Let advisers use ‘professional judgement’: The way forward for self-regulation

In recent weeks, both The Advisers Association (TAA) and the Financial Services Council (FSC) have called for self-regulation of the financial advice profession.

TAA chief executive Neil Macdonald pointed out that the Quality of Advice Review (QAR) and the Australian Law Reform Commission (ALRC) have recognised that regulation and legislation have built up over the years, adding that it has resulted in an “overly complicated complaint process for advice” that doesn’t have any material benefits to consumers.

“Our industry and our associations have matured, we are now a profession and professions self-regulate,” Mr Macdonald said.

“The role of associations could include the setting and supervision of not only education standards, but also ethical standards. Associations could very effectively triage and address problem advisers and maintain appropriate professional standards.”

On the FSC side, policy director for advice and platforms Zach Castles told ifa that the FSC supports a regulatory framework that “recognises and respects” that financial advisers are professionals.

“A move to greater levels of self-regulation over time also envisages advice businesses having adequate levels of capital and professional indemnity insurance,” he explained.

“Over time, the FSC supports the government identifying areas where self-regulation and industry standards can serve the objectives of improving financial advice for consumers.”

Peter Johnston, executive director of the Association of Independently Owned Financial Professionals (AIOFP), told ifa that there needs to be more room for advisers to exercise their professional judgement.

“The AIOFP supports the current AFSL system but wants ASIC and the minister to allow financial advisers to have the ability to implement more professional judgement with certain aspects of the advice process,” Mr Johnston said.

“Importantly, the role of a large dealer group is evolving to become an essential cost savings service for the government and smaller AFSL groups seeking scale savings on services. Dealer groups impose their own compliance regime demands on their authorised representatives to ensure they comply with the law; this oversight saves ASIC employing more public servants to monitor and investigate this aspect of the market.”

Mr Johnston added that an increasing number of advisers are moving to self-licensing and utilising the “ancillary services” of dealer groups to operate cost effectively.

“This dual functionality confirms the essential services the large dealer groups are playing in the market and should be encouraged to continue in this direction,” he said.

“The area we would like to see expanded and valued is the professional judgement advisers should be permitted to use when dealing with consumers after 12 years of excessive and unnecessary overreach by politicians and government bureaucrats.

“We hope this culture will be reflected in the new proposed amendments Minister [Stephen] Jones is contemplating particularly around providing written advice for recommended consumer strategies.”

Phil Anderson, general manager for transformation and policy and advocacy at the Financial Advice Association Australia (FAAA), highlighted that the PwC scandal was a “watershed moment” that could affect any push for self-regulation of financial advice.

“Accountants were deemed as a profession and the view broadly held was, they could be trusted. And I would like to think that they could still be trusted. We can’t judge an entire profession on a single matter like this. But nonetheless, I think it has changed the perception,” Mr Anderson told ifa.

“Whereas the financial advice profession was hoping that we would progressively move to a model that was not necessarily entirely self-regulation, but co-regulation.”

Mr Anderson added that things have gone backwards in recent years, however, pointed to areas that the profession may be able to take control over in the near term.

“Maybe one of the early things that we could start with is the profession can take back control of defining precisely what education programs meet the education standard and what content needs to be in a particular study program to meet the standards that might be defined. So, that might be the first thing to start to do,” he said.

“Maybe then there’s a vehicle then to start having more influence in terms of defining policy and things like codes of conduct or codes of ethics.

“Reversing the single disciplinary body is probably the furthest away, because it’s most recently being enacted as part of the government’s response to the to the Hayne royal commission. But we shouldn’t give up. Hope for that is possible, we will need to continue to demonstrate that we are a profession, and we can be trusted to act as a profession, if we want to see that outcome.”

Speaking with ifa, Eugene Ardino, chief executive of Lifespan Financial Planning, said that while the profession has “advanced significantly” in recent years, there is still a long way to go before self-regulation in any form becomes a reality.

“I think you’re always going to have an element of government oversight because you’re dealing with people’s money,” Mr Ardino said.

“Financial advice, particularly as it’s defined, remember the definition is still centred around providing product advice, rightly or wrongly. Because it overlaps with that, I think you’re always going to need a certain level of government oversight. Self-regulation doesn’t happen overnight.”

He added that in some ways, licensees do already provide an “oversight function” within their licensee group.

“In a sense, you could form an argument that the licensee framework is a form of self-regulation, because essentially, the licensee interprets the law and then ensures that their advisers abide by those laws,” Mr Ardino said.

“The licensee sets standards, often those standards are a higher standard than the law, and then licensees supervise and monitor and then they deal with any issues. Any issues that are too big for them to deal with, they report them to the regulator. So, it’s kind of a similar structure, in a sense.”