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What Australia can learn from the United States’ booming financial advice sector

Umesh Banga

In the United States, the advice industry is booming. Buoyant equity markets and fixed income yields have helped swell assets under management (AUM) attracting more businesses to the sector, along with the tailwinds of an aging population and the desire for greater control in volatile markets. Over the past five years, this perfect storm has increased industry revenue to $56.9 billion, including an increase of 7.7 per cent in 2021.

In Australia, we have had the same tailwinds but with a dramatically different result. By contrast, the market size of the advice industry in Australia has declined 5.3 per cent per year on average between 2017 and 2022, particularly as some of Australia’s largest banks exited the wealth industry following the Royal Commission into Banking and Financial Services.

Is regulation to blame?

Here in Australia, we face a different compliance and regulatory environment for financial advisers compared to other markets such as the US. Advisers often focus on compliance costs, impacting the advice given to consumers. For example, the lack of clarity on regulations means that a minor change to a client’s circumstances or their investments could result in hours or days of paperwork. Technology is able to meet these challenges and deliver a hyper-personalised client experience. But due to the burden of compliance, technology and innovation may take a backseat.

Australia has a strong history of regulating the financial planning industry, with the first professional standards introduced in 1988 under the Hawke government. Since then, there have been several sweeping reforms and updates to the regulations, most recently with the Future of Financial Advice (FoFA) Act in 2012 as well as the introduction of the Corporations Amendment (Financial Advisers) Regulation 2016. The amendment introduced new licensing requirements for authorised representatives of financial services providers, strengthened client protection measures, and enhanced adviser education requirements.

As a result of recommendations made in the Ripoll Report back in 2009, new educational requirements for financial advisers were introduced into the legislation by the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 (Commonwealth of Australia 2017), aimed at lifting minimum standards for financial planners in Australia to comply with the legislative framework.

The new regime, effective from 1 January 2019, required all financial advisers in Australia to demonstrate a bachelor degree-equivalent level of education, AQF7, as well as core competencies in ethics and experience as determined by the governing body FASEA.


Meanwhile, across the Pacific, reforms have resulted in a different system of education.

The US has also been through a process of reform in recent years and introduced several measures aimed at improving regulation of the financial services industry, including new rules for financial advisers.

But unlike Australia, in the US there are many financial planning qualifications available, however, there is no requirement to possess a tertiary education with a specific major. Depending on the exact nature and type of financial advice, there are multiple layers of professional licences, with the most common licences held by most financial advisers in the industry.

For example, a Series 7 licence is required for all financial advisers and covers all basic investment knowledge and laws. Financial advisers also hold the Uniform Securities Agent State licence (Series 63) which enables them to work in different states. And to charge advising fees, advisers must also pass the Series 65 or Uniform Investment Adviser Law exams.

The US approach ensures that specific qualifications are available for narrow types of advice. This allows advisers to follow hyper-vertical areas of advice and develop skills that are specific to this. For the industry, this means lower entry barriers which encourages careers in advice.

There is no perfect solution. Unlike Australia, where the Better Advice Bill established the Financial Services and Credit Panel (FSCP) as the single disciplinary body, the US has challenges due to the many regulatory frameworks governing different types of advisers. The US Securities and Exchange Commission (SEC), a federal government agency, oversees the entire securities market with a primary objective of ensuring that investors are treated fairly and honestly. Advisors and firms offering investment advice and managing more than $25 million in assets must register with the SEC and comply with their regulations. For firms managing fewer assets, they’re typically overseen by state securities authorities and must register with the state.

Meanwhile, the Financial Industry Regulatory Authority (FINRA), a non-government organization operating under the direction of the SEC, oversees broker-dealers and all securities licensing procedures and requirements. Any advice firms offering broker services as part of their business must also comply with FINRA regulations in addition to the SEC.

In Australia, the compliance burden makes financial planners afraid of expanding their businesses and investing in technology that streamlines their day-to-day workflow. Innovation has stagnated and creativity has taken a hit as businesses take the approach that it is “better safe than sorry”. This has also resulted in the attrition of advisers as well as bottlenecking and stifling talent pools.

Even with all these variances, and intricacies, the overarching spirit of the law and regulatory bodies talks of one thing across both the US and Australian markets and has the same end goal. The "Best Interest Duty” obligation in Australia and the "Fiduciary Rule” in the United States are both geared towards the fundamental goal of putting the client's interest first. The destination is the same, but the journey is very different in each market.

Umesh Banga, director of advice solutions, Practifi, Asia Pacific