Why stockbrokers want legal separation from advice

Stockbrokers and investment advisers have sent a clear signal to the Australian Law Reform Commission (ALRC) that there exists a significant divide between their interests and those of financial advisers and that they need to be treated differently.

And that different treatment extends to rejecting proposals within the financial planning industry for individual adviser licensing, changing the general advice definition, changing the wholesale investor test and separate product from advice.

The message has been clearly conveyed to the ALRC by the Stockbrokers and Financial Advisers Association (SAFAA) which is insisting that a one-size-fits-all approach is undesirable, led to the failure of the Financial Adviser Standards and Ethics Authority (FASEA) and should not be repeated.

As the ALRC moves further into its review of financial planning laws and as the Treasury prepares to embark on its Quality of Advice Review the SAFAA submission appears squarely aimed at achieving a carve-out of stockbrokers and investments advisers from the financial advice regulatory regime.

“The ‘one-size-fits-all approach’ has created undesirable and unintended consequences for the stockbroking and investment advice sector. We have previously pointed out in our discussions with the Commission’s review team that one of the most egregious examples of a ‘one-size-fits-all’ approach to financial advice impacting the stockbroking and investment advice industry was the approach by the Financial Adviser Standards and Ethics Authority (FASEA) to the education standards and Code of Ethics (which were administered by FASEA until 1 January 2022),” the SAFAA submission said.

“FASEA’s lack of understanding about how stockbroking and investment advice differs from financial planning provided significant challenges to the stockbroking and investment advice profession. It is an important example of the damage that can be done to an industry when those imposing standards upon it do not fully understand the way the industry works, or take a narrow view that excludes sections of the industry.”

“It is vital that the problems caused by a myopic approach to financial advice not be repeated and that the Commission considers the full range of financial advice services when undertaking its work,” the SAFAA said.

Elsewhere in its submission, the SAFAA said, “Stockbroking is a fast-paced, time-sensitive service. That is why the Corporations Act was amended in 2003 to insert section 946B providing for further advice for market-traded products where clients required the advice to be provided promptly”.

“Scaled advice can be delivered as further advice and a Statement of Advice is not required in the case of further advice. A simplified process of providing advice to the client then arises.

“This approach can be contrasted with the financial planning advice model where advice is provided on all aspects of a client’s financial circumstances and a full financial plan prepared. An advantage to clients of scaled advice is that they do not have to pay for the time-consuming preparation of a financial plan and this reduces the overall costs of advice and allows advice to be provided in a more timely or immediate fashion.”

“Some stockbroking firms provide financial planning services and clients are informed of this so they can avail themselves of this service if they require it.”