Is the AFSL regime necessary for a true profession?

Questions have been raised regarding the current Australian Financial Services licensing regime, and the role that licensees have to play.

Amid the push for the financial advice industry to be recognised as a fully fledged profession, two commentators have explored some of the downfalls in the way that financial advisers are licensed.

AFSLs are issued by ASIC under Chapter 7 (section 911A) of the Corporations Act 2001 if an entity operates a business involving the provision of a financial service and/or a financial product.

According to Wealth Data and Adviser Ratings, there are more than 1,800 active AFSLs currently operating in Australia, with the largest being AMP Group.

Earlier this month, ASIC commissioner Alan Kirkland stated: “ASIC’s licensing and professional registration function plays a key gatekeeping role by ensuring new licensees and registered professionals meet the necessary thresholds.”

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But in conversation with Money Management, Jenny Rolfe-Wallace, founder of Sprout Education Group and former adviser, recognised there are significant differences in the way that advisers are licensed compared to other industries.

“Everyone is talking about financial advice being a profession now and other professions don’t have anything like this at all. If you look at engineers or accountants or medical practitioners, there is regulation and there is licensing, but there’s not a licensee structure,” she said.

“There’s not that extra layer of compliance that goes in between and adds a cost burden that eventually gets passed on to clients. When we’re talking about making advice accessible and affordable, I think we need to talk about the elephant in the room that is licensees.”

She argued that due to the poor behaviour of a select few individuals, the vast majority of compliant advisers are being impacted by licensees regulating for the “lowest common denominator”.

“There are far more great advisers than there are poor ones. But in the minds of the people that are making the law, I think it’s easier to think of the low hanging fruit of the people who have not conducted themselves ethically and to regulate for the lowest common denominator, instead of going: ‘Actually, we have an amazingly well-qualified workforce out there who genuinely wants to work in the best interests of their clients, but we’re actually putting barriers in the way of them doing that’,” Rolfe-Wallace continued.

“I think if we’re genuine about professionalism, [that] inherently requires individuals to be accountable for their actions.”

Responding to these comments, Financial Advice Association Australia (FAAA) CEO Sarah Abood agreed that the lion’s share of advisers are doing the right thing and operate as true professionals, but the licensing regime isn’t perfect.

“We also agree that the current licensing regime has challenges and needs improvement,” she remarked.

Abood noted that prior to the FAAA’s merger of the Financial Planning Association of Australia (FPA) and the Association of Financial Advisers (AFA), the FPA had held a policy position suggesting the removal of the current AFSL regime altogether.

Since the two bodies merged to form the FAAA, the association is committed to the “continued professionalisation of financial advice”, she stated, which includes the overall goal of having advisers operate as a self-regulated profession.

However, the FAAA CEO said that AFSLs still play a vital role in the existing environment and any changes are unlikely to happen imminently due to regulatory and legislative hurdles.

She elaborated: “Licensees are critically important in the current regulatory regime. Any changes to the regime will require significant changes to the Corporations Act, professional indemnity insurance and external dispute resolution requirements. These are unlikely to happen quickly.”

Help for self-licensed advisers

A positive that Abood identified is the way that AFSLs have pivoted their offerings in evolving with the adviser landscape since the changes and upheaval since the Hayne royal commission.

Licensees have expanded their services offerings outside of purely enabling advice practices to operate under their AFSL to include services such as compliance coaching, practice development, training and education, technology and product support.

This is particularly timely as a way for large licensees to retain a presence with advisers given the growing number of advisers who are opting to become self-licensed, rather than work with a large AFSL.

Wealth Data analysis earlier this month revealed that holistic AFSLs with 100 or more advisers have halved from 50 in January 2019 to just 25 in October 2024. Meanwhile, licensees with one to two advisers have increased 54 per cent from 565 to 869 over the five-year period.

Abood said: “Licensees today also provide many services to advisers beyond licensing, and the other professions have businesses like these that support professionals in their fields. Such as BDO, KPMG, Pitcher Partners, etc in accounting, or Qualitas, Ramsay Health Care, Sonic Healthcare, etc in medicine.

“They are providing valuable services and support and operating consistently with the individual responsibilities of the professionals they work with,” Abood said.

The shift towards advisers running their own AFSL has prompted larger licensees to demonstrate their value with their support services, such as AMP’s Jigsaw Advice Solutions for self-licensed practices.

One of the key benefits it provides is “access to a great community” to learn and exchange ideas with others, according to Daryl Stout, national business growth manager at Jigsaw.

“More work is needed to build understanding among advisers around how a licensee value proposition can support growth, attract and retain clients, assist with business efficiency and profitability and business valuations, while at the same time providing an appropriate governance structure and encouraging professional development,” Stout said.