Licensees to be Publicly Rated Under New Proposal

Advisers and consumers may be able to assess the quality and risk factors associated with a licensee under a new ratings system that is being put forward by research group, Adviser Ratings.

Adviser Ratings Chief Executive – Wealth, Mark Hoven

In a proposal released for industry comment, Adviser Ratings stated it would use two ratings with each licensee, the first based on publicly available or commercially procured data and the second based on proprietary information supplied directly by the licensee.

In a white paper accompanying the proposal, Adviser Ratings described the two ratings as ‘unsolicited’ and ‘solicited’, respectively, and stated that it planned on publishing all unsolicited ratings, which would be based on quantitative and qualitative factors assessed by the group.

These factors would include:

  • Details of the directors of a licensee and their backgrounds
  • Past and current licence conditions, and enforceable undertakings, imposed on the licensee
  • The content and construction of a licensee’s Approved Product List
  • Adviser bannings or disqualifications within the licensee
  • Qualifications and employment history of advisers within the licensee

The solicited ratings, which would be developed with the active participation of licensees, would be based on management level and organisational information, including:

  • Licensee compliance records and reported breaches
  • Number of FOS complaints and rulings
  • Results of external compliance review reports
  • Internal adviser reviews and supervision data
  • Protocols for accepting new advisers, and dismissing or releasing advisers

“Together, these factors help form a set of analytical judgments that drive the quality of financial advice rating that we assign to each Licensee. This rating expresses our view on the likelihood of favourable outcomes for a client, including reduced risk of misconduct and fraud,” the white paper stated.

The author of the whitepaper, University of New South Wales (UNSW) Business School, Professor of Finance, Jerry Parwada said the proposal was the result of consultations between Adviser ratings, the advice sector, government and regulatory bodies.

“The focal point of our methodology is to predict actions within a licensee that are detrimental to client’s interests,” Parwada said, adding the chief actions of concern were instances of misconduct.

“At stake is the threat to retail customers’ willingness to access financial planning services. Recent studies show that even indirect exposure to misconduct destroys trust and results in non-participation,” he said.

Adviser Ratings, Chief Executive – Wealth, Mark Hoven said the loss of confidence in institutions and the wider advice market required an evidence-based, scientifically validated service.

“We believe a summary indicator of adviser quality like a licensee rating based on a consistent and transparent methodology would vastly improve the way customers search for and track the ongoing status of financial advice providers,” Hoven said.

“Ultimately, we are seeking to assess if licensees are creating and nurturing a culture and operating environment that allows financial advisers to deliver high-quality professional advice in the best interests of their customers,” he added.

  • John Doe

    May I suggest that this system may be a worthwhile reference for advisers but not for Consumers. Consumers deal with their advisers, they really do not care nor understand the concept of a licensee, let alone detail such as Enforceable Undertakings and APL’s.

    The statement – “We believe a summary indicator of adviser quality like a licensee rating based on a consistent and transparent methodology would vastly improve the way customers search for and track the ongoing status of financial advice providers” implies that consumers actually engage in such research.
    Why doesn’t someone conduct a comprehensive analysis of the online and direct life insurers and make such findings public so that consumers know exactly what they are getting into before purchasing such a contract. Now there’s a novel idea. Actually acting in the best interests of consumers!

    • Old Risky

      Re Adviser Ratings. I have asked this quetion before but GOT NO response – IS ADVISER RATINGS ACTING AS A FRONT FOR AN ALTERNATE AFSL. ? Exactly what is their interest in AFSLS?. As noted above, clients do not understand the licencing syststem, NOR DO THEY CARE !

      Only ASIC thinks clients choose the ADVISER they deal with based on the size of the AFSL . That was always a big end of town argument,favouring our mates the BANKS. ASIC always loved the idea of a lot less licences because it made supervision cheap. And besides, ASIC could trust the BANKS- they were part of THE CLUB

      All of the rubbish revealed at the RC was not new .