The law may divide, but reality is blurred: Baker

The argument that the law prevents financial advisers who are really salespeople from calling themselves the former may be true in theory, but not in reality, according to Queensland financial planner Bruce Baker.

Bruce Baker of Puzzle Financial Advice has been active in making submissions to the parliamentary inquiry into financial products and services in Australia, which was formed on the back of high-profile investment collapses including Westpoint, Basis Capital and Storm Financial.

Baker previously made a submission to the inquiry arguing that regulations must ensure that “financially naïve” consumers can distinguish between financial product salespeople and advisers who act in a client’s best interest. Baker believes that had Storm Financial been “identified as a financial product sales business … fewer consumers [might] have lost money”.

Lawyer Peter Bobbin of The Argyle Partnership responded to Baker’s initial submission by pointing to the November 2008 Queensland case of Evans vs Brannelly (a Westpoint decision). That case contained a quote that Bobbin believes negates the need for further regulations or definition around the roles played by financial product salesmen versus financial advisers.

Bobbin believes the law already recognises the difference between salespeople and advisers.

But in his third submission to the inquiry Baker argued that it is “patently obvious that there are [a] large number of AFSL [representatives] who are holding themselves out as advisers, where they are actually sales reps”.

Baker said he did not accept that the statement by Judge McGill in Evans vs Brannelly “will rectify this issue by itself”.

He believes that, if, as Bobbin argued, the current financial services regulation restricted salespeople from calling themselves advisers, then “we have another case of failure to police adequately by the regulator”.

Baker said that should financial services salespeople be required to identify themselves as such, he suspected “this would leave us with a lot of sales reps and very few advisers in Australia”.

In his submission, Baker argued that there needed to be a definition of the dividing line between salesperson and adviser, which he described as currently being a “very large grey zone”.

A change to this situation would require behavioural, cultural and industry-wide structural change, he said.

Baker said he suspected that the case Bobbin referred to represented “an extreme case where the adviser was very clearly a salesperson rather than an adviser”.

“Therefore this case may not help the broader financial planning industry understand where the dividing line is between advisers and sales reps.”

He believes the “financial planning industry has a long way to go before we have truth in labelling of AFSL reps — and in my view, both regulatory and enforcement measures are required to rectify this”.