Speaking with ifa, financial adviser and PlanningSolo founder Jordan Vaka said his “soapbox” issue within the advice profession is the licensee system.
“I don’t think the AFSL licensing system makes any sense at all. I didn’t see any reason to keep it. I think it should all be completely abolished and pass that cost back to advisers,” Vaka said.
“Everybody that tries to convince me that it makes sense says, ‘Well, all we need to do is make a different shade of lipstick for the pig’. And I’m like, ‘Why are we using a pig to regulate our business? Stop putting lipstick on it. Get rid of the pig. We’re gonna do something properly like grown-ups’. But it doesn’t really work.”
While he recognised that it is unrealistic, Vaka explained what his perfect system would look like for advisers without a licensee.
“In my perfect world, and it’s very utopian and very unrealistic, we would be individually registered, we would have nothing to do with ASIC, and advice would be removed from the Corporations Act,” he said.
“We would be on our own. We would be licensed and authorised individually through an association, be it the Financial Advice Association Australia or some other body, and we’d be subject to their requirements like every other profession. And that’d be that.
He explained that, due to a technical issue, it may not be possible to completely remove advice from the Corporations Act. Even so, he said, “there has to be a better way to do things”.
When discussing the issue with other advisers, Vaka said questions about compliance and consumer protection inevitably arise, however, he believes the current system is already failing consumers so it may be time for a new approach.
“The arguments I always hear are: ‘Yeah, but what about compliance and things like that?’ We would just have one source of truth for compliance. Instead of having 300 different licensees having a different version of a statement of advice, we would have one,” he said.
“People say, ‘Well, how are clients gonna be protected?’ They’re not protected now. It’s not like the system we have now works. It’s garbage. People are losing hundreds of millions of dollars in this system, that apparently is all we’ve got. How much worse could it be if we went individual?
“Ultimately, we’ve been through the educational stuff, we’ve been through the experience stuff. Where’s the quid pro quo for making our profession an actual profession? To me, and I can say it because I’m self-licensed, as long as the AFSL system exists, I don’t think we will have any leverage.”
As the industry struggles to reduce business costs and bring down the price of advice, Vaka argued that removing the AFSL would put money back in advisers’ pockets, thus bringing down the cost to operate a business and, in turn, the cost charged to consumers.
“If I explain the way licensing works to anybody outside of advice, they look at me like I’m insane. Lawyers, accountants, engineers, they look at you like, ‘Why would you do it like that? It’s so expensive’. And that’s why the affordability of advice thing, to me, it’s just so hollow,” he said.
“The most expensive part of advice is licensing. It costs the average adviser $40,000–50,000, and you multiply that by the number of advisers left and it’s a horrendously big number. You pull that out of the system, and you put half of it back in, advice is still going to be cheaper.
“That’s how you make advice affordable. But that was never considered because there’s too many interests involved. That to me is the solution to advice. Do that. But that was left off the table through the whole review, which I think invalidated it, to me anyhow.”
Pure fantasy…
Our industry spends too much time daydreanming about utopia instead of investing that time into actual practical solutions.
He’s on the right track but not on the right road.
Having sat on a few meetings with heads of compliance departments and ASIC I can attest that those AFSL Compliance people loooooove yes just love complexity. Advisers will appreciate that the more complexity when it comes to Super laws, just how good that is for Advisers…the more complexity in tax laws, it’s great for Accountants…..the more complexity there is in financial services laws it’s great for Compliance and the more complexity the more AFSL become valuable.
So AFSL have conflicted interests. When bad legislation gets passed it’s good for them, bad for Advisers and bad for Australians.
Advisers think they have some sort of representation and or advocacy but that isn’t true. The Sooner that Advisers wake up,…become self licenced…the better. It dosen’t need a complete overhaul of the Corporations Act.
like many countries, if a client is seeking for financial advice, they pay for it and are responsible for following it. Like most professionals and their clients, it is ultimately about trust – it’s just that our current system is putting a huge price tag on it, which does not benefit anybody. We are the most regulated profession in the world, for no significant benefit.
Most Over Regulated : – (
Look at the benefit, 85% of people cant get bad advice because they cant get any advice.
Hey look how about some new Uneducated, Unqualified, Back Packer Call Centres, that will help hey.
This is spot on, my advice fee would reduce considerably if I wasn’t paying 4k a month for licensing fees.
Correct, but you will then likely be paying for an employee or a third party to keep your compliance obligations on track. Same, same. That’s unless you want to work yourself to an early grave.
Brave move from IFA to publish to publish this article. Many of us (ARs) are being eye-gouged out of business. ASIC already has total control over us and can audit anytime. The institutions have the resources to pay us directly. Kaplan is readily available. Who needs overseas conference junkets, anyway.
I tend to agree. Removing advice from Corps Act would start a new chapter for advice in this country.
ASIC should be made to have an AFSL to oversee them as they could not do a worse job!
Licensees are cartels
“With more and more FP’s going out on their own, does ASIC plan to oversee 15,000 separate AFSL’s?”
Ah you see, there’s the rub!
In ASICs perfect world there would be less than 100 AFSL’s. They would be large and bureaucratic but ASIC could have a greater impact on the industry (bang for buck) if they chose to close down an AFSL, temporarily or permanently, for alleged misdemeanors. You can quite easily scare the bejesus out of a few large AFSL’s, without a lot of bureaucratic input, but it’s much harder for small one-man operations. The Corps Act as it stands at the moment does not specify the number of advisers for an AFSL.
ASICs other preference in a perfect world would be no risk commission. They can’t help themselves!
ASIC have a track record of acting against AFSL’s without necessarily going to court, but it’s from a long time ago. Back in Dec 1999 ASIC placed an Enforceable Undertaking on Westpac Financial Services because their representatives were telling prospective clients that they were “salaried only”, not remunerated by commission, not like those nasty agents from MLC, AMP and National Mutual.
Of course, now they have the unlimited funding of the ASIC Advisor Levy, court action is preferred.
Truth was, the Westpac matter had to be brought to the attention of ASIC by a lot of upset self-employed advisers. The truth was that rather than being strictly salaried, the Westpac advisers had to justify their “salary” by a measure of. commission earned. Misleading and deceptive. And a bloody good marketing ploy while they got away with it ! Westpac advisers were put out of action for three months, for “retraining” in the Gulag.
What our representative bodies should be asking the ex-lawyer who does poor impersonations of a Minister for Financial Services, is what has happened to the report of the Law Reform Commission on the Corporations Act?. Probably in a bottom drawer somewhere in Attorney Generals, or worse still, there is an economist in Treasury trying to understand the import of the Report
I conducted a risk only, one adviser, AFSL as a life broker for five years. It wasn’t all that difficult and the only big costs related to PI and the annual audit by an approved ASIC licence auditor. I obtained appropriate legal advice on my SOA and put all the necessary compliance systems in place. But I always understood that if I ever decided to provide investment (securities) advice, at that time the back-office costs would be significant.
I fully get the drive by many advisers to become self licensed
Jordan is correct about everything
Great comments!
Having compliance move to be under an industry body, with compliance templates and expectations being universal would save a lot of time and money. The industry body would then have a whole lot more power when dealing with government.
Unfortunately there are too many vested interests in AFSL land, particularly with those listed on the ASX and the army of lawyers & compliance staff taking their clip too.
Qualified adviser should be free of the AFSL regime but maybe leave it for the super-funds “qualified” advisers as a way to oversee their advice practices.
It was the right idea when FPA recommended it in their Policy Platform, its the right idea when Jordan recommends it!
It is not ‘utopian and very unrealistic’ to operate like every other profession. We have the exam and higher qualifications. The Code of Ethics and CPD requirements exceed those from any other profession. This was all supposed to raise financial advice up to a standard which matched or exceeded other professions. Yet all of the red-tape which was in place beforehand has remained. It is a complete nonsense.
I would put it another way. Imagine the requirements forced onto financial planners were applied to other professionals, such as lawyers, doctors or accountants; costing them $40-50K pa and dramatically reducing their capacity, thereby putting the costs to consumers through the roof. Now that would be ‘utopian and very unrealistic’ wouldn’t it?
Wouldn’t be utopian. But point made.
It does make sense. With more and more FP’s going out on their own, does ASIC plan to oversee 15,000 separate AFSL’s?
It won’t bother ASIC. They will just hire more staff and send us the bill