Debate has raged over the value and sustainability of the licensee model over recent months, with some advisers arguing that the Australian Financial Services Licence (AFSL) system plays a significant role in driving up the cost of advice.
PlanningSolo founder Jordan Vaka is one such critic, saying that while it is not an indictment of individual people or licences, it is a “structural and systemic issue that suppresses, infantilises and increases the cost of financial advice in Australia”
“For the QAR to talk all of a sudden, pivot to affordability of advice and never touch on the cost of licensing, is a complete joke. Makes the whole thing irrelevant to me. It dismisses the entire discussion,” Vaka said.
Speaking with ifa last year, Connect Financial Service Brokers chief executive Paul Tynan also took aim at the licensing regime, calling it “one of the roots of evil” in the advice profession.
“If I’m an accountant, I don’t have to work under a dealer group. If I’m a doctor, I don’t work under a dealer group. If I’m a journalist, I don’t have to work under a dealer group,” Tynan said.
“Why is financial planning the only profession that’s gone down this route under corporations law?”
However, according to Lifestyle Asset Management director and head of strategic planning Scott Heathwood, the argument over whether self-licensed versus a licensee is moot.
“Where I think people are missing the point is that the argument seems to be very much couched in either or, and it doesn’t need to be either or,” Heathwood told ifa.
“The reality is the people have always had the opportunity of being self-licensed. The first time we were self-licensed was 1999.
“The reason I became self-licensed, and having had a couple of dealer groups in the ’90s, was that I was sick of the arbitrary imposition of silly rules and dictates from the licensee. And I wanted to control my own destiny. It wasn’t about cost or anything else. It was just that the overarching compliance regime that these guys were imposing wasn’t sensible, didn’t reflect, didn’t reflect the law.”
In Heathwood’s eyes, an advice firm deciding to go down the self-licensing route is a business model decision.
“In the same way that you could be self-licensed and a single practitioner or have a partnership, it’s a business model,” he said.
“A dealer group-type model is maybe a glorified franchise model, for want of a better term. It’s a way of standardising certain things, certain operating practices, certain issues around the regulatory environment.
“I mean the bigger ones, for instance, strictly control the products and services that you can offer, which is a bit like a franchise controlling the products and services that their franchisees are offering.”
While he understands that there is “a lot of anxiety” from advisers around which model is right, Heathwood ultimately isn’t sure it’s “relevant” because the option to become self-licensed exists.
“They can make their own evaluation about whether it’s cost effective, or they can evaluate which of the licensees might suit their own business model,” he said, adding that the argument should not be about whether you should be self-licensed or not, it should be “how do you leverage your position?”
“What’s your business model look like? Does your single stream focus support you just being self-licensed? And it might, I’m not saying it doesn’t, and if it does, happy days go for it. If that’s how it works out for you, then I think that’s a great thing, and people should do it.
“But you still need an approved list. You still need your professional indemnity insurance, you still need to do an audit, you still need to make sure that your team’s complying with the rules. Someone has to be across it. There’s got to be a person across all of those issues, and the more people you’ve got in the organisation, the more salaries you’ve got. It’s as simple as that.
“The days of just being a single sort of operator, I think, are probably beginning to vanish.”
He added that beyond simply being in favour of advisers having the option to be self-licensed, he believes it “keeps everyone honest”.
“We’re a licensee, my core businesses is selling licensee services. I like the fact that there is options,” Heathwood said.
“I can tell you, we’re not for everybody. We’ve created a business model that suits some people but doesn’t suit everyone. At the first interview, I tell people not how we’re good, I tell people who we can’t help. I just want to make it clear to people that we’re just not for everyone.”
Advisers do not need an Approved Product List. This is something created by conflicted AFSL to provide cover for ansuring their advisers recommended their own products.
I took part in the QAR consultation (if you could call it that). I was one of 4 advisers at the session I attended. We all pleaded with Levy to recommend scrapping the AFSL requirement for financial advisers. She couldn’t have been less interested and didn’t seem to have any idea or sympathy about the costs and enormous impositions placed on financial advisers under this model. She flippantly said, ‘if it is such a problem, why don’t you go and get self-licensed’, or something to that effect.
I was gob smacked and stewed on it for a while. Then I took her advice and set up my own AFSL. It is the best thing I have done since starting my own business two decades ago. There were some upfront costs and it took a bit of work (about a month of weekends, and I cleared my calendar for 2 weeks to bed things down), but the compliance consultant I engaged did all the heavy lifting and it was much easier than I imagined. I am now saving time and money, and my processes are much more client friendly. Yes there are extra things I need to do, but this is more than offset by freeing myself of the bureaucracy and overreach from the dealer group to which I was previously attached. I have new software and less risk in my business. I feel much happier. My clients and referral partners are happier, and I can service more clients.
But I agree with Tynon and Vaka. The AFSL regime is ridiculous and incompatible with a profession. It should have been thrown in the bin when FASEA released the exam, code of ethics and educational requirements.
I agree with Scott Heathwood in his view that aLicensee is, in effect, a franchisor. It’s a useful metaphor to explain the inherent risks and obligations. One critical point that is often missed is that the Licensee also functions as a “Guarantor” providing a measure of consumer protection and reassurance (in terms financial resources and service quality). If you review the FSCP Register, you’ll see a number of advisers who struggle to comply with relatively simple obligations. A competent Licensee excludes the inept and incompetent and supports its representatives to meet and exceed these requirements; the best do this in a way that frees and enables its representatives to be better and more consistently profitable. There are inept and incompetent licensees, but for Mr Vaka and Mr Tynan to suggest that all advisers can manage complexity and compliance without assistance ignores the weight of history that suggests otherwise. In the absence of a strong and effectively self-policed profession, Licensing fills the gap and ensures that minimum standards are met and that their agents act consistently, predictably and in line with their legal obligations. Don’t compare apples and oranges, in Law and Medicine, the profession itself provides the consumer guarantee and assurance of quality. If you review the banning and enforcement actions you’ll undoubtedly conclude that while financial advice may be an emerging profession it’s not yet ready for unfettered self-regulation. Personally, although I like Thoreau, I that that the solo adviser working alone and unaided to lead the profession and improve lives is dangerous myth; there is simply too much complexity to fly solo. No adviser is an island.
The profession has moved on. With higher quals, the exam and code of ethics, dealer groups are no longer needed.
The number of fscp issues is remarkably low compared to other professions, and the system appears to be functioning well.
Financial advisers have enough red tape and compliance to deal with without dealer group leaches adding another layer on top.
Unfortunately there were too many licensees at the table when they were debating whether the licensing model was required. Of course they were all stating they were going into bat for the advisers, but lets be honest, that would be doing them out of a job.
Those with a vested interest that are connected to advisers in this industry just continue to take take take and then pretend they care about the costs of us doing business. Hypocrisy at its finest.
Despite clear robust empirical evidence provided in 2018 that the current AFSL-AR model is illegitimate, and financial advisers support being licensed as individuals similar to other true and accredited professions (doctors, accountants and lawyers), the Australian Government, ASIC, AFSLs, ARs and related parties with their own vested interests in the current illegitimate AFSL-AR licensing model ignored the findings of this research as published in the UK by Routledge: https://www.routledge.com/The-Regulation-of-Financial-Planning-in-Australia-Current-Practice-Issues-and-Empirical-Analysis/McInnes/p/book/9781032089805. WHAT A PITY?
I regret Dr McInnes is being a little disingenuous with her comments.
When she wrote “ignored the findings of this research as published…”. She should have written “ignored the findings of my research as published…”
I regret Dr McInnes, by using words such as “illegitimate”, adds heat and not light to the debate. Since the formation of the concepts and structures extant in the financial planning industry were created after a great deal of consultation and discussion (Who remembers CLERP 6?) by the lawful parliamentary process – the “current AFSL – AR licensing model” is hardly illegitimate. She (and others) can legitimately (there is that word again) criticise the existing structure based on any number of reasons but to say it is illegitimate does not advance the debate an iota.
If “the current illegitimate AFSL-AR licensing model” has survived numerous changes in the Government, Royal Commissions, and various product selling scandals surely it is an example of Chesterton’s Fence (https://fs.blog/chestertons-fence/ )?
illegitimate is a poor choice of word. Outdated, flawed, regressive and standing in the way of the profession thriving is much more on point.