Requirements test planners

In the first of a three-part series on financial advisers, Gary Kleyn examines what distinguishes them from planners and why their numbers are falling.

FINANCIAL planner and financial adviser, one and the same thing, surely. Not really – financial planners are required to undergo more rigorous studies than financial advisers, who tend to specialise in providing insurance or superannuation advice.

With the introduction of the Financial Services Reform Act and what is known as IPS 146, a new regime was born that has culled the number of advisers.

The requirements have formally introduced minimum education requirements into the sector. Whereas financial planners are required to pass eight different subjects covering all aspects of financial advisory and planning services, financial advisers normally only complete three subjects. Known as the Diploma in Financial Planning 1,2 and 4, these relate to risk advising on insurance products and superannuation.

Financial Planners have the Financial Planning Association as a representative body, while the Association of Financial Advisers acts on behalf of the State’s 100 or so advisers.

The State Director of the Association of Financial Advisers, Geraldton-based Wayne Clarkson, said the advisers usually placed the insurance and accumulate funds, which were then placed with financial planners to manage.  He said many planners used the services of a specialised adviser for their insurance advice.

“It is very difficult to be a specialist in all fields,” Mr Clarkson said.

Many organisations now provide both planning and advisory services in-house.

Mr Clarkson said the stringent new education requirements introduced in July last year had led to a dramatic fall away in adviser numbers, either because of the cost of education or the training’s difficulty.

Adviser numbers in Geraldton is a case in point. A decade ago the town was home to around 60 advisers, while today the city has only eight operators, with just one new player to the industry since 1990.

Geraldton is considered representative of what is occurring throughout Australia.

“There has been a massive fallout. It has created a massive shortfall in services,” Mr Clarkson said.

As a result the public was not being served in the same way as in the past, with many reverting to providers such as banks for advice.

“The biggest concern is where is the next generation of advisers going to come from,” Mr Clark-son said.

He said the existing network structure, where larger insurers such as AXA and AMP acted as the breeding ground for new entrants, was being cut off as the larger insurers rationalised their services.

Financial planner Nick Bruining said one of the concerns that needed to be assessed when dealing with an adviser was the method of payment.

He said the Australian Securities and Investment Com-mission issued either an Investment Adviser or Securities Dealer licence.

“Whilst the difference may be subtle, in the latter, advisers can receive either a fee paid by the client, a commission from a company whose products they recommend, or both,” Mr Bruining said.

“An investment adviser can only charge a fee directly to the client and is prohibited from receiving a commission.

“In reality, most advisers operate under a dealer’s licence and, in addition to meeting the ongoing ASIC requirements, will need to comply with the dealer’s own internal rules.”

He said some advisers were ultimately owned by fund managers, with banks or other organisations viewed as a distribution channel for their institution’s own products.

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