I think most of us can agree that for all its foibles, the AFSL regime is a vast improvement on all previous attempts to regulate the financial advisory space.
And despite what my profile picture may suggest, I’ve been around the industry long enough to remember the days before the licensed dealer in securities rules began our ascent into the regulated world.
Without a doubt, the transition from almost zero regulation to the rule-heavy environment financial advisers now operate in has involved a lot of hard work, and a fair measure of pain.
The view from here on the far-side of FoFA, though, almost makes the suffering worthwhile. Advisers now live in a world that has at least some structure and clear rules that govern behavior.
However, the AFSL regime is far from perfect – not necessarily because of what lies within in its borders, but for what has, to date, been excluded.
Why, for instance, has the government established separate licensing systems for credit, and, most-recently, the limited licence for accountants?
This makes no sense.
As well as introducing what must be a note of administrative complexity for regulators, the mish-mash of systems is certainly confusing for consumers.
Instead of creating disparate regions of regulation, why not bring the various financial advice professionals under one licensed roof?
Regardless of the different labels, all advisers already have to do follow similar processes: know the client; make a recommendation in advice documents; note risks and benefits; [make] disclosures.
Surely it’s simpler for everyone to operate under the protective dome of an AFSL with areas of specialisation – such as SMSF or credit – spelt out for clients in the disclosure details.
To some extent this is already the case in the financial planner arena – some licensees have derivatives, some don’t, some have margin lending, others don’t…
From the client perspective, a unified licensing regime encompassing financial planners, accountants, mortgage brokers and so on would be much easier to navigate.
Instead of decoding the multiple licence acronyms floating around the marketplace, an overarching AFSL would serve as a trusted starting point for consumers – who can then establish whether the particular licensed firm fits their specific needs with a couple of simple questions.
As it stands, for advisers such as myself who adopt a holistic financial strategist role, the multi-regime disclosure obligations create confusion for my clients.
(And, as an aside, the multiple licensing systems also push the capacity of business cards to the limit. My card, for example, is at its limit, with obligatory disclosures stating I am an Authorised Representative of MyPlanner AFSL No and an Authorised Representative of a Credit Licence No, and so on.)
But while the differential credit or accounting licensing systems highlight a couple of important holes in the AFSL regime, there is, in my view, a much more glaring omission in Australia’s financial advice regulations.
In fact, a large chunk of ‘advice’ goes essentially unregulated in this country. Under current rules the focus is almost exclusively on the ‘product’ component of advice.
Product recommendations, however, represent only a tiny fraction of the advice process in my business. I spend by far the most time with my clients creating robust structures and setting sound financial strategies.
In line with the ‘teach a man to fish’ philosophy, this approach produces educated consumers who become better-equipped to manage their own financial destiny.
I derive much more professional satisfaction from showing clients how to set measurable goals and objectives than simply directing them towards a financial product.
Furthermore, clients are willing to pay advisers directly for strategies that so demonstrably improve their lives.
I can think of many examples where my product-free advice has changed lives but one of the most recent involves a client who was looking after her two small children while battling through a difficult divorce.
My recommendations entailed reviewing the structure of her life post-divorce – the style of job she would be looking for, the cash flow projections for her new family environment, including relevant Centrelink benefits and a budget for the next 12 months.
Not once during this advice process did we recommend products (although we did mention that once she accepted a position we could recommend relevant superannuation and insurance for her).
Did she pay for my advice despite the lack of financial product? Yes, she did.
Does she pay my ongoing fees, which include a review of her budget every November (before Christmas so we can review spending before it happens)? Yes, she does.
The value we add to her financial journey is immense: we have taught her how to fish.
She is teaching her kids how to fish by instilling in them savings goals and cashflow management techniques. For example, rather than just passively receiving pocket money her children now engage in a real-life conversation about financial goals and budgeting: should you use your money to buy a tuckshop lunch on Fridays? Or do you just buy an ice-cream and put the rest away towards that other item you wanted?
The most fascinating fact about the above process is that none of this technically needs to be documented in a Statement of Advice. Isn’t it amazing that the most valuable, and most time-consuming component of my professional duties does not have to be recorded in one of our core regulatory disclosure documents?
That begs the question whether an adviser has to be licensed at all if they’re not recommending products. Of course, I’m not suggesting that I – or any other adviser – should opt out of the AFSL system based on this apparent anomaly.
But a better solution would be for the AFSL regime to extend its ambit to include all of the activities we may carry out as responsible financial advisers: whether that’s an accountant advising on SMSFs; a broker handling credit enquiries; or, a financial strategist changing clients’ lives with unbiased, product-free advice.
Philippa Sheehan, managing director of MyPlanner Australia
