Advisers can continue as business owners without FASEA requirement

Advisers who do not sit the Financial Adviser Standards and Ethics Authority (FASEA) exam by the end of the year have an opportunity to stay in the industry by being business owners, according to Sequoia Financial Group.

Michael Butler, head of advice and compliance at Sequoia, said that it was important to recognise that there would be some advisers who were not ready to take on the amount of study and continue in their role while their clients would continue to need the services.

“We are trying to work with our advisers and we recognise that there is a number of advisers who, for one reason or another, will not sit the exam, even though this is in the minority,” he said.

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“We believe that the need for providing advice is only going to grow and we are looking to work with those advisers who don’t want to go on in the advice but who have a successful business, either an accounting or financial planning business, for them to be owners and for those businesses to generate the sufficient income to actually employ an adviser to work within that business because otherwise we won’t  be able to service the clients who need advice.

Butler stressed that the current ongoing changes within the industry were going to impact those clients who could least afford to be impacted such as mums and dads who really need advice.

“We are working to keep our practice numbers up so that we service such clients,” he added.

Commenting on the adviser numbers within the group, Butler pointed out that it was unfortunate that the professional year requirements came to the industry at the same time as the big institutions were on their way out.

“They were probably in the best place to run these programs, but now groups like ourselves will have to step in,” he said.

“We are putting in place programs to meet the professional year requirement but it’s only a small program at the moment because there is not a lot of demand for it but there is a programme that would be able to ramp up as it is required when there will be a need for graduates to come through.

Butler said that for now there were still numbers of people who had been forced out from institutions and were already qualified but this situation would change over the next couple of years.




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The question with a former adviser staying on as business owner is whether that business owner, who may have been the rainmaker for the business for 30 years, has all the client relationships and has been the problem-solver for their clients for all that time can effectively "step back". What if the client wants to double check what the new, younger, more qualified but inexperienced adviser is recommending? Will the former adviser be able to say "I can't provide you any advice anymore, trust Jane - she is all over this." If the former adviser can't step back and is verbally endorsing the advice or putting their own flair on the recommendations, or worst still where the new adviser acts as the former adviser's proxy and puts their name to advice continuing to come from the business owner, we have major issues. Don't get me wrong, there is certainly a place for the former adviser staying on as a business owner and mentor to that younger adviser to ensure that the business is able to continue and clients are able continue to receive services, and we see a clean transition to the new order. The challenge will be adequately supervising and monitoring these arrangements so ASIC, AFCA, the PI insurers and others can't accuse the business owner of providing unlicensed advice.

agree, and the business risk and the industry is littered with these examples, is that the business owner attempts this type of succession, and then the adviser who the clients have been handed to simply ups and takes the clients with them in a year or two, and all the equity value walks out the door. The business owner has lost the relationship with the client and there is no restraint contract in the world, that doesn't allow a client to make their own choice - they see the older adviser/owner has lost interest and/or is near 60, so they naturally go with the younger adviser.

Yep, but I guess in this instance you need to incentivise the incoming adviser in the business' success with an equity based succession plan or something of the likes.

I think we will just see a whole heap of 'adviser by proxy' in reality...

"I think we will just see a whole heap of 'adviser by proxy' in reality..." - that is a scary proposition for an emerging profession subject to the FASEA Code and disciplinary body and all the risk on the poor naïve underling who is getting a wage and says "OK boss, sounds great."

Another question is, how many of these advisers operated under a CAR and may be the only director who has met the TPB criteria for Financial Adviser Tax advice.
From experience, the TPB doesn't check whether there have been any movements of personnel and just keep the now non compliant CAR on the register. So much for their monitoring.
What about if the adviser is the Responsible officer for their small AFSL (remember Hilton)? One would expect that such a position would need to have a FASEA qualified person.

Fin planning will move inline with accounting models whereby you have one licenced adviser in the practice who actually sits and presents the advice to clients and there is a team behind the scenes that actually does the number crunching/strategy formulations. The previous business owners will form part of this team along with a paraplanner. It is too expensive to have a multiple AR's in a practice anyway ($40k+ after software at best) so this model makes sense purely from a profitability perspective. Sure a bunch of peeps will fall off the FAR early next year but that will not mean they have left the industry. The experience will stay hopefully but due to the professional year and the cost of being an AR, there is no way adviser numbers on the FAR will ever get close to 20k again in the future. On another note, do we have any actual numbers yet on advisers and stock brokers who actually provide documented advice or are we still plucking numbers out of the air.....?

So this is now the default option? While it sounds reasonable in theory, without the exam/study/etc it will be difficult to keep the business running when you've been hands on for decades. Clients can see through this and will go somewhere else. This to me sounds more like the dawning realisation that for many advisers there is no plan B.

The problem comes from the "reasonable person". If a reasonable person takes an action, or fails to take an action, that involves the acquisition or disposal of a financial product that is considered advice. This includes almost anything to do with SMSF's, investments and insurances.

Providing that "advice" without an AFSL licence is a serious breach of the law.

Even if it's giving a nod of approval to advice presented by a junior associate I would strongly recommend that you have no assets in your name as the ice you are skating on is wafer thin. Of course if you have no assets and are made bankrupt you can no longer be a company director either which means it gets ever harder to own and run a business.

Not an expert in this area but if I was in this position I would get some very specialist advice before taking on Sequoia's suggestions.

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