Why FAR is not far enough

PhilippaSheehan 80x80ASIC's Financial Adviser Register (FAR) is a treasure trove of information... if you know what you're looking for.

PhilippaSheehan 80x80ASIC's Financial Adviser Register (FAR) is a treasure trove of information... if you know what you're looking for.

I suspect, however, that most consumers spend little time digging around in the FAR fine print to unearth the gems that lie underneath.

For instance, under the 'enhanced' FAR rules introduced last year, the adviser information must include the relevant Australian Financial Services Licence (AFSL) holder and details of which, if any, other entities control that licensee.

In general, I am not sure that the end-consumer really understands that certain brands of licensees are owned and operated by institutions or banks.

The FAR is without a doubt a step up in disclosure, but how many consumers drill down to that level of detail in the register, or understand ownership implications when they get there, remains moot.

According to the most recent ASIC information, there are 23,000-odd financial advisers currently operating in Australia. (The freely-available FAR data actually lists some 40,870 adviser names, of which almost 17,500 are no longer registered. With records dating back to the 1980s, these numbers in themselves paint an interesting historical picture of our industry.)

Just exactly how many of the extant 23,390 financial advisers counted in the FAR belong to non-aligned businesses is difficult to gauge without a further level of analysis beyond my patience barrier. Unfortunately, the ASIC register doesn't provide this search ability as a matter of course.

I know the FAR was designed as a reference tool for consumers – as opposed to a referral engine for advisory firms – but perhaps the distinction between aligned and non-aligned financial advisers is one that ASIC could, well, underline in its register.

Maybe this could take the form of two separate databases: one that covers all institutionally-owned advisers, and another for non-aligned businesses. Or possibly the adviser search results could visually distinguish between the two licensee categories – green for non-aligned, red for institutional... anyone?

Is this too far-fetched an idea?

Probably. But there is a genuine case to be made for better public labeling of institutional and privately-owned financial advisory firms.

I don't think burying ownership details in a Financial Services Guide makes it any clearer for consumers. You are either licensed through an institutionally-owned licensee or via an AFSL unencumbered by ownership links to banks and the like. Is there a difference? Of course there is.

Don't get me wrong: financial planners acting under the auspices of an institution can still offer consumers valuable, objectives-based advice. I have met many professional, client-centric advisers working under the banner of an institutionally-owned licence.

However, no matter how much integrity individual advisers display, when your licensee is an institution your approved product lists are nearly always skewed towards offerings that are owned by or aligned with the AFSL in question.

As someone who has worked on both sides of the fence during my career, I've certainly witnessed the subtle – and sometimes not so subtle – behind-the-scenes pressure to sell house products in institutionally-owned dealer groups.

We need to stamp that fact clearly in the public consciousness – and not just on a register quietly taking up space in ASIC's digital universe.

I believe consumers should know the back-story of the advisory firms they deal with well before they front-up for advice.

I'm sure many clients would be happy enough to receive advice from, for example, a bank-aligned adviser. And, indeed, a certain proportion of Australians probably feel more comfortable dealing with their bank for all financial matters.

However, some institutionally-owned AFSLs don't necessarily wear their allegiances on their sleeves, which is where the issue gets muddied.

The FAR goes some way to clarifying these conflicts within the AFSL system, but it doesn't go far enough.

Ultimately, I think the only way to solve the problem is for the Australian financial advice industry to draw a bright line between the institutional and non-aligned licensees: either you sell product for an institution, or you are a 'financial planner'. A financial planner should be defined as someone who has no ties to banks or institutions through ownership or product ties.

Institutions, naturally, are unlikely to loosen their grip on their aligned advisory groups without a struggle – notwithstanding the recent spate of scandals that have cropped up in some bank-owned advice chains.

But it may be advisers themselves who halt the seemingly unstoppable advance of institutionally-owned licensees. After decades of retreat in the face of cheque-book armed institutions, the non-aligned advisory movement could be making a comeback.

Over the last few years, consolidation by larger institutions of independently-owned businesses has noticeably waned. With luck, the days of FUM-loving banks hoovering up client books are gone, thanks to the best interest duties now embedded in the Future of Financial Advice regulations.

As an independently-owned licensee, MyPlanner has never been so busy processing applications from advisers wishing to leave their institutions for an environment where they can offer advice around structure and strategy rather than product and sales.

The overwhelming feedback we're hearing in the market is that advisers are searching for a licensee that can help them build better businesses around a client-focused agenda. To that end, advisers require a non-aligned licensee to supply them with a range of services such as: documents that support strategic advice (not sales brochures in disguise); collaboration with like-minded colleagues who share their passion for helping clients; bottom-line goals that target gross revenue rather than funds under management; and technological solutions that streamline their business processes while freeing them up to do their real job of spending time with their fee-paying clients.

It's very encouraging to see that the non-aligned message is starting to register strongly once more in the advisory community. Regulators, too, have been making noises about the risks of a 'vertically-integrated' advice industry – it would be a far, far better thing if they also help consumers recognise exactly where the dangers lie.


 

PhilippaSheehanPhilippa Sheehan, managing director, MyPlanner Australia

 

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