Senator Jane Hume has intimated that if it helps move the industry towards a profession, the Government is likely to support individual adviser registration. The Opposition has also flagged likely support.
I think we can safely assume that an individual adviser registration board would be modelled on registration boards in other professions, such as the legal profession, and its role would be similar. It would take over the registration of advisers from the Australian Securities and Investments Commission (ASIC), combine that function with code monitoring, have the ability to discipline practitioners when necessary and provide the most essential service of all, professional indemnity (PI) insurance.
Such a move is likely to reduce the regulatory burden on advisers – and we welcome any reduction in the regulatory burden on advisers. It will be good for the industry and more importantly, for consumers, because it will reduce costs and in the process make advice more accessible and affordable for everyday Australians.
At the moment, advisers are forced to pass on four levels of administrative/regulative costs to clients. These are the costs associated with ASIC, the Australian Financial Complaints Authority (AFCA), the Tax Practitioners Board (TPB) and the Financial Advisers Standards and Ethics Authority (FASEA).
If there’s an ASIC levy, which there is, the adviser has to pass it on – and ASIC has just suggested a 38% increase in the adviser levy for this year.
If there’s a TPB levy, which there is, the adviser has to pass it on. Indirectly, the adviser is paying for AFCA because licensees have to be members of AFCA and pay fees which are passed to advisers and then to consumers. FASEA funding has dried up, because almost all the big companies that were funding it (i.e. the banks) have moved out of financial advice so presumably these costs will be borne by remaining licensees/advisers and again passed onto clients.
The beauty of a registration board that registers individual advisers and manages the code is that it should at least reduce the levels of regulation and therefore, the associated costs in maintaining them. So on that basis we think it’s an excellent idea.
The question is when should this happen?
Financial advice is evolving into a profession, but of course it didn’t start that way. In the beginning, education consisted mostly of some company training which tended, in those early days, to focus on product and sales training. There’s no question that’s changing, but we can’t expect it to change overnight. FASEA has mapped out a course of two years for transition and five years for a Master’s. So, in fact, they have mapped out a seven-year plan, which we support, and we’d suggest a move towards an adviser registration board might be conducted over a similar timeframe.
The next question is who should be on this registration board and in my view, it should not be dominated by academics, as was the case with FASEA, but practitioners from a variety of disciplines, for example, a life insurance specialist, an aged care specialist, a superannuation specialist, an investment specialist and so on, because these are all separate parts of our industry that work hand in hand. What we don’t want is just another level of bureaucracy.
These practitioners would sit on the registration board and work in conjunction with an administrator and a consumer advocate, preferably one who is not disgruntled or disenchanted with financial advice.
In our view, members of the registration board, with the exception perhaps of a paid administrator, would hold honorary positions, with no remuneration involved because that way you would only get people who were genuinely interested in the industry.
What we do not want to see is the Financial Planning Association (FPA), which has recently ramped up the individual adviser registration debate, hijack the agenda and ultimately take on the role of a registration board and code monitoring body, in a desperate quest to remain relevant – because that is what its enthusiastic championing of individual registration looks like from here.
While some organisations will need to search for ways to remain relevant, I don’t think licensees will have to struggle to the same extent – although we may have to find a new name, as we will no longer be in the business of authorising representatives of our licence.
The reason we won’t struggle to the same extent is that the role of the licensee is not going to be duplicated by a registration board. If you look at existing models, registration boards typically don’t educate individual practitioners, monitor their compliance, help them build better practices, supervise new entrants in the industry, or give them a pathway to becoming a full practitioner.
These functions are handled by the firms to which practitioners belong – for example a law firm, in the case of the legal profession. As an interesting sidenote, major law firms in Australia can have many more partners than Synchron has advisers.
To be fair, the FPA has (belatedly) acknowledged, along with other commentators, that in a world whereby advisers are individually registered, licensees will continue to play an important role, fulfilling the many necessary business functions that a registration board will not.
The functions I foresee that licensees will not perform, will be registering advisers (which they don’t technically do now anyway, ASIC does), monitoring the adviser’s behaviour in relation to the code (although they will still be responsible for ensuring compliance) and sourcing professional indemnity insurance (a welcome relief).
Licensees will also have to ensure that they remain relevant. We will also have a larger role to play in helping to move the profession forward by offering advisers the kinds of services they need .
Advice businesses might be built around certain demographics, catering for people in various life stages – from the time they start work and start saving, up to the time when they need to go into an aged care facility.
Licensees might also help advice business to provide more, let’s call it automated advice at the lower levels, and more personalised at the other, as the needs become bigger.
Synchron believes a broad plan for the industry should involve doing what we collectively can to move the industry forward, working together towards anything that makes the consumer better off and reduces the cost of advice. But it is an evolution, not a revolution.
Michael Harrison is chair of Synchron.
