Licensees could disregard adviser references

ASIC’s proposed reference checking protocols may present logistical complications given the structural upheaval going on in the industry, but would still allow licensees the freedom to employ a new representative regardless of their background, an industry body has said.

AFA chief executive Phil Kewin told ifa that while the association welcomed the protocols as an efficient mechanism to root out ‘bad apples’ in the advice sector, complications could ensue if advisers were moving from large licensees who were shutting down or completing look-back compliance reviews.

“There’s a lot of movement going on and it’s not all voluntary – advisers are finding themselves moving to one licensee and having to move again due to no choice of their own, so that is increasing the burden on incumbent licensees and those who are leaving,” Mr Kewin said.

There’s also the issue that there won’t be a thorough historical change of information because there are licensees shutting down. Plus the fact you've got mandatory audits and lookbacks, so can licensees give a clean bill of health or is the adviser stuck in their licensee until the look-back and mandatory audits are completed?”


The comments come in response to ASIC’s Consultation Paper 333 released on Thursday, outlining a similar compulsory reference checking protocol for advisers to that currently used by the Australian Banking Association. 

The new protocols are open for industry consultation until 29 January 2021 and are due to come into force in October 2021.

The paper states that a prospective new authorised representative must give written consent to a licensee obtaining their reference details from their current employer. If they do not do so, the licensee is still permitted to employ the representative, although the regulator warns this may be in contravention of their “general conduct obligations” as a licensee.

Similarly, if a current employer gives a negative reference of a prospective representative, licensees are also free to not take this into account, although again this could be against their general conduct obligations, ASIC warns.

Mr Kewin said the degree of discretion given around the protocols would be important in the final regulatory guidance, given licensees may have different motivations for giving adverse references against their representatives.

“We’ve heard of over-zealous licensees going hard on certain advisers, and it may be because of personality or philosophical differences or changing business models, but those advisers have found it difficult to find another licensee because they didn’t get a glowing reference from their departing licensee,” he said.

Centralised reference register recommended

With additional concerns that advisers seeking new employment without their current licensee’s knowledge could be disadvantaged, the Stockbrokers and Financial Advisers Association said maintaining a centralised register of adviser references similar to the US FINRA system would be a preferential option.

“For many years now FINRA has administered a framework under which licensees and advisers are obliged to file reports of any compliance issues relating to advisers,” the SAFAA said in a letter to ASIC commissioner Danielle Press. 

“If an adviser leaves a firm, there is required to be lodged a form which will indicate whether there were any compliance issues in connection with the departure. The information is able to be searched by the public.

“If this is a function that FINRA is able to carry out effectively in the US market, it is difficult to see why ASIC could not do so as an adjunct to the FAR in the Australian market.”

FPA head of policy, strategy and innovation Ben Marshan said the association had flagged similar concerns with government.

“The FPA has raised concerns with Treasury and notes ASIC has declined to create a central register of reference checkers to assist in the reference checking process,” Mr Marshan said. 

“We have also encouraged the protocol to be extended to seek information from professional associations who often also have access to relevant information for reference checking purposes.”

Mr Marshan said the FPA had been involved in the development of the ABA reference checking protocol and was supportive of the measures being extended to all licensees.

“We would encourage all licensees to provide open and honest reference checks, and ensure they follow the proposed protocol when authorising a new financial planner to ensure consumers are protected from unprofessional and non-compliant financial advice,” he said.

Licensees could disregard adviser references
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