The Financial Advice Association Australia (FAAA) is hopeful that it can achieve co-regulation in the financial advice industry by 2030.
Last week, Money Management reported that questions have been raised regarding the current AFSL regime and the role that licensees have to play in monitoring advisers.
Meanwhile, the FAAA has been increasingly vocal about its push for the advice profession to become self-regulated, which is one of its key strategic objectives.
As per the FAAA’s policy platform, the association is committed to the “continued professionalisation of financial advice”. In particular, this would mean that financial advice becomes recognised and operates as a self-regulated profession.
Unpacking this further, the FAAA stated via its website that the profession itself should own the management of:
- Education standards and professional training
- The code of ethics
- The disciplinary regime
FAAA chair David Sharpe told Money Management: “Our strategic vision by 2030 is to have co-regulation and maybe a few years after that we move towards self-regulation. That’s how every other profession works. Every other respective profession controls their own standards.”
Speaking on a recent FAAA webinar, chief executive Sarah Abood explained that part of a co-regulatory model means reducing the functions that government bodies, such as ASIC, perform for financial advisers.
“When we are looking out to 2030, whether [self-regulation is] achievable within that time frame, we’re unsure. But we need to at least make the first step in that time frame, which is pulling back more the functions that government, ASIC, Treasury and so on are performing; back to being controlled by the profession, as they are in other professions. We need to get to co-regulation first as a step on the journey to full self-regulation,” Abood commented.
What would co-regulation look like?
Sharpe spoke with Money Management about what a co-regulated advice profession could tangibly look like in the future.
He referenced the standards and licensing arrangements of other professions, such as law and medicine, and what financial advice can learn from them.
“We think the profession should take their standards back in the medium term. In terms of guidelines around the practical implementation of advice, who better to do it but actually advisers to set that standard? That’s how law does it, that’s how medicine does it, that’s how accounting does it. They control their own standards – it’s not set by bureaucrats who really don’t understand advice at all.”
In a hypothetical world where advice is self-regulated, practice standards would be set and upheld by advisers themselves, rather than the corporate regulator, he said, as well as the code of ethics.
“You would obviously have legislation set, but in terms of practice standards, it would be set by the profession itself and held to account by advisers.”
Moreover, Sharpe argued many of the legislative terms used in advice today are created by lawyers, which can have an adverse effect on the industry. He used the new class of “qualified advisers” as an example, which has been widely debated and criticised due to its current wording – though this is set to change.
“The code of ethics is one that we should have some control over, because the way it was written was by lawyers. It wasn’t written by financial planners and they put terms in there that don’t actually make sense in financial planning because they don’t actually understand the profession. They’re using legal terms.
“We even saw that with the qualified adviser terminology. That’s a very legal term. If you’re a lawyer, you know what qualified means. If you’re a consumer, being qualified means ‘I’m trained up’.”
Last week, Jenny Rolfe-Wallace, founder of Sprout Education Group and former adviser, questioned whether the AFSL structure is necessary for a true profession. She recognised the significant differences in the way that advisers are licensed compared to other industries.
“Everyone is talking about financial advice being a profession now and other professions don’t have anything like this at all. If you look at engineers or accountants or medical practitioners, there is regulation and there is licensing, but there’s not a licensee structure,” Rolfe-Wallace said.
Abood agreed with these comments, noting that “the current licensing regime has challenges and needs improvement”.
