D-day looms for life advisers

OutgoingAssociation of Financial Advisers(AFA) Queensland director Robert Ross sees March 11 next year (the day when everybody has to have an FSR licence) as risk advisers’ September 11.

“At present, the impact of the new licensing has not been realised, as ‘D-day’ hasn’t arrived,” he says.

Aviva general manager marketing and distribution development Paul Northey says some risk advisers have been using theNavigatorn-able program to get FSR licences or to find a dealer group to operate in.

“Some are also electing to sell their businesses, but there have been some risk advisers taking up an FSR licence,” he says.

“There is a definite process to getting a licence, but the decision of what is best for the adviser is up to them.”

Ross says the problems for risk advisers transitioning to an FSR licence stems from some deep-seated problems.

“A major problem is that theAustralian Securities and Investments Commission(ASIC) has attempted to put risk products into the same category as investment products, and they are not the same,” he says.

“This is a desire of the regulator to make everything uniform when it is not easy to do that.”

Ross says it is like comparing vegetables with fruit and somebody saying, “well, they are all food”.

He argues the 1965 regulations, which were designed to clean up the risk business, are still effective and practical. It was also a guide produced in consultation with the relevant authorities of the day and the industry, Ross says.

MLCgeneral manager adviser distribution Matt Lawler says despite many of their advisers covering all aspects of financial planning, some advisers are specialising in risk products, especially business insurance. However, all advisers have been through MLC’s education program, which meets the requirements of PS 146.

“We have made all our advisers do the full requirements of PS 146, as we believe education is important,” he says.

“It is still important for specialist risk advisers to meet the standards, as they have to understand the full financial planning requirements of a client.”

A contentious area of the new licensing is disclosure of commissions.

Ross argues the way an adviser takes a commission depends on how they run their business.

Some advisers need to take an upfront commission because they need to cover the initial costs of underwriting the product and then will take a low trail, as a lot of costs have been covered.

Other advisers prefer a low upfront commission and a higher trail, as they need the returns further down to cover items such as the daily running of the business.

“Both are still selling the same product, it’s just they have taken different ways of being paid,” he says.

“And in the end, both ways will pay the same, despite underwriting being more complex. This has been misrepresented to the regulators and it is very hard to change it now the law is in place.”

Ross also points out many risk advisers are self-employed and they need higher commissions to cover the operating costs of their businesses. Risk advisers employed by the large institutions have many of their overheads covered.

“Commission disclosure is the biggest concern. I believe many will cope with the new requirements, but some won’t,” he says.

Lawler says all MLC advisers are already disclosing risk commissions.

“Clients understand the support to the adviser, such as training, will cost money,” he says.

“So, there is a move to increase upfront commissions as a way of payment for this support.”

The ongoing revenue is also important for the adviser when they are valuing their business, Lawler says.

Another potential problem that could loom under the new licensing regime is that if a dealer group loses its licence, then the risk advisers cannot work either.

Ross says with risk underwriting, the time working with the client to underwrite a policy can take weeks or months and if the adviser has to stop working in the middle of a policy, this can have a detrimental financial effect on the client.

“In the past, if a dealer lost their licence, ASIC could appoint someone to run the dealership, which meant the advisers could keep working,” he says.

“Now, I might be clean, but I am still suspected and that is wrong.”

However, it is not all gloom and despondency for risk advisers.

Northey sees the new licensing regime as creating opportunities for risk advisers.

“There are opportunities to expand their business, as people want to get out of the industry,” he says.

Lawler says there are professional clusters of financial planners developing that include risk advisers.

This is important as all advisers now have a clear definition of the ‘Know your client’ requirements and that will include providing advice and products to cover the risk elements of a client’s financial requirements.

Ross says some risk advisers will leave the industry before March 11 next year , but he wonders how many of those were close to retirement anyway.

“The new licences may have brought forward some retirements that were going to happen in the next two to three years,” he says.

AFSL checklist

* Undertake a self-assessment to determine whether you are comfortable in accepting the additional responsibilities.

* Identify any client ownership issues that will arise in transferring from your existing arrangements into your own Australian Financial Services Licence. Develop plans to manage these issues.

* Determine which parties you need to notify when transferring your business into an AFSL and when you need to notify these groups:

- clients;

- fund managers and other institutions;

- referral sources.

* Review professional indemnity cover for your business.

* Obtain a $20,000 performance bond.

* Nominate a responsible officer.

* Subscribe to an ASIC approved complaints resolution scheme.

* Prepare the following evidence for your AFSL application to ASIC:

- organisational expertise;

- financial requirements and PI cover;

- compliance arrangements;

- dispute resolution and research;

- authorised representative training, supervision and monitoring;

- human resources;

- risk management;

- information technology.

Source: Navigator N-able