Just as the NZ financial advisory universe stands on the cusp of a big-bang reincarnation under entity licensing rules, a major Australian industry body is advocating for an end to a similar regulatory system across the Tasman.
Outlining its five-year plan last week, the Financial Planning Association of Australia (FPA) said the current product-oriented advice business licensing regime should be scrapped in favour of individual professional legal obligations.
Under the existing rules, all advisers operate as authorised representatives under the aegis of an Australian Financial Services Licence (AFSL). The AFSL system spawned the controversial Australian ‘dealer group’ model that saw most of the country’s financial product distribution power aggregated in a handful of large entities, often owned by banks.
In recent years, and particularly post the Australian Royal Commission into financial services, dealer group ownership models have been severely disrupted with most banks, for example, rushing for the wealth management exit.
But FPA chief, Dante De Gori, said in a release last week that the current AFSL system has led to complex, overlapping and expensive regulatory layers as well as “potential conflicts between the views of the licensee and the professional judgement of the financial planner”.
“While the AFSL system plays an important role in regulating financial products and services, recent reforms have focused the regulation of financial advice at the individual practitioner level,” De Gori said. “This is an appropriate approach and acknowledges the relationship between a client and their financial planner is a personal relationship, not one between an AFSL and the client. Future reforms to the regulation of financial advice should occur through the professional standards framework and rely on individual registration of financial planners.”
The FPA, which boasts about 14,000 advice practitioner members, restructured several years ago to water down the influence of financial institutions in the industry body.
Under the FPA proposal, all financial advisers would be registered as individuals and accountable to a “single disciplinary body”.
The legal intertwining of product and advice has led the Australian industry through multiple scandals and reform programs almost since the birth of the AFSL system about 20 years ago.
Individual licensing would finally cut the cord between advice and product, De Gori said.
“The regulation of financial advice is currently tied to the recommendation of a financial product, reflecting a history in which a product recommendation was the core component of most financial advice,” he said. “In a professionalised financial planning sector, this is no longer the case.”
Meanwhile, the NZ advice industry is scheduled to shift to an entity-licensing framework next March following a nine-month postponement of the Financial Services Legislation Amendment Act (FSLAA) transitional regime start date. Currently, the NZ financial advice legal regime follows a tiered, product-based approach with only authorised financial advisers (AFAs) required to be licensed as individuals.
FSLAA was designed to bring a much broader range of advisers (20,000 or so compared to just fewer than 2,000 AFAs) under common standards but at the expense of individual licensing.