Options Paper - another factor

There have been a few comments released from various quarters on the release of the MBIE Options Paper – generally of a cautiously supportive nature. I share that sentiment – generally.

Previously, the ‘expert adviser’ proposal got the thumbs down from yours truly, as does the suggestion of entity licensing. For the life of me, I can’t see any advantage to any stakeholder – apart from the regulator in the context of convenience and cost containment. However, even that seem to be a short-term advantage with cost over-run potential, should an entity’s license fall into contention.

The individual responsibility for educational and conduct standards via an individual licensing regime looked set to be extended in earlier discussions, and there appeared to be little, if any, pushback from any quarter. After all, the original regulatory proposals had all advisers attaining a minimum educational standard. It was only with the arrival of Qualifying Financial Entity status – QFE – that the educational requirements became voluntary.

So at the first opportunity to review the regulations, and to simplify matters for advisers, consumers, and product providers, the approach of having a uniform Financial Adviser status defined by qualification, conduct, and compliance with a universal code seems elegant and sensible – apart from the loony proposal about ‘expert advisers’ – see earlier post.

So this late addition of entity licensing at best dilutes the individual licensing regime, and at worst, creates more risk for the consumer than exists currently.

If, as a practice owner, I have a team of AFAs – or qualified Financial Advisers post-FAA review – why would I seek a license for the practice and accept increased personal and professional liability?

If one member of the team goes rogue – as has already happened in the Dealer Group licensing structure in Australia – then that individual bears the consequences.

What is the commercial and/or consumer advantage to diluting the individual licensing regime?

If, as a practice owner, I have a team of unqualified advisers, how does this improve the standards, or accessibility, of advice for the consumer?

If the suggestion is not to dilute the individual adviser licensing regime, I cannot fathom out the rationale for entity licensing.

Not wishing merely to imitate others is admirable, but we should surely pay heed to the mistakes others make, and there is a strong school of thought in Australia that believes the Dealer Group structure is inferior to the individual licensing approach for reasons already mentioned.

None of the suggested options in the Ministry's paper can be taken in isolation as each impinges on another, but in this instance, the thinking is just plain wrong.

The advisory industry will face additional and unnecessary cost, the consumer will be further confused as to the sources of good quality, qualified advice, and the regulator, while saving expense in the short term by monitoring on a per entity basis, will ultimately bear additional cost, if a licensed entity fails.

As I mentioned earlier, cautious acceptance of many aspects of the MBIE Options Paper, but entity licensing is a retrograde step, with insufficient benefits to too few stakeholders to be worthy of inclusion in the final revised regulations.

The Laird