Vogue Advisory Group CAR #126 1760 is an Authorised Representative of of Lifestyle Asset Management Pty Limited ABN: 58 113 067 968 which holds Australian Financial Services License AFSL No.288421

Industry exodus

New Financial Services Minister Stephen Jones declares he will prioritise easing the regulatory burden on financial advisers within three months to stop the mass industry exodus of professionals and make advice more affordable for consumers.

Background -financial industry exodus

In his first interview as a minister in the Albanese Labor government, Mr Jones said the complicated rules governing financial advice and controversial adviser education standards introduced by the previous government needed vital fixing.

The comments designate that Labor will pursue deregulation of the unsettled advice sector prior to receiving the recommendations of the Quality of Advice review headed by Allens lawyer Michelle Levy, which is due by the end of the year.

That review was a direction of the Hayne royal commission. Still, the Morrison government expanded its terms to include an emphasis on consumer access to advice – a widely acknowledged social problem, including last year’s Retirement Income Review.

Just 10% of the Australian population receive financial advice, down from about 14% before the royal commission. The number of practising advisers has fallen and will be half the size in 2023 compared with 2018. The diminishing supply has increased the median price of advice by about 40% to more than $3500 a year.

Precipitous red-tape requirements and the Coalition government’s command that advisers have a tertiary degree and pass a national exam have been widely attributed for departing industry professionals.

In December, Mr Jones had publicised that a Labor government would exempt advisers with a clean regulatory record and at least ten years of experience from obtaining a degree to stem the premature retirements.

Post-election stance on industry exodus

Post-election, the Albanese government would even be willing to consider modifying parts of Labor’s landmark Future of Financial Advice reforms.

The specific parts include the authoritarian way advisers must prove they have performed in clients’ best interests, commonly termed the “safe harbour” provisions, and the requirement to provide a statement of advice (SOA) legal document.

Modelling conducted by KPMG has found that those FOFA requirements are among the fundamental drivers of the increasing cost of providing financial advice, which consumers inherit in the form of higher fees.

 The financial services industry welcomes the comments, which have recently called for the new government to urgently act on diluting red tape and not wait for the findings of the Levy review.

Opportunity in crisis of industry exodus

A short documentary recently showcased industry leaders imploring the new government to solve “wealth’s greatest challenge” of advice affordability. The film, an initiative of ASX-listed tech firm Hub24 and industry social media platform XY Adviser, made a case for the regulatory incumbrance to be alleviated.

Hub24 chief executive Andrew Alcock expressed that Australians deserve access to quality and affordable financial advice. Collectively, industry providers and the advice profession hold an obligation to co-operate with the government and the regulators to build a sustainable framework.

Financial Services Council CEO Blake Briggs said the financial advice industry mustn’t squander this opportunity to make financial advice accessible and affordable for consumers.

Last year, Mr Jones told the Association of Independently Owned Financial Professionals (AIOFP) conference that he was initially sceptical of industry calls for deregulation. However, visiting advisers’ offices and witnessing their paperwork burden first-hand has changed his mind.

After fixing the financial advice rules, Mr Jones said a future step would be to improve consumer laws.

What advisors need to be legally aware of

Since the Hayne Royal Commission‘s review, ASIC has provided additional guidance on its powers under the Better Advice Act by producing Information Sheet 270 – Warnings and Reprimands (INFO 270). INFO 270 centres on ASIC’s power to issue warnings or reprimands to financial advisors where their actions do not warrant the convening of a Panel.

What are a ‘warning’ and ‘reprimand’?

The Better Advice Act instituted a requirement for ASIC to give any pertinent financial advice provider (including their representatives and employees) a warning or reprimand where ASIC reasonably deems certain circumstances exist (see Corporations Act section 910A ‘relevant provider’).ASIC considers that the purpose of a:

  • a warning is to caution advisors to cease whatever conduct of the adviser led to the warning
  • reprimand is to censure an advisor concerning previous actions that have since stopped.

ASIC will issue the reprimands and warning as letters to be sent electronically and must proffer a statement of reasons for its verdict to distribute a reprimand or warning.

When will ASIC issue a reprimand or warning?

ASIC will issue reprimands or warnings where the threshold of convening a Panel or the exercise of ASIC’s other powers is insufficient. Furthermore, ASIC has not and does not propose to exercise any of its powers under the corporations legislation against the pertinent provider relative to the circumstances.In this circumstance, warnings or reprimands will be issued where ASIC judiciously believes the financial advisor:

  • is not a proper and fit person to provide personal advice to retail clients concerning applicable financial products
  • has violated a financial services law
  • has become insolvent under administration
  • has been involved in the violation of a financial services law by another person
  • has,  more than once, been linked to a failure or refusal to give effect to a designation made by the Australian Financial Complaints Authority
  • has been an officer of more than one corporation unable to pay their debts; or
  • has not complied with an order made by the Tax Practitioners Board under sections 30-20 of the Tax Services Act 2009. Such orders may be concerning continuing professional development or supervision requirements.

ASIC has implied in INFO 270 that it will administer its usual triage, investigatory work and referral process when determining whether a warning or reprimand must be issued. Accordingly, warnings or reprimands will be issued only concerning conduct from 1 January 2022 onwards.

The process for issuing a warning or reprimand

If the financial advisor is an authorised licensee representative, ASIC will provide a copy of the warning or reprimand the licensee. The copy will be issued irrespective of whether the advisor was a licensee’s representative when the conduct occurred. However, ASIC will consider the effect of the warning or reprimand on the advisor’s reputation or livelihood before deciding to issue it.

Notably, ASIC will not record warnings and reprimands on the Financial Services Register.

ASIC will provide procedural fairness to financial advisors before issuing warnings or reprimands. Advisors will have the chance to make written submissions before a warning or reprimand is received. Financial advisors will also have a review right at the Australian Administrative Tribunal.

Although INFO 270 only postulates guidance concerning ASIC’s powers to give warnings and reprimands, financial advisors must still be aware that any Panel convened by ASIC can also issue warnings and reprimands in certain circumstances. In addition, advisors must also be aware of ASIC’s other powers concerning the regulation of financial advisors, including imposing banning orders or seeking enforceable undertakings.

Vogue Advisory Group – providing licensed and ethical financial advice

As accountants and financial planners, we review our practices and procedures concerning offering advice to our clients. 

If required, we involve experienced lawyers to benefit from their advice to ensure we always adhere to regulatory procedures to provide our clients with the best service and advice. We consider the regulatory and disciplinary environment an intense space and ensure that we comply entirely.

If you seek professional and ethical financial advice, contact Vogue Advisory Group, and one of our licensed financial advisers will assist you.