Dover had over 400 financial advisers operating under their license and were one of the fastest growing Financial Planning firms in the country. They had been under investigation by ASIC since 2017 and it was probable that their Australian Financial Services License (AFSL) was about to be terminated. Dover decided to pull the pin, surrender their license and close, leaving their financial planners unable to practice. Given their circumstances and reputation, they will find it hard to obtain and license authority somewhere else.

Whilst this is sad for the individuals involved it is also devastating to their clients who are suddenly left with no adviser to support them in the management of their affairs.

“To me this throws up some very pointed issues for consideration.”

If we look at the recent history of bad advice, non-compliance, unfair treatment of clients and attempts to avoid responsibility, the record of some of our major banks has been atrocious. And yet they get a slap on the wrist and a “don’t do it again” warning. But when a private firm errs it immediately loses its AFS license and is driven out of business. My questions are “Where is the level playing field?”, “Where is the fairness?”, “Where is the consideration for the flow-on to the clients?”.

Don’t misunderstand what am saying. I am not defending Dover in any way, I abhor financial planning firms that do the wrong thing no matter who they are. But it seems that the bigger and more powerful you are the more you get away with. And considering the huge percentage of financial advisers controlled by the banks I find this very concerning.

Considering all that has happened over the past few years, culminating in the Hayne Royal Commission, one must question the two-tier structure AFS licensing regime.

The current licensing structure is a two-tiered agency structure. An individual or corporation may hold an AFSL and have “agents” working under the authority of the licensee. The licensee is responsible for the compliance of its proper authority holders and under a corporate profit motivated model this is where the breakdown occurs.

But what if all individual advisers were required to have their own licence and be individually responsible for their actions and compliance with the Corporations Law? Wouldn’t that make more sense and add more accountability to financial advice?

How do HPW operate?

We operate under an AFSL in the name of the company but the difference is that all the Senior Advisers are salaried employees of the AFSL holder. They are also shareholders and directors of the AFSL holder so all are responsible and actively involved in the compliance and practicing standards of the advice givers. Being controlled by the advisers, the company’s profits go to improving client services and to its shareholders – not to feed some hungry corporate beast. But more importantly, we are an advice and client service business. Our sole interest is the well-being of our clients and we have no other vested interest.

If the industry changed to individual licences our current model would not materially change as our advisers are already responsible for their own compliance, under strict supervision. But for a major corporation, there would be a loss of control which would be alien to their model.

Is there a solution?

It is time to change to a level playing field, where the accountability requirements of big and small firms are the same. Consumers have the right to feel confident that their chosen advisers has only their interests at heart.

But the reality is that regulation of individual practitioners is almost impossible unless ASIC partners with Professional Associations and that is becoming more and more unlikely.

“Independence is the key!”

To solve this dilemma, independence is the key. The term “Independence” is enshrined in the regulation and has a specific definition which precludes conflicts of interest and remuneration from third parties.

By requiring mandatory independence of AFS licensees, advice would be delinked from product. Consumers would have confidence that their adviser was acting only in their client’s best interests and remunerated by the client for services rendered.

Independence would see the emergence of more truly independent professional practices whose sole “business” would be the provision of professional client advice and support services completely separated from product.

One of the ridiculous decisions made by government was to grandfather pre-existing commission arrangements from the ban on product commissions under the FOFA amendments in 2012. All that did was to perpetuate the cancer of commissions but moreover, ensure that clients who held these existing commission based investments would never be advised to switch them as their adviser would then lose the ongoing commission.

ASIC has finally come out and stated that the grandfathering of pre-existing commission arrangements was a mistake and should now be banned. Independence would achieve this.