue to ensure heightened failure risk at licensees where advisers, on average, have lower education standards, Hoven pointed out.

Meanwhile, the Australian Banking Association’s initiative to share between licensees the reasons for an adviser’s movement shows such mobility is already an issue on the industry’s agenda, he said.

Individual licensing, a plan that’s been put forward in submissions and during the recent hearings at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, would look to address risk factors relating to adviser mobility.

The Dover situation has highlighted the importance of doing your homework before you make the leap of faith to join a licensee, Hoven said.

“Many Dover advisers were surprised by the licence withdrawal, although arguably there were signs earlier with ongoing industry scuttlebutt and the line of inquiry at the royal commission,” he said. “If advisers within the licensee were in the dark about the state of affairs of the licensee management’s interaction with the regulator, the task is that much tougher for advisers on the outside looking in.

“We found poor advice outcomes – defined by bannings, disqualifications and enforceable undertakings – were strongly correlated with licensees displaying lower educational levels and higher adviser mobility.”


TOPICS:   Adviser Ratings,  asic,  Dover,  Mark Hoven

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