Calls for “financial adviser” to be defined by legislation

by |
The term “financial planner/adviser” needs to be defined by legislation in order to - among other things - stamp out product pushers who sully the name, says the Financial Planning Association (FPA).

It published this request as part of its submission to the Senate Economics Committee inquiry into the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014.

The committee will present its final report to the senate on 16 June.

“The term financial planner/adviser should be defined by legislation in order to prevent individuals who offer financial product information/factual information from representing themselves as financial planner or financial advisers,” the FPA recommended.

It made this suggestion as part of a series of comments about the proposed exemption of general advice from the ban on conflicted remuneration.

FPA’s general manager of policy and government relations, Dante De Gori, told Wealth Professional that legislating the use of the term “financial adviser” was an important in the quest towards consumer confidence.

“Half of the debate has been around the fact that consumers don’t know the difference between general advice and personal advice, and to help that confusion there should be legal boundaries,” he said. “One of the problems is that as soon as someone does something wrong, it tarnishes the whole industry – whether or not that person was a financial adviser.”

The FPA also suggest the legislation of the term is linked to the membership of a professional body so that the consumer is assured the adviser is upheld through professional standards.

In the submission it said that while it strongly opposes any possible re-introduction of commissions for financial product advice on superannuation and investment products, it acknowledges that there have also been unintended consequences of the FoFA reforms for general advice providers.

“Providing product information to customers does serve a purpose in educating and engaging consumers, especially if that information helps consumers to understand the value of seeking advice,” the submission said.

The FPA recognises that the current Bill reflects amendments to the exposure draft which limit the availability of conflicted remuneration to employees of licensees therefore explicitly excluding financial planners who operate as authorised representatives.

However, it recommends further amendments in order to stay true to the policy intent of FoFA.

As well as defining the term “financial planner” in legislation, the other recommendations include banning sales commissions with respect to financial product advise on superannuation and investment products, re-terming general advice as “factual information” or “financial product information” rather than financial product advice, and regulating this information with a warning similar to the general advice warning.

“The FPA recommends that the committee engages in close consultation with stakeholders on changes to general advice terminology and definition,” the submission said.

This latest set of submissions to the Senate Economics Committee reflects increasingly polar views from a variety of interested parties.

While groups such as the Financial Services Council (FSC), the Association of Financial Advisers (AFA), and two of the Big Four – Commonwealth Bank and Westpac – are particularly supportive of the proposal to remove the “catch all” provision from the best interests duty, others such as Industry Super Australia (ISA), vehemently disagree.

“Its deletion deprives a provider of advice of any legislative guidance as to the level of conduct against which their conduct will be judged,” the ISA submission said. “The changes contained in the Bill risk entrenching systemic underperformance of retail superannuation assets with long-term impacts on age pension expenditures.”

SEE MORE:

ASIC should have umpired ‘misleading’ FoFA frenzy: AFA 

AFA calls for a halt to FoFA fairy tales    
   
Flimsy arguments and scaremongering: FPA
        

  • Funky Goose on 13/05/2014 9:50:37 AM

    Fully support the FPA recommendation.
    Can someone tell ISA that MySuper has debunked their retail super fund higher cost/underperfomance propaganda they use to flog their product. And how does ISA 's constant criticism of financial advisers that discourages clients taking advice and responsibility for their financial decisions help the long term impacts on age pension expenditures ??

  • viewsxew on 13/05/2014 10:05:46 AM

    This is an interesting request - and one that might prove contentious: particularly if the single correct terminology can't be universally agreed.
    Do we want the term to be 'financial adviser' as suggested by the FPA? Do we want it to be 'financial planner' as suggested elsewhere in the article (and in general use in the industry)? Or is there another term we would prefer?
    Before we rush into that debate however, are we really looking for even more government regulation of the industry (which would almost certainly condemn itself to lifetime status as such) - or are we wanting to move assertively towards recognition as a profession?
    Many years ago, the accounting profession abandoned the attempts to reserve the name 'accountant' to people with specific education, skills and training - realising that to do so would expose them to less control of their own destiny; and subject their members to higher levels of regulation.
    Do we as financial planners really want any more government intervention to how we practice?

  • James Howarth on 13/05/2014 10:42:32 AM

    ASIC legislation is weak and allows for the biggest conflict of interest in the industry.

    Doctors should not work direct for the pharmaceutical companies. That would create moral hazard and that is why doctors and drug makers are on separate sides of the health profession.

    In financial services, the doctors still work for the pharmaceutical companies.

    Product licensing and advice licencing needs to be separated and regulated by different bodies.

    ASIC should regulate product, advice should be liberated from ASIC.

    Whilst banks own advisers dealer groups products and have a significant influence over ASIC itself, of course the systems is conflicted, but not because of advisers, but because of ASIC and the bank's cosy relationship.

    Products and advice should be seperated.

    ASIC/FPA should licence advice.
    Dealer groups should no longer be required, as they end up bank owned.

    Any bank based adviser will be more respected as the bank needs them to sell, but the licence does not come from the seller too.


    Product and advice under the one roof is clearly conflicted and the Future of Financial, advice is the removal of this conflict.

    Also then ASIC will be able to get to, the untouchable bad apples as they described them.

    Untouchable bad apples? that is pathetic ASIC. Do your job, get rid of the bad apples, dont try to justify your ability not to do anything.

  • Phil on 13/05/2014 11:01:48 AM

    I think this is a great idea, even as an advisor i find it difficult to determine who is licensed and who is not when viewing advertising.

    Unfortunately pushing for legislation to include 'being apart of an industry association' is unfortunate as i see it as the FPA only trying to sure up more members through legislation, much like the opt in deal that FPA apart of.

  • matt on 13/05/2014 2:17:22 PM

    Legislating the name "financial Adviser" to stamp out product pushers is like passing a bill to enforce politicians to do the right thing by the public and not their own careers. Great in theory but is it really going to stop dodgy people from rorting the system.

  • Funky Goose on 13/05/2014 3:02:10 PM

    Separating product and advice makes no sense. We are in the business of recommending investments in often volatile markets. Our job begins after the recommendations are made to ensure clients remain on track with their strategy and they often need ongoing support to keep their emotions from influencing bad decisions. There is also an enormous amount of admin and servicing that we do that is related to the product. The argument that in built products are inferior to independent products is also flawed. They should be assessed on a case by case basis as a fully implemented in built product may better suit a clients needs. James Howarth your pricing approach sounds more like a business coach pricing ie they advise on what you should do but do not get involved in the day to day operations. Also the fund managers love your argument because it keeps the cost to the client down but they do not invest in servicing their clients relying on the adviser to fill that gap for them. In an ideal world markets would not fluctuate,fund managers would provide excellent client service and admin support and clients would behave rationally. When that happens you may have a point. Until then, your entitled to your opinion but it makes no sense based on our client experiences and the service we are engaged to provide.

  • viewsxew on 14/05/2014 10:28:32 AM

    It is not appropriate to use these comment opportunities to personally berate the views of others - and I won't engage in that; however, Funky Goose might want to have a look at how their business might be able to be restructured to embrace professional financial planners on one side of the room; and an investment adviser/ broker group on the other side.

    Not suggesting that it is a perfect analogy, but something along the lines of the relationship between accountants providing an advisory service; and the bookkeepers they employ to assist clients produce financial reports for their analysis.

    Worth any consideration?

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions