At a PJC inquiry hearing in Sydney last week, committee chair and Coalition Senator David Fawcett raised questions about the appropriateness of the current dominant model of outsourcing licensing to a dealer group or licensee.
“We’ve had the proposal put to us on a number of occasions that we should be moving towards individuals holding licences and being individually accountable for the quality of their advice and their conduct, as opposed to organisations holding licences,” Senator Fawcett said in questioning outgoing FPA chair Matthew Rowe.
Speaking to ifa, Senator Fawcett made clear that the line of questioning is “not an indication of how the committee might go” in terms of recommendations, but at the same time said a return to individual licensing is not off the table.
“If one of the concerns that is being raised is the conduct of individuals, then the question is ‘how do we best ensure that an individual takes responsibility for their own actions?’ and as you look at other sectors – such as aviation, for example – individual licensing can give the regulator greater ability [to regulate the sector],” Senator Fawcett said.
“The committee is seeking views from industry players about what views there are about individual accountability – it is one possible path – but we are still at evidence-taking phase.”
Committee deputy chair and Labor Senator Deborah O’Neill has also expressed interest in hearing views about various licensing framework options, saying in the PJC hearing that she is concerned there may be a “structural impediment to ethical behaviour” in the status quo.
However, Senator Fawcett explained that while a recommendation to change the licensing model for advisers is not outside the “terms of reference” for the current PJC Inquiry into “professional, ethical and education standards in the financial services industry”, a full risk assessment would accompany any such proposal.
“We are extremely conscious that every time there is a suggestion of change, consumers incur costs and we are acutely aware of that and we are seeking evidence that is in the best interests of both industry and consumers,” he said. “We are not about wholesale change for change’s sake.”
Submissions to the PJC inquiry closed on 5 September and the committee has not yet nominated a due date for its report.
Cost seems to come up constantly. Surely the costs can be minimised.There are existing self-licensing models internationally. Why not draw on the medical, accounting and legal professions. How do these professions afford the costs of self-licensing? You never hear they complain about the cost of being self-licensed?
Yes! “great let’s stop talking about it and do it” If the senator seriously believes what he has stated…We are extremely conscious that every time there is a suggestion of change, consumers incur costs and we are acutely aware of that and we are seeking evidence that is in the best interests of both industry and consumers……., then he & the committee should seriously listen to the comments of advisers who would prefer an individual licencing regime with lower operating costs than those that currently prevail with no real value for money certainly for the CFP educated/long term planners who don’t need to be molly coddled by dealer groups to justify their existence.
great lets stop talking about and do it
Short answer is to make individual advisers accountable along with AFSL which FOFA has started to do
Good point Wondering but I imagine over time existing dealer groups would “morph” into service providers to the smaller licence holders providing compliance, audit, research. perhaps even aggregate for PI insurance?? etc – really just like they do now except they would not hold the licence.
With all the individual licensing supporters, no one has mentioned about those individual AR’s that would still be individual self licensed advisers and there would be a lot of them, how do they and all the other smaller licencees go about vetting and selecting their Approved product list, or if they use any and all available products, how do they do the product research to check they have done all now required to ensure that the product is reasonable etc etc. As I understand it you are not now allowed to rely only on your product research from your dealer group you need to be able to prove you provided the right product to your client. How would this be managed and at what cost?
Thanks for thr comments B26354. I pay what they asked for in the first place so I don’t know whether it’s peanuts or not. I never hear from them from one year to the next except for the annual audit.I have never heard of any “service” they provide. I complained once to them about Kaplan not supplying answers to their exam questions and they said they’d chase it up about two months ago. Maybe I’m on the lower rung after 43 years in the business – ha ha
Merv, it sound like you are not having a good time with your dealer group. I have a great relationship with mine. I looked at getting my own licence a few times to save the money, but with all the ASIC enforcement actiity and the fact that it would cost me a bomb to bring the expertise in house to ensure I’m doing everything correctly, I’m happy to pay the split. I keep them working of course but a recent complaint (frivolous by the way) would have wasted probably 100 hours of my time. The DG took care of everything and it cost me nothing. Thank the gods. Anyway, I’d say shop around. But if you pay peanuts you get monkeys (I’ve been there as well). If you want the full service and are prepared to pay for it, they can be well worthwhile.
It wouldn’t be all that hard funding PI for individuals. Even if we doubled what we already pay and deducted that from what is deducted from our commissions by the Dealer we’d still be a long way in front. In fact if we had to pay for own audits like Accountants, and paid what they do, ASIC could employ 200 auditors to audit all of us once per year and then there would be enough to pay their salaries and about $30 million left over. Do the sums. As advisors we’d still only be paying less than half we do now to the Dealer for which we get a computerised commission paying system which can’t even add up.
Would be a great way of getting rid of a lot of the used cars salesmen out there.
We have our own license so of course its in my interest in culling the competition!
But greater control of advisers will be gained by making them employee representatives of the licensee.
[quote name=”Lynn Medina”]I hope that logic prevails. The proposal for individual licensing should be given serious consideration as it will help weed out the bad apples and reduce ongoing licensing costs for the good apples, with a flow through benefit to clients![/quote]
Agree Lynne, at risk of a multitude of ‘thumbs down’on the comment I would like to add that the risk of logic not prevailing will be significantly higher if Mr Shorten manages to get back into power in the forseeable future!
[quote name=”anti V-I”]Les, sorry i mis-spoke, not suggesting the govt would subsidisse or anything but if the govt legislated a move to individual licences then a market would likely emerge to provide mroe competitive services to help reduce the costs of running a licence, such as practice management and custodianship. we all thought fee for service would be impossible but the market has largely stepped in with things like software, automation etc[/quote]
Dont get me wrong, I am pro self licensing (am self licensed) My comment is no doubt tainted given the high costs of compliance we have to endure. Also very frustrating that the VI models are subsidising the cost of compliance for their AR’s
[quote name=”Edward”]Although I like idea of individual licensing, I fear that PI insurers would have too much dominance over the market and deliberately increase the cost of premiums 10 fold just because they can. …individual licensing regimes to make it a fair and level playing field for all “honest” and complaint/claim free advisers, one of which I am.[/quote]
I would like to think that by having induvidualy licensed advisers that PI insurers would see a reduction in risk overall? Perhaps not. we have an excellen trelationship with our PI underwritersd and our increases have been kept to less than 5% for many years. We have just completed this years renewal and terms came back at a 4% increase on last year. Interesting times ahead.
I hope that logic prevails. The proposal for individual licensing should be given serious consideration as it will help weed out the bad apples and reduce ongoing licensing costs for the good apples, with a flow through benefit to clients!
Although I like idea of individual licensing, I fear that PI insurers would have too much dominance over the market and deliberately increase the cost of premiums 10 fold just because they can. That would force many smaller based advisers, IE ones that turnover $500k or less p.a. out of business because insurance premiums would be in excess of $30,000 each year and continuously rising. Government needs to address this problem first if they ever introduce individual licensing regimes to make it a fair and level playing field for all “honest” and complaint/claim free advisers, one of which I am.
Les, sorry i mis-spoke, not suggesting the govt would subsidisse or anything but if the govt legislated a move to individual licences then a market would likely emerge to provide mroe competitive services to help reduce the costs of running a licence, such as practice management and custodianship. we all thought fee for service would be impossible but the market has largely stepped in with things like software, automation etc
Consumer protection in the event something goes wrong is a major consideration. No licensee = reduced protection just look at Comm Bank as an example. Individual advisers would not have been able to offer the compensation now on offer and PI is not a client compensation scheme. Couple of claims and there would be no cover anyway. This needs a lot more thought.
[quote name=”anti V-I”]Joe, your right the costs are not doable for many practices currently – but if the government mandated a return to indiviudal, im sure they would take that into account. dealer fees are also made to look lower than they are (at least for those that dont take the VI incentives!)
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I cant see how a govt mandate to license advisers induvidually could lower the cost of operating? Under this scenario every adviser would have to subscribe to a services provider in order to be compliant under the new act, the govt would have no input or control over these costs and would certainly not lower compliance obligations in order to reduce cost.
I think I have the solution.
Step 1. Advisers spend 2 days a week administering their own licence.
Step 2. Adviser rebates 100% of all fees to clients.
Step 3. Adviser puts all personal assets up as security.
Step 4. Adviser claims Newstart.
Oh, hold on that doesn’t work does it.
Back to the drawing board.
anti V-I – too true, which is a sad indictment on the scale of the conflicts inherent in this industry that have nothing to do with the professionalism of the individual adviser. The question is, do we want this ‘professional’ to be perpetually regulated by Government and subject to the whims of different ruling parties (take the Labor Govt/ISFN/Unions relationship and how that twisted FOFA) or do we take a leaf from the AMA and the joint accounting bodies and drive for self-regulation to better protect the profession from Government interference? One thing that CBA and Macquarie have proven is while ASIC is very good at hanging up small licensees, they are a toothless tiger when facing the banks – and the banks know it. To me it says that instituional ownership of advice channels is broken – because of the overlay of product. Anti V-I indeed!
Ok, what’s new. Any adviser can right now leave a dealership and set up their own AFSL. The systems and options already exists. New entrants won’t be able to establish a licence so they’ll have to work for someone with a license won’t they ? Doesn’t that just create more smaller “dealerships” ?
Roberts comment re Bank Guarantees has some merit. I know bookmakers have to lodge a bond with the bookies co op. Why not have planners lodge bonds to make them accountable.
And for those of you getting over excited about having your own licenses take a moment to write down every asset you own and then write next to it in bold red letters AT RISK.
Have a think about explaining to your partner why the family home is under threat if you ever have a claim made against you.
Whatever faults dealerships may have they do offer advisers and their families great comfort that all of the families assets are not up for grabs.
Joe, your right the costs are not doable for many practices currently – but if the government mandated a return to indiviudal, im sure they would take that into account. dealer fees are also made to look lower than they are (at least for those that dont take the VI incentives!)
Oh dear me – I can hear the banks & instos sharpening their arguments- they could lose control of distribution
Might be good for consumers though. PI costs would be higher with lot more individual advisers.
Insurer owned dealers would lose the ability to influence policy replacement by the NEW need to target existing inducements, currently on offer to their ARs, across to individually licenced advisers just to keep new business coming in.
ASIC would hate it – needs more resources to police. That’s why they are increasingly making it more difficult to get a One adviser Licence now
However if the few rats that currently poison our life risk waterways seek individual licencing they might not get individual PI and could be out of business ( there is hope )
Knowing politicians, we would end up with a botched system, with individually licenced advisers and some still staying with mother. Another dual system !!
Gerry Storm was self licensed, so that point doesn’t gel. This will increase businesses compliance burdens (how are you at interpreting legislation? Even the lawyers are crap, let alone FOS), add onerous administration requirements, magnify risks to every FP with no corresponding return to justify it, & cause more than half the decent FP’s out of the industry.
We’re a substantial ‘independent’ & over several years analysed self licensing in depth. Unless your revenue is in excess of $800kpa it isn’t justifiable (or with lower practice fees you are either sacrificing other aspects to do it correctly, or else in for some trouble down the track when you finally realise what you haven’t been doing right….)
The better question is, ‘Should institutions be able to hold a licence, as in vertical integration?’ This would of course include the rabid ISA (whose integration model would challenge even the steepest cliff face when it comes to being purely vertical).
Corps Act licensing is about the control of products and who promotes them. Financial planning is not about product, so how can we legitimise this important service and remove the Authorised Representative stigma?
Self-licenecing is already here, ASIC are very good to work with throughout the application process.
The more businesses that start applying for their own licences will send a clear message to the government
The biggest issue by far is the limited market & choice for PI in Australia, the smaller end of town are experiencing 20-30% premiums & excess increases, with insurers out of the UK laying blame and increased risks due to CBA FP & Macquarie
B26354 not sure you could trust the lobbyists and insto cronies in our “professional bodies” to do that. asic might have its problems, but at least its not a mouth piece for instotutional dealer groups
I like the idea. It severes the connection between the institution which may be a vertically integrated product manufacturer/licensee and puts the adviser in charge of their own professionalism. An alternative to ASIC directly licensing individuals is the accounting model of certain regulator-approved professional bodies issuing practicing certificates which puts the onus on regulating the industry via the professional bodies. The downside of individual licensing is where complaints arise, licensees have the ability to negotiate PI terms and have teams of lawyers and compliance people to help advisers because the licensee is also on the hook for advice provided. If totally on the individual adviser, PI may be prohibitively expensive (moreso) and one action through FOS might wipe out a single practitioner, affecting all their clients. Many single practitioners could not afford commercial fees for licensee services which could lead to increased risk of non-compliant behaviour.
Those who have not played golf think it looks easy. So too with running an AFSL. Individual licensing is not a practical solution.
A bank guarantee placed with ASIC for every representative (their own money and based on their turn over…. and for employed advisers too) would go a long way to getting rid of the moral hazard that currently exists where a planner can do wrong and leave the AFSL with the problem.
And it would be so much cheaper than having individual licenses too.
A breath of fresh air – Dealerships haven’t worked and will never work. Every dealership has a different idea how to run their show and what started out okay for some ends up a disaster when the dealership changes tack. What we get for our dollars paid to dealerships is mostly zilcho. Roll on individual licences please.
Gerry, good point about licensee services without the licensing. right now the dealer groups take away control and there is an imbalance, but provide services on the side to sweeten the deal. we need direct indiviudal accountability to regulators and then a competitive markert for licensee services such as PI, PD, research etc. AAP a good example of this
PI insurance would go through the roof without collective bargaining power. Its already increasing in cost and decreasing on coverage. Where is the consumer protection.
Who will then conduct the regular audit of advisers.. bigger budget for ASIC perhaps! Who pays??
Yes Yes Yes, definitely! Get rid of the conflicted vertically integrated distribution channel model once and for all! I fear this will never happen though as the big banks have too much sway over the politicians.
Good idea…individual licensing with more regulatory oversight of new entrants or those with less qualifications. Then relax the regulatory burden based on experience and compliance history. Give the adviser an incentive to further their education and stay in the industry for the long haul rather than scaring them out as is the case now. Just think…no more Storm financial models, no more distribution channels. Dealer groups to be replaced by licensee service providers. Product providers would then have to compete for inflows based on quality of product rather than a restricted APL. Just the issue of compensation that needs to be addressed.