Should we Travel the Individual Licensing Road?

As the Advisers move towards professionalisation, there’s been quite a debate about what it means to be a “professional”.

The Code of Ethics, the educational requirements, the increasing stringency of the regulator’s approach to matters of conduct are all elements of this professionalisation.

Another proposal, advanced before the Royal Commission and most recently proposed again by the FPA, is that individual advisers should be registered. This would mean a move away from the role of the licensee as the organisation ultimately responsible for providing advice and a focus firmly on the individual.

“The future regulation of financial advice should occur through individual registration and oversight, and not require an AFSL for a financial planner to provide financial advice.”[1]

It seems to us that at the heart of this debate is a difference of opinion about the nature of advice. Is advice, at its heart, about specialist knowledge delivered by the individual closest to the client, or is it an organisational service delivery undertaken over time where no single individual is solely responsible for the final outcome, but each has to play a part to achieve the client's goals?  

Part of the shift to a more regulated profession has been an associated trend to focus on personal responsibility – and rightly so. Advice is an intensely personal process and only the adviser can build a nuanced understanding of a client’s needs and goals. The fundamental obligation – the Best Interest Duty - is first and foremost an explicit, personal obligation on the adviser.

So a natural starting point has been to think of professionalisation in terms of other professions – notably medicine and the law.

Incidentally, exponents of the personal registration argument don’t point to vets, or pharmacists, the first of which make a good deal of their income from selling extortionately overpriced drugs and XRays, and the second of which are supported by regulation based geographical monopolies.

Advocates of individual registration, like the FPA, point to the primary responsibility of an individual adviser to ensure that the advice delivered is of a professional standard. Individual registration makes it clear where responsibility rests. There’s good evidence that individually registered professionals value that registration highly and will act collectively to protect public confidence in that registration.

Advocates of the current licensee based system point to the complexity of a process which deploys the skills of a number of specialists – financial planners, portfolio managers, investment managers, administrators, tax advisers, estate planning advisers, software vendors and so on. They would argue it needs an organisational level of skill to design coherent services that span a range of competencies from different sources, to achieve economies of scale in the client’s interest, to avoid duplication of effort and to manage a compliance process to ensure professional standards.

The current regulatory regime makes the licensee responsible in an overall way for the service delivered and requires them to have the organisational resources to do this. This is a sound conceptual structure for delivery of high quality, multi - disciplinary outcomes.

Managed accounts are an excellent example of the fact that achieving a client’s goals relies on the ability to integrate a set of capabilities – personal advice, investment management, administration, technology, reporting, capital adequacy, security selection.

This is an important topic and one we’ll return to. We should examine the potential consequences of both continuing with the current regime and of adopting an alternative.

[1] “Affordable Advice, Sustainable Profession”. Financial Planning Association of Australia June 2020 p13