Licensees should be obligated to a best interest duty in the same way as financial planners, according to the Financial Planning Association (FPA).
In a submission responding to the interim report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the FPA has pointed to a difference in attitude between licensees who are actually managing in the financial planning space and those who are not.
The submission said that while licensees provide a number of services to planners and assist with recruiting advisers with adequate education, integrity and ethics, more could be done in this area.
“While licensees are obligated to verify that authorised advice providers meet relevant education, ethical and professional obligations as part of their onboarding process, the FPA believes there is a role for independent third parties such as professional associations to be involved formally as a check for any past disciplinary action taken against the adviser by the regulators and professional associations,” the FPA submission said.
“Based on member feedback, employers tend to facilitate a more communal environment, engaging with clients more personally where clients’ best interests can be placed first; whereas a non-employer licensee functions more as a financial service provider and compliance advocate,” it said.
“In saying this, often financial advice practices non-employer licensees authorise which form part of the communities they operate in often have the closest personal relationship with the client. This suggests there are differing levels of influence on ethics between non-employee and employer licensees based on their ability to set day-to-day culture and ethics under employment arrangements, although as noted in the Commission's interim report, this does not always lead to perfect consumer outcomes.”
The FPA submission said that licensees broadly could have a stronger influence for change and should be appropriately obligated to function as an advocate for ethical behaviour rather than solely a financial service provider.
“While licensees already have obligations around ensuring their representatives meet the best interest duty and have conflicts of interest management in place, the FPA recommends that ideally there would be an obligation to facilitate a culture of ethics and integrity. A best interest duty on licensees under s 912A may assist in this regard.”