Compliance experts have warned there is potential for the experience pathway to be abused if licensees fail to check whether an individual has the necessary 10 years’ experience, and former employed advisers to face the greatest challenge.
In the experience pathway guidance, it states the licensee has 30 days to file a declaration with ASIC once it has been given to them by the individual and it will be a breach if this does not occur.
However, there is no requirement for them to check that the individual does indeed have 10 years of experience on the Financial Advisers Register (FAR). Nor is there a requirement for ASIC to check whether the adviser has been on the register for 10 years.
Speaking at a Holley Nethercote compliance session, partner Sam Hills said the firm has been receiving questions about what to do if an individual has not been on the FAR for the whole 10 years.
“It doesn’t explicitly require that the licensee go in and make those inquiries or verify that the adviser’s affirmation is true, but they should query if there are roundabout provisions in the Corporations Act that require you to do that digging around. For example, the requirement to take reasonable steps to ensure that your representatives comply with financial services law.
“When someone gives you their declaration, check they were on the FAR during that period and if you can see a gap, then you might want to make some inquiries about that, such as their authorisations for that period to give yourself that comfort.”
As a result, Hills said there is the potential for the experience pathway to be abused by dishonest individuals.
“You would hope there aren’t unethical people, but if there is, then they could absolutely put their hand up and pretend,” she said.
“There’s a risk an adviser could lie and be misleading and that would be a breach of the law and a licensee has an obligation to take reasonable steps to comply with the financial services law.”
As to whether it would be a breach for the licensee if an adviser was found to lack the requisite experience, Hills said it would depend on whether they could demonstrate they had taken those reasonable steps.
FAR registration
The FAR came into force in March 2015 but Hills and Phil Anderson, general manager for policy, advocacy and standards at the Financial Advice Association Australia (FAAA), said licensees did not always add their advisers’ previous history in the early days.
Hills said: “The issue is particularly acute as often a licensee didn’t put them on the FAR for whatever reason so they will be missing from the FAR for that period even if they were authorised and complying with the law, which is where it throws up an issue.”
For Anderson, he flagged former employed advisers will face the greatest challenges in proving their experience as not all licensees added their advisers’ full back history regarding previous employment when the FAR was implemented.
“For most advisers who have only ever been authorised representatives, this is all on the public record. The issue is for advisers who have spent time as employed advisers, keeping in mind that the FAR was only established in March 2015, so there is a significant period of time when there was no register for employed advisers.
“When the FAR was put in place, some licensees went back and added previous history, but some didn’t bother to do anything at all.
“Former employed advisers are the ones who will face the greatest challenges and who will have to think about how they evidence their previous experiences.”
In many cases, if not most, it is nearly impossible to verify an individual’s entire experience as stated in their declaration, especially given the limitations of the Financial Adviser Register (FAR) which only came into force in March 2015. Insisting that licensees verify every detail of an adviser’s experience not only adds unnecessary layers of work and cost but also perpetuates a culture of fear and overregulation.
The responsibility for truthful declarations should rest solely with the advisers themselves. If an adviser lies about their experience and is later found out, there are already sufficient mechanisms within the regulatory framework to address this misconduct.
Calls for additional compliance measures often seem more about creating work for the professional compliance industry rather than addressing real risks. The push for “zeroism” – a state of zero risk and zero errors – is unrealistic and counterproductive. Exaggerating fears about potential dishonesty only serves to complicate and burden the system further.
It’s time to focus on practical, reasonable steps rather than succumbing to fear-driven demands for excessive regulation. Let’s stop the nonsense and allow the system to function effectively without unnecessary impediments.