There are currently around 16,000 financial planners among a body of more than 200,000 authorised representatives in the financial services industry.
For the average Australian seeking financial advice, finding a financial planner in this vast pool of advisers may not be the easiest task at present.
"It's like looking for a needle in a haystack at the moment and we want to move away from that so that people understand who they're talking to and for what reason," FPA chief executive Jo-Anne Bloch says.
This current predicament may change as a result of potential legislation that could arise from the Parliamentary Joint Committee (PJC) on Corporations and Financial Services Inquiry into Financial Products and Services in Australia.
In a majority of submissions to the PJC, various associations and industry stakeholders have pushed for a distinction between financial planners and product advisers.
Many industry participants believe such a move would potentially provide more transparency and clarity for consumers and would work to help them understand whether they are being provided with financial advice or sold a product.
Bloch says the FPA would like the term financial planner to be enshrined in law and to have attached to it a fiduciary duty of care to the client, to have commission-free remuneration structures, to have higher standards of education and competence, and to have professional obligations.
"You've got this huge number of authorised representatives - many of whom hold themselves out to be a financial planner or a financial adviser - when in fact they would not meet the terms that I have just set out," she says.
"So you've got this body of authorised representatives which indicates that they are authorised by a licensee to give some form of advice - general, personal, limited or whatever.
"We're saying that's all very well and good but if you want to be a professional financial planner and give strategic advice as well as product recommendations, we would like the term financial planner enshrined so you are differentiating on top of the term authorised representative.
"That would also mean that people who are product solution providers, brokers, mortgage brokers, risk advisers could still be authorised representatives, they could still earn commission, they could still be RG146 compliant, they just couldn't use the term financial planner."
ASIC noted in its submission to the PJC that many people who give advice, no matter what level of advice they are authorised to give, often hide behind a brand that does not reflect the true licence holder at the end of the value chain.
MLC and NAB Wealth executive general manager of advice and marketing Richard Nunn admits one of the criticisms that could be levelled at the industry is that clients are not necessarily clear about the level of involvement product manufacturers have in their advisers' businesses.
"So we've put forward a model to the PJC which we hope will help clear some of that up. It basically recommends that advisers make a decision on how they want to be represented and it comes down to two clear definitions," Nunn says.
"You're either an affiliated adviser or you're an independent adviser - we think that's the fairest way for financial planners to represent themselves and the most transparent way to represent themselves to customers."
However, Paragem Dealer Services managing director Ian Knox says while there is a groundswell of opinion that new titles are needed in the industry, the great danger is that consumers would not have a clue what the difference is; only people working in the industry would understand.
"So I think it would be foolhardy to come out and classify someone as a financial planner or an investment adviser or a risk adviser because a consumer wouldn't have a clue on the differences and I'm not sure many people in the industry would either," Knox says.
What is required is a universal language that a consumer would understand, he says.
"If we achieve that then we've made significant progress. The word that I think everyone despises because of history is 'agent' and yet it is probably the most simplistic approach that if you are representing, for example, the Westpac Group, you should be called a Westpac agent," he says.
"It's a much clearer step forward and from my thinking we're tinkering at the edges when we start redesignating titles with definition differences between investment advisers, financial planner, authorised representative, et cetera. I don't think that will make the slightest bit of difference." While ASIC currently has licensing obligations and responsibilities that mean it is less able to intervene in terms of authorised representatives within a licence, its PJC submission flagged that it would like greater powers to deal more directly with authorised representatives.
"Conduct and disclosure obligations of the FSR (financial services reform) regime are largely imposed on the AFS (Australian financial services) licensee, not the representatives who work for that entity," the submission said.
As a result, this focus on the entity limits ASIC's ability to control the individual participants in the financial services industry.
"On the whole, ASIC must rely on licensees to ensure the competence and integrity of their representatives in the financial services industry. ASIC can experience difficulties in locating and taking action against the so-called bad apples in the financial services industry," the submission said.
While ASIC states it has worked to deal with the issue of problem representatives moving from licensee to licensee, its ability to ban individuals from the industry is also limited.
Currently, the banning power does not explicitly permit the corporate watchdog to take action against an individual who is involved in a contravention of the financial services law by another person, such as its authorising licensee.
ASIC believes the federal government should consider the merits of enhancing its power to act against individuals by amending the banning power in three areas.
These include ASIC being able to ban an individual, after a hearing, where a person is 'involved' in a contravention of a financial services law by another person, that is, their authorising licensee or another person.
The regulator would also like to be able to ban an individual, after a hearing, where ASIC has reason to believe the person is not a 'fit and proper' person to engage in financial services.
It would also like to replace the existing grounds for banning a person where it has reason to believe the person 'will not comply' with section 912A of the Corporations Act or a financial services law with the slightly lower standard of 'may not comply' or 'is likely not to comply'.
"Together these three changes, if introduced, would enhance ASIC's ability to identify and ban individuals who are likely to cause investor losses," the submission said.
"These powers would increase the range of matters ASIC can take into account at the banning stage and make the banning power more like a 'negative licensing' power."
If ASIC was granted this power, Knox says it would be a positive step for the industry.
"I think it's a good thing because basically what they're looking to do is clean the industry up and I think what that will stop is authorised representatives hiding behind the licensee's obligations," he says.
"In some instances there may be individuals within a licence who behave badly and if it's on the odd occasion and it's only an odd bad apple, it's very difficult to penalise a licensee with perhaps 400 representatives when only one person is very bad."
He adds the industry is currently littered with authorised representatives who sometimes have their authorised representative status withdrawn from one licensee and they go to another within the same week.
"To my knowledge there's no immediate register available that a licensee could go to and check a person's status, other than doing personal reference checks," he says.
Potential legislative changes that may transpire from the PJC findings could also mean decision time for licensees on a number of fronts.
Nunn says if the market ends up going down the path of implementing an affiliated and independent adviser model, then licensees will have to make a decision on what model they want to operate under.
"So where you've got licensees out there that have minority stakes or minority equity holdings from manufacturers that are receiving rebates from manufacturers, they're going to have to make a decision what of those two operating models they want to line up under and they'll have to make the appropriate changes in their businesses," he says. Bloch says licensees may also need to determine the role of each of their authorised representatives.
"The question will be what those authorised representatives can call themselves to their clients and to the world," she says.
"So we feel very sure that there will be some form of differentiation within the licensee between those authorised reps who are simply authorised to do certain things by the licensee under Corporations Law and those who are actually financial planners."
In the coming years there may also be new educational criteria for authorised representatives to adhere to.
"Ultimately consumers need to know that they're dealing with people both with the qualifications and the knowledge and the experience to build their financial plans and to help them on their financial pathway through life," Association of Financial Advisers chief executive Richard Klipin says.
Nunn says if the financial planning profession is to be taken as seriously as the accounting or the legal professions, the educational requirements for newcomers entering the industry will have to increase significantly.
"We think for the new entrants into the industry that an undergraduate degree in financial planning or an undergraduate degree with an advanced diploma in financial planning would be the minimum acceptable levels that we think someone should have before they can sit in front of the client and start giving advice," he says.
AMP director of financial planning, advice and services Steve Helmich agrees the barriers to entry will rise in the near future.
"It's inevitable that as financial planning becomes a profession that the barriers to entry will increase. I think in five years' time that will become reality certainly by then, maybe even earlier," Helmich says.
"Now part of that means it might be harder for licensees and others to find authorised reps and how they'll do it and there will have to be more structure around doing that, so there could be an even greater shortage of authorised reps in the future than there is today."
It is clear there are various factors that could alter the authorised representative space in the near future. As such, industry participants have mixed outlooks of what the landscape for these advisers could look like in five years.
"We hope the landscape looks very different as soon as possible because the problem we face is there are too many authorised representatives holding themselves out as financial planners, when in fact they aren't," Bloch says.
"We think that the most critical issue facing financial planning is that a consumer cannot tell the difference between a genuine financial planner and an authorised representative."
On the other hand, Knox does not believe the landscape will be hugely different.
"I think most of the financial planning industry has always been controlled by the supply and demand issues of dealer groups being bought out for purposes of distribution by institutions," he says.
"Although the industry has grown dramatically and improved over the last 10 years, it's always been approximately 70 per cent owned by institutions and 30 per cent independent and I think there's a natural balancing act in that."
Although there is always much industry talk around consolidation, he argues that every time there is consolidation there is equally a grouping of people who leave and who are dissatisfied with the merger.
"Now for example, if AMP and Axa merge, one would have to assume that there would be hundreds and hundreds of authorised representatives not wishing to represent that combined model," he says.
"Consequently, many of them would get their own licence and may well go and join dealer networks, and I think that natural balancing appears to always sit around the 70/30 mark."
Klipin says the global financial crisis has led to more consolidation in the market, which he notes has its advantages for the industry. "The consolidation issue is a good one because it means the big organisations have reputational risk and they'll always stand behind their brand to ensure their clients are well looked after," he says.
"The downside risk is that what we don't want to do away with in the marketplace is a strong independent sector because that competition and diversity means that there's choice for consumers, there's choice for advisers and competition is one of the strongest ways to manage outcomes for consumers.
"But in a couple years' time there will be brands that are around today that won't be around then."
Knox agrees, however, he argues that this is a cyclical part of the industry that has always existed.
"If a business is large and struggling financially, it will get taken over because of the opportunistic buy of a bigger player, so you rarely find a very large dealership being allowed to go into administration because institutions go in and they're willing to pick it up for a cheaper rate than would ordinarily be the case," he says.
"With the legislative changes that are being discussed, if volume bonus rebates and kickbacks to dealer heads disappear, if a large dealer doesn't have a value proposition it is highly unlikely that they will survive over the next three to five years."
The issue for dealer groups will be whether or not they have a value proposition they can communicate to the authorised representatives as to why the authorised reps should be with them, he says.
"In present times, that's an interesting debate because there isn't much evidence of dealers growing disproportionately big and attracting high-quality practices," he says.
"So if a dealership says they've grown by 100 advisers, the real question is have they grown by 100 quality advisers and how do they measure that quality?"
Meanwhile, Helmich says he would be surprised if any of the advice brands of the vertically-integrated models are not around in the years to come.
"The vertically-integrated model, like we've got say at AMP and like others have got, has some real benefits in that there's some solid people standing behind the advice," he says.
"They're strong and people use them and people have a lot of comfort knowing that the AMP brand stands behind the advice given by an AMP or a Hillross planner, so if there was pressure on the value chain, it could well be that some mid-sized licensees might find it a bit harder."
While the middle ground might be a little tougher to survive in, Helmich adds that boutiques will survive and prosper because of the market niche they have with their clients.
"Look, everyone's game has to be really consumer focused. I'm not sure independence is worth more than having a good capital adequacy behind the advice. I think some of the failures we've seen have been independent groups - Storm Financial is a standout one there," he says.
"So there's a value in that vertically-integrated model where there's some good capital standing behind the advice that's provided, and when we talk to people who don't use financial planners in our market surveys, that resonates with a pretty high percentage of people and they understand that."
Klipin says the issues around the value, price and affordability of advice will play a significant role in whether the entire industry moves to a fee-based advice model or a mixture of both a fee and commission model.
"Obviously the role of associations becomes important as indeed the role of licensees is to help advisers on that journey and to understand part of that value chain," he says.
"For many advisers they're well down this path so there's going to be very little change for them. But there are obviously some advisers where that's not the case and it's that segment of the market that we're going to have to help to transition.
"They need to understand the value they deliver, the value it costs so they can charge their clients accordingly, and that's good practice irrespective of whether a fee model is in place or a commission model is in place."
Similarly, Nunn says the remuneration structure of an adviser's business and how they actually levy fees off their clients is one issue that is currently top of mind for most. "We think the industry should position itself in terms of having advice fees for investment and superannuation," he says.
"Now whether that will come out in the PJC findings or not, I don't know, but I think there wouldn't be too many financial planners out there that aren't actually thinking about how they should set their businesses up for the future."
Helmich adds authorised representatives that are risk advisers will have an opportunity to prosper in the future, regardless of potential legislation.
"How long commissions remain in that part of the world is anyone's guess - there are some reasons why they've been carved out in both IFSA (Investment and Financial Services Association) and FPA, but I don't think that will be carved out forever," he says.
The new entrants currently filtering into the financial planning profession also potentially represent a new era for the industry.
"It's almost an evolution," Klipin says.
Helmich observes AMP has already noticed this trend with the candidates coming into the company's Horizons Academy.
"They're handling all the changes that are coming in from this year better than maybe others that have been around for a while. It's like anything, newer people are more malleable; they adopt and adapt a lot more quickly . so I think you'll see a new breed of professionals in the future," he says.
"Don't get me wrong here; I'm not saying that the people we've got now aren't professional, but I think you'll see a new breed of professional coming through with a different focus because they've come from a different set up."
Nunn also agrees there is an opportunity for the new entrants to help shape the level of professionalism in the industry.
"Clearly the education levels are going up, so if you look at our own dealer groups - particularly our salary channels - we do look for at least an undergraduate qualification before taking them on, so we'd like to think so," he says.
"But at the same time we shouldn't take anything away from the advisers that are already in the industry that have got vast experience - many of them are CFP (certified financial planner) qualified, but we think we want to focus our attention on new people coming in to help raise the overall standards."
Bloch is optimistic entry-level graduates coming into financial planning want to be called financial planners and deliver genuine financial planning and advice.
"They will all do a lot more than what the minimum requirements are to be an authorised representative," she says.
"I think maybe the other way to look at it is an authorised representative in our mind is a minimum entry level, it's a licensing issue, it says that your licensee has entrusted you to conduct certain activities.
"That's all well and good, but there are 200,000-plus of those financial product advisers or authorised representatives and we're not actually that interested in that whole population.
"We're interested in those who are giving advice as well as making product recommendations and the younger generation is equally as interested in adopting the full extent of professional obligation."
