Financial advisers are going to have to be individually registered under a new system set to place the troubled profession under a licencing regime which is a lot closer to the system governing doctors and lawyers.
The surprise inclusion of an extra clause in key reform legislation before parliament might just be the best thing to happen to the financial advice sector since the Hayne royal commission.
In fact, the idea has been getting airplay since Hayne cast a cold eye over the existing system which allows advisers to act under a ‘group’ licence: An arrangement which has allowed some of the worst operators in the industry to hide behind the ‘group licence’ which might have been a bank or an insurer.
With financial planners already shell shocked following a wave of educational and ethical reforms over the last year, there will be resistance to the new registration system as some advisers will see it adding further red tape – but the broader plan is to wind down the entire existing licence system in a transition period to 2023.
The new system is spelled out in the Better Advice Bill, which is expected to pass through parliament in the months ahead.
Put simply, the new system will mean single advisers must register themselves and then take sole responsibility for managing to retain their registration annually. The register will be managed by the Australian Taxation Office.
At its best the framework should go a long way towards rooting out the rogue advisers who flogged financial products and flouted rules in recent years.
Better still it should further weaken the traditional ‘approved products’ framework where advisers already working under license at a company would also prefer the products of that company.
Regulators are hoping the partial improvements in the sector which followed the Future Of Advice Reforms will now be accelerated.
Under FOFA advisers had to stop accepting commissions for products they recommended.
As the new regime has become established, advisers are now much more likely to recommend low risk products such as Exchange Traded Funds or even cash since there is no commission to be gained from traditional active fund managers. (Mortgage broking and life insurance remain exempt from commission bans).
“We sincerely hope it will improve the quality of advice across the sector and increase the personal responsibility of every Adviser,” says Dante De Gori, the CEO of the Financial Planning Association of Australia which has campaigned for the change.
Many of the nation’s top advisers are in smaller practices where the ability to hide under a group licence is less of an issue. The Australian recently published The Top 100 Financial Advisers List with Garth Hu of Morgan Stanley topping the list for the second year in a row
The welcome move to individual adviser licences comes as a raft of changes arrive for the wider advice sector.
Another residual issue from the Hayne RC was the need to have a single disciplinary body for advisers.
This issue also seems set to be resolved though this time it is the Australian Securities and Investments Commission not the ATO that gets to do the job. ASIC’s Financial Service and Credit Panel will now rule on all disciplinary matters.
In a predictable move the government has also extended the deadline for advisers to pass the new national exams – advisers who cannot pass the exam will have to leave the industry. The deadline has been extended beyond the end of the year – it will now be September 2022.