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Time for an overhaul of financial advisers’ licensing scheme

Deakin’s newly-appointed Financial Planning Advisory Board Chair backs reforms to strengthen the financial planning profession.

A new licensing scheme for financial advisers will boost the standards of Australia’s financial planning profession says Deakin University’s newly-appointed Chair, Financial Planning Advisory Board, Harvey Kalman.

Currently, most Australian financial advisers are licensed as authorised representatives under a “dealer group” which holds an Australian Financial Services License (AFSL).

But Mr Kalman says there needs to be a regulation shift that moves the focus from corporate to individual accountability.

‘The issue is and has always been that while the adviser’s fiduciary duty is to their client it is potentially undermined when the financial adviser is beholden to their AFSL holder,’ he explains.

Mr Kalman comes to Deakin after more than 30 years at the helm of some of the nation’s leading financial service firms – mostly recently with Equity Trustees as Managing Director for UK and Europe, and Global Head of Business Development.

He says that the licensing regime change would boost the level of transparency, responsibility, and professionalism of financial advisors.

‘Wherever they work, financial advisers will need to become responsible for their ongoing training, conduct, and complaints. This does not mean the financial planning dealer group will become redundant – it will still play a vital role by providing the wide range of support services for advisers – but ultimately, accountability will rest with the individual who provides advice.’

Delivering on a recommendation from the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry (2019), a Better Advice Bill has recently passed the Senate and is now law and will apply effective from 1 January 2022. Part of the legislation requires advisors to become individually registered. ‘The Bill promises to ease the compliance burden of financial advisers for example by introducing a single disciplinary body and taking advisors out from under the regulatory oversight of the Tax Practitioners Board,’ says Mr Kalman. 

While the Better Advice Bill is an important step forward, he suggests the licensing scheme could be further improved by splitting licences into two categories – simple and complex.

‘Simple products are easy to understand. They can't breach basic risk criteria such as a 5% threshold for illiquidity, derivatives, fixed interest, agricultural assets, shorting, and gearing or 15% in total for all the type of assets that have caused issues in the past. Any fund manager licensed under a simple AFSL could freely sell their products, just as fund managers who list a simple exchange-traded fund on the ASX do today,’ he explains.

Fund managers selling complicated products would need to be licensed under a complex AFSL requiring higher insurance levels, capital and, most importantly, ongoing educational requirements.

‘These products would require an investor to see an adviser who is licensed to provide complex advice, while sophisticated investors would still be able to invest in complex products.’

The net result, he adds, is an end to unnecessary and complex financial planning products flowing into the market.

‘It puts the onus on the financial advice community to stand up and help investors who need it. High-quality advice plays a crucial role in helping Australians make sound decisions and achieve their personal goals.’

Read more about Deakin’s wide range of financial planning courses and the unique partnership between Deakin Business School and the Financial Planning Association of Australia.



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