When FSR was implemented in 2004, the institutional dealer I was licensed under decided (in their wisdom) to extend the data gathering process to a 37-page form.
They also reduced the approved product list to very few useable products in the retirement space (those manufactured in-house of course) and pigeon hole people with poorly thought out risk questions to ensure just about everybody was a “balanced investor”.
This simple ‘tick the box’ approach necessitated 50-75 per cent of retiree assets placed on the one day to share markets at what was increasingly evident to be inappropriate.
On reading the ASIC regulatory guides (especially RG90) it was evident that ASIC required advice to retail customers to be “clear, concise, fair and effective”.
Advice that had a reasonable basis was not that onerous in theory, but it was incredibly difficult to deliver within a large licensee catering for the lowest common denominator, coupled with a fair slice of product nepotism.
I thought ‘there must be a better way’, and there was. With a little help from consultants, an AFSL was obtained in 2005.’
There were plenty of issues to deal with.
First there was the ‘we own the customer’ issue I faced when resigning from the dealer group I was a member of. There was also cash flow interruption and the loss of ‘Buyer of Last Resort’.
Then there is the fear of vexatious reputational damage and burden of professional indemnity insurance, which might have been better in a larger group where we could share the premiums.
But after a six-month embargo, service as an adviser was resumed, cash-flows were re-established as was client facing documentation that adhered to the actual rules and also the spirit and intent of what ASIC and many others were trying to achieve. In the end, it was worth it.
So maybe it is time to roll out this model more widely and make it easier for self-licensing to occur.
Maybe it is also time to rethink the idea of product manufacturer as licensee. You wouldn’t put Dracula in charge of the blood bank after all.
It is understandable that ASIC would want to wield a big stick to a thousand licensee representatives with one blow as opposed to substantial resources chasing thousands of licensees.
But the ability to advise the general public by listed corporations comes with collateral damage. Pressure of shareholder returns will always be paramount. Therefore removing AFSLs from listed corporations ultimately should occur, albeit with plenty of notice.
With the professionalisation of the industry, ASIC and the government should make the process of self or small group licensing less onerous.
Achieving independence, trust will be regained and leads will surely flow. There should be no compelling reason to restrict a cabal of like-minded, educated advisers obtaining an AFSL.
The future looks good for independent advisers.
Phil Davies, Liquidity Independent Advisers
I’m a micro firm and self-licenced for 10 years after being a “required person” and/or responsible manager of AFSLs previously and I agree wholeheartedly with Jason and Michael’s comments – and with much of Phil’s article. ASIC needn’t make it easier to get an AFSL – it should be onerous and the consumer deserves the protection afforded by (but by no means guaranteed by) strict requirements, and (what could be far greater) scrutiny by ASIC which needs far more funding. I also call for a fidelity fund to be set up with a levy of (say) 0.5% to 1% of revenues and it could be managed by a board comprising ASIC and industry representatives (in that process we could teach them and they could teach us a little of each other’s cultures) and it would go a long way to creating and maintaining consumer confidence by topping up consumer compensation where needed (after PI cover and compensations ordered as a result of civil actions.
Recently became self licensed this year and I am not looking back. Personally I am happy with the very strict process, level of education required and background checks ASIC carried out. Perhaps this is why self licensing needs to be the future. Whilst time consuming process initially I now do not have the ridiculous dealer groups fees to pay. The only people who think running your own licence is time consuming are large dealer groups themselves. Since FoFa legislation Advisers take 100% of the blame with best interest obligations. Not the dealer group. It’s the advisers head on the chopping block not the licensee. With FoFa and Opt in, the adviser copes the fine. Large dealer groups, with their conflicted payments, are living on borrowed time and like minded advisers coming to together to form small pods or just small firms becoming self licensed is the only way that financial planning can become the profession it needs to be
Phil
we have enjoyed having our own license since 1988 and are only relatively small.
Its not onerous but we would get a much better deal for PI if we were part of a dealer group.
Make FOS decisions appealable, and open to marginal claims costing a claimant money, and PI insurance cost would likely reduce overnight.
The rest of ASIC’s requirements are not really that hard and you can manage it all for under $20k p.a.
The bigger problem with ASIC is getting them to expand your license form what you have previously done. ASIC are by default supporting the status quo and reduced competition and innovation.
Agree that parties should be a product distributor or manufacturer. You don’t go to Macca’s to buy Subway yet we are supposed to accept that someone paid by open insto is going to recommend another insto product because its better for you.