A necessary separation

Providing regulatory backing for the separation of product sales from advice should be welcomed by the broader financial planning community.

The Financial Planning Association (FPA) is to be heartily congratulated for the 10-point plan it took to last month’s Senate Committee hearing substantially advocating a firmer legislative and regulatory separation of advice from product sales.

Putting aside those elements of the FPA’s 10-point plan and accompanying white paper which were clearly aimed at entrenching its own centrality as a professional standards organisation, the message delivered to the Senate committee was timely, pertinent and highly effective in getting the post-Future of Financial Advice debate back on track.

In one fell swoop, the FPA’s 10-point plan succeeded in putting the lie to industry fund suggestions that the financial planning industry was in any way interested in bringing back commission-based remuneration or, for that matter, encouraging product flogging.

The essence of the FPA approach is that those people who are directly involved in the dissemination and sale of financial products should be clearly identified to clients and consumers as doing so, while those who are in the business of providing genuine, holistic financial advice and are suitably qualified to do so, should be able to call themselves “financial planner/adviser”.

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Under the FPA proposal, being suitably qualified to call yourself a “financial planner/adviser” will not be easy, requiring a combination of higher education standards, membership of an approved professional body, relevant experience and continuing professional development. Further, the FPA wants the whole process enshrined in law and made part of the Corporations Act.

But the central element in this approach is that product sales be thoroughly decoupled from the provision of advice.

As with most things, implementing this simple objective requires an element of complexity, but the starting point is calling a spade a spade, with the FPA urging that “General Advice” be re-termed “General or Product Information”’ and be limited to the provision of ‘factual information and/or explanations’ relating to financial products.

By definition, this will mean those involved in selling products on behalf of a bank or superannuation fund will not be able to call themselves “financial planner/adviser” and will need to clearly convey their status to clients or fund members.

In a very real sense, execution of the FPA’s 10-point plan would create clearly defined divisions in the industry with the greatest impact likely to be felt within the internal distribution arms of the major banks and some superannuation funds where the provision of general and scaled advice is the often the order of the day.

The Federal Government, up to now, has shown no great inclination to move to enshrine the term “financial planner/adviser” but it may see merit in doing so in the context of implementing a regime which strives to permanently separate product from advice.

For those financial planners who have suffered collateral damage from product failures, a more clearly defined separation would undoubtedly be welcomed.