Under changes proposed by the government, financial planners will be required to register with the Australian Securities and Investment Commission from next March. They will need to provide details of their educational qualifications, experience and any complaints lodged by clients.
The government has made determined efforts to wind back red tape through the amendments to the Future of Financial Advice reforms. However, a register will just create further compliance requirements without being of much benefit for clients. Until reforms are made to better align interests between adviser and clients, we will not see any real change within the industry.
A register is unlikely to weed out rogue advisers
A register is unlikely to overcome the problem of identifying “rogue advisers”. This issue has continued to plague the industry because of the failure by ASIC and financial services firms to tackle the systemic conflicts of interests between planners and clients. The successful performance of individual planners is still directly related to a product sales culture.
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While the register is a step in the right direction, it will be valueless without strict registration requirements and enforcement. Currently, the registration requirements are vague and the corresponding penalties for any breach are very unclear.
If removal from the register is the only penalty, it may give the impression the government is assuring the community that registered advisers can be trusted to give appropriate advice. This is unlikely to actually be the case.
Challenges to industry reform
The difficulty for clients is finding an adviser who is committed to their best interests. No legislation, education qualifications or experience can overcome a culture of “product selling”.
What is needed is a client-centred industry. Both individual advisers and their organisations need to work in a culture where ethics and professionalism are valued, maintained and delivered. This requires a huge cultural shift from product advice to strategy advice.
While education goes part of the way in achieving this goal, fundamentally this must come from the licensees and advisers themselves. The problem is complicated by six large licensees controlling 80% of the financial advice industry. Many clients fail to appreciate that if you seek advice from one of these large institutions, most likely your funds will be placed in their internally branded products.
The industry is further complicated by the variety of individuals giving unregulated financial advice. In direct real estate investing, advice on gearing, investment returns and taxation is often freely given with little controls or oversight.
The proposed register will not overcome this problem since real estate salespersons are not considered financial advisers and are not included in its scope.
So is it possible to gain truly independent and transparent advice? In the current environment this is difficult and perhaps word of mouth and personal recommendation is still the client’s best friend.
When a registration system works
There are examples of registers that have been successful in improving standards across an industry. The Tax Agents Register is administered by the Tax Practitioners Board and has very specific education and professional registration requirements. Registration must be renewed every three years.
Tax agents must provide evidence of professional indemnity insurance and the professional development undertaken during the period to maintain their registration. Any non-compliance results in removal from the register and hence the inability to practise.
A similar regime would need to be applied to the financial planner register if it is to have any credibility.
Current indications are that the register will include any complaints or offences committed by the adviser. However, what the industry needs is for these advisers to be struck off the register and unable to practise.
The whole success of the register will also be dependent on the funding and resources allocated to ASIC to monitor and continually update the register. Without ASIC’s active involvement, the register will not be credible and is likely to become a “toothless tiger”. What consumers don’t need is just another list of financial advisers which offers no real value.
Sharon Taylor does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.