The Financial Advisers Insider’s Guide to The Better Advice Bill
The Financial Sector Reform (Hayne Royal Commission Response - Better Advice) Bill 2021 has been introduced into parliament on June 24 also known as the Better Advice Bill. This bill is set to change the advice landscape and possibly the relationship between licensees and their Authorised Representatives.
We explore what this potentially means for advisers in terms of safeguarding their livelihoods and business.
Key Deliverables of the Better Advice Bill
The Joint media release (24 June 2021) with Senator the Hon Jane Hume, The Better Advice Bill aims to:
Expand the role of the Financial Services and Credit Panel within ASIC to operate as the single disciplinary body for financial advisers to ensure that less serious misconduct does not go unaddressed.
Create additional penalties and sanctions for financial advisers who have breached their obligations under the Corporations Act, reflecting that the current set of sanctions are limited to banning a financial adviser.
Introduce a new registration system for financial advisers to improve the accountability and transparency of the financial services sector; and
Transfer functions from the Financial Adviser Standards and Ethics Authority (FASEA) to the Minister responsible for administering the Corporations Act and to ASIC to streamline the regulation of financial advisers.
What this means for Authorised Representatives or Employees of an AFSL
Tax (financial) advisers will soon no longer be regulated by the Tax Practitioners Board. They will be governed under the Corporations Act 2001.
This new system will require Financial Advisers to be individually registered, another possible step towards self-licensing of financial advisers. Further, this means that ‘relevant providers’, which includes Australian Financial Service Licensees (AFSLs) and individuals (be they Authorised Representatives (ARs) or employees of an AFSL), will have greater accountability, being subject to a greater variety and severity of penalties for non-compliance.
Section 921L of the proposed Better Advice Bill states that Financial Services and Credit Panels (FSCP) may create instruments directing relevant providers to:
undertake specified training; or
receive specified counselling; or
receive specified supervision; or
report specified matters to ASIC.
Further the FSCP may also issue:
A suspension order suspending a relevant provider’s registration.
A prohibition order that cancels the registration of a relevant provider.
It is anticipated that these new measures combined with a licensee’s obligation to report a 'significant' breach (or likely breach) of their obligations under s912A, and the tightening of these requirements, will reduce the ability to hide behind a ‘group licence’ such as a bank or insurer.
In light of these changes and increased focus on individual Advisers accountability, Advisers will need to take greater control over the quality of their advice and supporting documentation, enabling them to provide assurance that reasonable steps have been taken to ensure their advice and supporting documentation meets requirements; and that they have taken proactive measures to avoid unnecessary penalties/orders for non-compliance.
Misconceptions and Challenges faced by Advisers
Essentially, an Adviser’s key service is the delivery of financial advice, this also means that it is their key risk. As such, advisers must take steps to ensure that not only is the advice that they are providing of high quality, but that they have followed the advice process and adhered to relevant financial services laws. Undertaking compliance reviews/audits on a regular basis are an essential part of ensuring that a high quality of advice is maintained. Any compliance review/audit of that advice should extend beyond the SOA in isolation, and consideration must be given to the work and steps taken leading up to that advice.
Paraplanning
Many financial planners may engage paraplanners to assist with the creation of a statement of advice and may believe (incorrectly) that this is enough to ensure that the advice that they provide, and the advice process, is compliant. Although, there are some competent and capable paraplanners, we know firsthand that the processes, skills, technology and knowledge is very different between paraplanning and compliance. You would not ask a compliance professional to create an SOA and it stands to reason that you would not ask a paraplanner to conduct a compliance audit.
Over reliance on Licensee supervision and the inherent conflict of interest
ARs often believe that they likely do not require an independent review as their licensee performs this as part of their licensing fee. However, this it is not always the case and is not without potential inherent issues, such as, but not limited to:
Extended turn-around times between post-vet reviews which means that previously identified issues may now be systemic and possibly a significant breach, therefore obligating the AFSL to report this to ASIC (with or without the AR’s knowledge).
Long pre-vet turn-around times impacting the AR’s cash flow and client experience.
Inconsistency in review outcomes and processes causing confusion and delay.
Inability and or reluctance to obtain clear, consistent, timely and quality compliance advice.
Unreasonable and costly licensee policy restrictions on ARs, such as mandatory use of a CRM/advice software etc. for supervision and control purposes.
Mandated Advice templates that may inadvertently create a cookie cutter approach to advice, placing the adviser at risk or non-compliance.
Supervision activities (post-vet in particular) at the licensee level are for the primary purpose of reducing risk to and protecting the license, not the AR, possibly creating a false sense of security for advisers.
Conflicts of interest (actual and/or perceived) for licensees when performing internal advice audits i.e., persistent, and poor audit outcomes may result in notifiable breaches, increased AR terminations and subsequent loss or license fees.
How can Advisers and Licensees safeguard themselves and their businesses?
Advisers
In short, to avoid specified supervision orders mandated by ASIC and/or FSCP and other potential penalties, Advisers will need, and in any case would be wise, to invest in and obtain quality independent and trustworthy compliance review, assurance, and consulting support. Further, since prevention is better than cure, undertaking a pre-vet on a sample selection of SOAs on a regular basis, would be a cost effective and prudent way to check the quality of advice and rectify any process errors and gaps early on. Prevention of errors and rectification of problems early on also makes good business sense.
The Better Advice Bill may be designed to root out rogue advisers who flogged financial products and flouted rules in recent years, but it may also serve to encourage, and possibly force, the integration of a compliance review of advice into the advice process, be it pre-vet or post-vet.
Licensees
Engaging an independent compliance consultant to review advice and ensure that the licensee’s ARs are operating within their remit can assist in addressing the above mentioned potential issues, can also benefit the licensee in many ways (outlined below) and go a long way in managing conflicts of interest that may occur when performing a reviewing in-house.
How Advice Compliance Support can help you
Our aim is to protect advisers and their businesses; working with advisers to ensure that not only their advice is of high quality but that their supporting files and content support the advice.
Some initiatives and services built to support advisers in achieving high quality advice and compliance include:
Several years of investment and development have gone into creating tailored financial advice compliance review software that incorporates current processes and requirements that can be tailored to any regulatory obligation or policy. (No, this is not one of those gimmicky "AI" fancy-shmancy word search programs that result in many false positives and wasted time.)
Creating and implementing a business model – which we call Parapliance - that advisers and licensees can quickly and easily adopt to enhance quality and assurance of their advice and advice processes.
Our service combines financial services compliance and legal professionals with paraplanning, to create a tailored seamless advice creation, review process and support system for advice professionals and licensees.
We can and do work with paraplanning to integrate pre-vet of advice and supporting documentation to deliver quick turn arounds and a total advice support solution.
We have combined technology, expertise and ongoing improvement and updates to ensure not quick turnaround times and high assurance quality of pre and post reviews. Which means your advice gets to clients faster with less risk to both you and your client.
We can review files in multiple locations and format and do not need to be stored within a specific CRM system to be effectively reviewed.
We work with advisers to ensure that their client files are robust and support the advice.
Providing confidential, consistent, clear and reliable risk and compliance consultation to advisers.
Engaging an independent compliance consultant to review advice and supporting documentation can remove actual or perceived conflicts of interest.
Nikolas Kloufetos, Managing director, Advice Compliance Support
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