Australia’s Financial Advice Landscape

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Australia’s Financial Advice Landscape

Australia’s financial system is complex. It also requires that we as individuals take charge. Whilst it’s likely that the Age Pension will continue to provide a baseline of support for those late in life, our system is designed around people providing for themselves.

So we’re presented with an interesting challenge. A complex system, but one in which we all must engage.

An appropriate response for most Australians is to seek out advice. In this week’s episode I’ll take you through Australia’s financial advice landscape. How is financial advice in Australia regulated? How are consumers protected? What should you expect when you obtain financial advice? And as a bit of an aside, what happened to the finfluencers that used to pop up on your Instagram or TikToc feed?

Thanks for listening to another episode of the Financial Autonomy podcast. Our mission here is to help you gain choice in life. Let’s jump into this week’s episode, Australia’s financial advice landscape.



What’s the difference between a Financial Adviser and a Financial Planner?


Have you ever wondered what’s the difference between a financial advisor and a financial planner? If you have, you’re not alone. It’s a question I get asked several times each year. The answer is there is absolutely no difference. They are one and the same. There is now legislation in place to control who can use those terms, and it makes clear that they are entirely interchangeable.

General vs Personal Advice


You will have heard me and many other Australian financial podcasters provide a general advice disclaimer. Ever wondered why?


It’s because the laws surrounding financial advice make a distinction between general advice and personal advice. General advice is basic factual information, so for instance the costs of a particular fund, or the contribution limits for superannuation. You stray into personal advice when someone’s particular circumstances are being considered. So for instance if you and I caught up and you provided me with some information on the superannuation contributions you’ve been making and asked how much should you contribute this year, that would become personal advice, because it’s advice that considers your specific circumstances.


Once advice becomes personal, an enormous weight of regulatory requirements immediately come into play. We’ll explore some of those shortly, but the key thing to appreciate at this point is that if you seek out financial advice services, the moment the advisor learns about and takes account of your particular circumstances, they will be providing personal advice and therefore need to comply with all the laws that that entails.



What is a Fiduciary?


A question I got recently from a client, (hello Jeremy if you’re listening), was what is a fiduciary? This is a term that you might hear in US podcasts or discussion threads. The definition of the word fiduciary is that it applies to someone who is in a position of trust and imposes an obligation on them to act in the best interests of those that have entrusted them with this role. In the United States, they commonly use this term to refer to a type of financial planner that is not tied to a bank or major financial institution. It’s pointing to the idea of independence though it certainly wouldn’t meet the definition of independence that we have here in Australia. They need to make that distinction in the United States, because over there they have this second tier of advisors who work at the major financial institutions and who don’t have a best interest type duty. They are more simply salespeople for the company that they work for.


Operating as a fiduciary, where the advisor is required to always act in the clients’ best interests, is the system that all financial planners must operate under here in Australia. We don’t have that second sales person type tier that they do in the United States. So whilst we don’t use this fiduciary term, the concept is consistent when it comes to quality advice.





Let’s dig in a little now to Australia’s financial advice framework. The starting point is an Australian Financial Services Licence, abbreviated to AFSL. Most businesses that operate within the financial system here in Australia are required to hold an AFSL. This licence is granted by ASIC and will allow the holder to provide particular services, one of which is financial advice services.


Individuals don’t hold AFSL’s, companies do, and then individual planners are authorised to operate under that licence. So for instance the structure that I operate under is that myself and another planner who is my business partner own a company called Sprout Financial Pty Limited and that has an AFSL. That entity then authorises myself, and the other advisors that we have in the business.


The AFSL holder is responsible for the conduct of all the advisors that operate underneath it. It must have an annual audit, and provide various reports to ASIC. It is required to hold appropriate professional indemnity insurance, and be a member of a dispute resolution body.


Obtaining an AFSL is no easy thing, quite rightly. As an indication, it took us a little short of one year to go through the process and obtain our licence. Prior to obtaining our own licence, we were authorised through a larger financial planning group.


Requirements to be able to provide advice


So the Australian Financial Services Licence is the top of the tree if you like, in terms of the regulation of financial planning. Sitting underneath that are the individual advisors. To become a financial advisor today in Australia you need to have done a relevant degree, completed a supervised professional year, and successfully passed a competency exam.


Once authorised to provide advice the advisor must then do a minimum of 40 hours per year of professional development training, spread across several different categories such as technical, ethics, regulatory, etc.




There’s a couple of key documents that you will come across when receiving financial planning advice. The first is the Financial Services Guide. This is a fairly dry document but one that all advisors are required to provide to clients at the start of working together. It outlines the key details of the advisors services, their licencing details, privacy policy, complaints handling process, and will broadly set out the fee parameters.


If you go to the Advice page on our Financial Autonomy website you’ll see there’s a link there to our Financial Services Guide if you’re interested in taking a look at one.




The more significant and helpful document is the Statement of Advice. This is the document where your advisor will provide and explain all the recommendations that they give to you. It is a legal requirement that any advice an advisor provides is recorded in a Statement of Advice. This is an important element to understand. When you go to see your doctor, or perhaps a solicitor, you can ask them a question and they can provide you with an answer on the spot. Your financial planner cannot do that. Any advice they give must be in written form in a formal Statement of Advice document. It’s this process that trips some people up. They have what in their mind is a relatively simple question, and they just want to sit down with an advisor and have a 30 minute or one hour discussion to get it resolved. Unfortunately, at least as things sit at this moment, Financial advisors are prevented from operating in this fashion. It’s frustrating, and certainly something that our professional association is constantly lobbying to have changed, but at present that is the way that it is.


Statements of Advice are detailed documents that will confirm your current position including balance sheet, cash flow, personal insurances, and anything else that is relevant. They will confirm your agreed upon risk profile and your stated objectives. All the advice will be provided in there, along with any modelling and scenario analysis. If there’s a recommendation to replace one product with another, there will be comparison tables. All fees will be disclosed and if there are any commissions associated with personal insurance, they will be disclosed as well.


Most of the Statements of Advice we produce 50- 60 pages long, to give you a sense of the degree of detail involved.




Once you have had a Statement of Advice prepared, there is a bit more flexibility when it comes to your advisor providing you with further assistance. So long as this further advice is consistent with the issues originally canvassed in the Statement of Advice, it is possible for your advisor to provide this assistance without having to do a new Statement of Advice once again. Instead there are provisions for the advisor to record the interaction and advice given on what essentially amounts to a formal diary note, which is officially called a Record of Advice. In this way you can perhaps think of your Statement of Advice as a foundation document, a starting point for your advice relationship, that then enables future servicing with a less onerous and costly process.


Ongoing Support


Most financial planning strategies take time to bear fruit. Often then it is the case that you will work with your financial planner on an ongoing basis. Different businesses have different ways that they charge for these type of services, but however it’s structured, you as the client are required to confirm every year that you wish to continue to receive this service. As part of this renewal process you will be advised of the fees you paid in the previous 12 months and be given an estimate of what the fees are likely to be for the next 12 months.


What happened to the FinFluencers?


To summarise then if you decide to obtain financial advice in Australia, your advisor will be authorised through a holder of an Australian Financial Services Licence. Your advisor will provide you with a Financial Services Guide, either at your first meeting, or prior to that meeting. They will then document their advice to you in a Statement of Advice. And if you need future assistance on matters contained within that original Statement of Advice, they will be able to assist you without the need for an overly onerous documentation process.


Before we wrap up, it’s worth also mentioning the plight of social media financial commentators commonly known as “finfluences”. You might have noticed that financial content on your social media streams has died down considerably in the last six months or so. ASIC undertook a crackdown on unlicensed financial advice with finfluences being the primary target. Many of the major content produces where invited into a meeting with ASIC, and essentially read the riot act about what is and is not allowed within our financial advice landscape. The upshot was that most decided to cease producing this content, in preference to risking very harsh potential penalties.


Broadly, I think the regulator is to be applauded for endeavouring to protect Australian consumers from inaccurate and possibly very costly financial advice. It is however a bit unfortunate that now what we’re left with is inaccurate and possibly very costly financial advice coming from offshore providers instead. This is even less likely to be suitable to us given the uniqueness of our system, but the regulators arm can only stretch so far.

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