The Federal Government has announced that ASIC will establish a public register of financial advisers (the Register) by 31 March 2015.
The establishment of the Register was recommended by the Senate Economic References Committee's 2014 Report into the performance of ASIC and by the Financial System Inquiry. The Government promised to support the Register in its negotiations with the Palmer United Party and the Australian Motoring Enthusiasts Party over further amendments to the Future of Financial Advice provisions.
The Register is intended to benefit consumers, who will be able to check that their adviser is appropriately authorised and qualified before receiving personal advice. It is also intended that the Register will give employers greater ability to assess new financial advisers, and improve ASIC's ability to identify and monitor all financial advisers, which, the Government thinks, should help to remove disreputable participants from the industry over time. This is highlighted by the recent news about NAB and its two former advisers, who were dismissed by NAB for systemic breaches and reported to ASIC, but gaining employment by other financial planning firms within a few months.
The Register's content requirements have been informed by the recommendations of an expert industry working group convened by the Government, which included financial services industry stakeholders, as well as consumer and academic representatives.
The Register will cover all natural persons who provide personal advice on relevant financial products to retail clients. They include:
- authorised representatives;
- employee representatives;
- director representatives; and
- natural person licensees.
Relevant financial products are all financial products other than basic banking products, general insurance products or consumer credit insurance, or a combination of any of these products. This generally mirrors the definition of Tier 1 products in the ASIC Regulatory Guide 146 Licensing: Training of financial advisers, except that personal accident and sickness insurance is not included as a relevant financial product.
The Register will include:
- the adviser's name, registration number, status and experience;
- the adviser's qualifications and professional association memberships;
- the adviser's licensee and authorised representative (if applicable) and business name;
- what product areas the adviser can provide advice on;
- any bans, disqualifications or enforceable undertakings; and
- details around ownership of the financial services licensee, and disclosure of the ultimate parent company, where applicable.
Will it improve quality of advice and standards?
The Australian Bankers' Association welcomed the introduction of the Register and said that 'it will increase transparency, protection and confidence for consumers'.
We agree that the Register will help consumers if, and to the extent that, they use the Register to check that their financial adviser is authorised and qualified to provide personal advice on the investment products they need advice about and to understand the implications of what they find. The Register won't reveal a limited approved product list, but the name of the adviser's licensee and parent company might put them on notice. But we doubt the Register will do much on its own to improve the quality of financial advice or to ensure that advisers act in the best interests of their clients.
The better tool to improve the quality of advice may well be to set a higher bar for the education, skill and experience requirements for financial advisers.
This is what the Senate Economics Committee recommended. They wanted to introduce a national exam, continuous professional development requirements and the requirement for a financial adviser to hold a relevant degree qualification. This is also supported by the current Parliamentary Joint Committee on Corporations and Financial Services in its inquiry into the proposal to further lift professional, ethical and educational standards in the financial advice industry.
But lifting educational standards and imposing greater bars to entry has its own problems. One of the goals of the Financial Services Reform legislation was to increase access to advice and it is possible that increasing quality may come at the cost of increasing access. One answer might well be provided by technology.
The financial services industry is doing lots of work on building automated investment services, or 'robo advice', for their customers. They could well make advice easily and broadly accessible. This would still leave the problems of quality (although there might be some answer here too), but, in this brave new world, the relevance of the Register becomes questionable and a little out of touch with technological trends and developments. More on this topic in our next edition of Unravelled.