THE NEW ERA OF THE NON-LICENSED FINANCIAL SERVICES

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Image credit: Chase Clark (@chaseelliottclark)

The great irony of financial advice regulation in Australia is that Chapter 7 of the Corporations Act covers every aspect of selling financial products, including the disclosure and behaviour obligations of AFS licensees and their representatives who advise, arrange and sell those products.

Meanwhile, life-changing strategies not involving a financial product, don’t rate a mention.  For example:

  • Financial education
  • Managing money
  • Household budgeting
  • Property affordability
  • Estate planning strategies
  • Govt. services support (e.g. Centrelink, aged care)
  • Mortgage broking (requires Australian Credit Licence authorisation)

Why is this so?

The reason is that these services lie outside the definitions of a ‘financial service’ (s766A) and ‘financial products’ (s763A-764A) for the purposes of AFS Licensing.

To add perspective, the Corporations Act 2001, including Chapter 7, was introduced to address a range of unconscionable financial product practices of the past, when most advisers were agents of life insurance companies offering high commission based super and investment products. Hence the sharp legislative focus on financial products, disclosure & conduct obligations, BID, etc.

Nevertheless, non-product advice is critically important.  It is in high demand.

And indeed for AFSL authorised advisers, the obligation to provide this type of advice when requested is heavily reinforced by both RG175 and the Financial Planners & Advisers Code of Ethics.

Interestingly though, if non-product advice is the only advice being provided, and no financial service ‘as defined’, is being provided (which includes ‘financial product advice’ plus a few other specific services), then there is no need for an AFS Licence under current law.

So what is the consequence of this?

With such a severe shortage of financial planners in Australia, it means that the door is open wider than ever for a new wave of education; strategy, coaching and other service providers to fill the much needed ‘non-financial product’ advice gap in the market.

And ironically, this demand is very likely to be met in part by of the legion of advisers who have recently been forced out of our industry; particularly given the tough and worsening economic times we are currently living through.

Such people already exist in our industry. They can’t use restricted names like financial planner and financial adviser, but they can use identifiers such as ‘Money Coach’, ‘Money Management Strategist’ and ‘Centrelink Support’.

I am not suggesting that these service providers should remain unregulated; and we certainly don’t need amateur finfluencers misguiding a vulnerable population.  As we know, bad strategy is just as dangerous for clients as inappropriate product.  It is critically important to have appropriately educated, competent professionals helping our community, because a huge proportion of low income and disadvantaged Australia is crying out for basic financial help and guidance that doesn’t involve a financial product.

Footnote: Former risk advisers please note that claims handling is now a financial service and requires an AFS Licence. See ASIC INFO 253