Most people wouldn’t go to a Doctor’s surgery owned by a pharmaceutical company, and one would hope you could identify the conflict of interest. However in Australia so many individuals seek financial advice and wealth management services from financial advice companies and accounting firms owned or licensed by a Fund Manager? Coming out of the House of Representatives Standing Committee on Economics last week is yet another example of the poor outcomes when advice and product are tied. The NAB chief executive revealed more than 1100 staff failed to meet its own code of conduct in the last year alone.  It was revealed one former financial adviser who gave inappropriate advice to more than 100 clients, was allowed to resign, rather than be terminated and received a large payout.

There are countless examples of individuals like this NAB adviser walking out the door on Friday and joining another practice around the corner on Monday.  It is for these reasons we decided to obtain our own licence. Most advisers don’t go down this avenue due to the higher risk of being self licensed.  Yes there is more individual risk but it is what’s needed if financial advice in Australia needs to become a profession. This is why we decided to make the strategic decision to obtain our own licence. Teaching at a major University in Financial Planning I set students the assignment of finding an example of poor advice. Not a difficult task. What astounded me was the number of accountants and advisers who ruined the lives of so many Australians and yet resurfaced under a new licence. That was the point I realized obtaining our own Australian Financial Services Licence was just one of the solutions to improve the quality of advice and intern safe guard the access of quality advice to all Australians.

The big four banks, AMP and the like have so many ownership interests and provide licensing solutions to accounting firms and financial advice businesses. Of course these institutions should be allowed to sell products and have sales staff to answer questions about these products,  but consumers should only be going to them on the basis of having their advice needs already met. In addition they must be subject to higher standards of regulatory enforcement or unlicensed advisers given regulatory relief.  There is nothing wrong with going to Toyota if you’ve already made a decision to 1) buy a car and 2) buy a Toyota. However so many individuals walk into Accounting and Financial Advice firms licensed by the big banks, not knowing what’s the best form of transport to meet their goals. To use our car buying analogy many people when embarking on a financial journey will consider whether a car, plane, bus or boat will get them to their destination. If they decide on a car it then becomes a decision to buy a particular brand and style of vehicle. To put it simple, the problem with financial advice in Australia is you could be walking into an accounting firm or advice firm licensed by the big banks, just needing a bike and seeking real advice on how to meet your goals and just be sold a Toyota Corolla.

The second area of reform that is needed is around education standards. Whilst the government has now mandated a Bachelor Degree or it’s equivalent from 2024 the current law operates today with entry requirements below the qualifications required to practice as a hair dresser.

So don’t be afraid to ask an adviser who they are licensed through and who owns that license.