Why you could be seeing an unlicensed financial planner


How comfortable would you be seeing a financial planner without a financial licence? Some start-up companies might soon be able to operate for a limited time without a proper financial licence.

The Australian Securities and Investments Commission (ASIC) released a consultation paper in June outlining possible measures to regulate the fintech industry and make it easier for financial start-ups to grow.

ASIC's 'sandbox' proposal suggests a licensing waiver for start-up financial services which provide services to no more than 100 retail clients, each with a maximum exposure limit of $10,000.

unlicensed financial planner

The waiver would only be valid for six months and available to less complex products of a short duration including robo-advice, but not products that are over longer time frames like superannuation.

These relaxed rules might be all well and good for the start-up community, but does it put consumers at risk?

Dante De Gori, CEO of the Financial Planning Association (FPA), says ASIC's sandbox proposal is a threat to consumer safety.

While De Gori is staunch on this particular issue, he says it's important to note that the FPA is not anti-robo-advice or anti-innovation - it is just concerned that ASIC is trying to help the start-up community in the wrong way.

"[ASIC has] basically given them six months to do what they like. We don't agree with that, we don't support that," De Gori says.

According to ASIC's proposed rules, fintechs will need to have dispute resolution and compensation arrangements in place, and also have sponsorship from an ASIC-approved organisation. Chris Brycki, CEO of automated-investing service Stockspot, supports ASIC's proposal as long as all of the measures are adopted as a package.

"We support the sandbox concept for fintech if it lets small innovative firms overcome regulatory uncertainty and reduce the time and cost to market," Brycki says.

"Companies still must apply to ASIC and be 'sponsored' by a larger business to limit potential risk for consumers. It comes down to what is best for consumers and ASIC doing more to encourage innovation, competition and transparency will ultimately benefit consumers."

Despite the restrictions in place that would prevent 'sandboxed' start-ups from handling big sums of money for a large amount of clients, De Gori says that the measures still pose real risks to consumers.

"[The sandbox] opens up the opportunity for consumers to engage in financial services without being afforded the appropriate protections that they deserve or expect," he says.

"Whether it's one or 100 clients, they all deserve to be fully aware of the lack of protections that they will be afforded by engaging with one of these fintechs."

De Gori says that there are other ways that ASIC could help the Australian start-up community without putting consumers at risk. He suggests ASIC could look into providing better assistance for licensing, reducing or removing fees for new companies or introducing a cheaper provisional licence until start-ups land on their feet. In any case, he believes consumers need to be fully aware of what they're getting into and more questions need to be asked about what steps ASIC will take to ensure that happens.

"How heavy is ASIC going to be in informing the consumer? What obligations are going to be on these fintechs to really make sure that the retail investor is 110% agreeing to enter into a scenario where they are waiving their rights?" De Gori says.

"I think if ASIC's objective is to enable and to foster opportunities for fintechs to enter financial services - that's great and we'll support that. But don't do it at the expense of the protection of the consumer."

While consumer safety is a concern for Brycki, he says at the end of the day licensing doesn't necessarily mean a safe product.

"Our concern is that some businesses (licensed or not) may take advantage of consumers and then tarnish the robo-advice industry reputation through association," he says.

"With or without a 'sandbox' consumers need to be cautious of unscrupulous financial businesses and not rely on licensing alone. Stockspot has caught several licensed businesses plagiarising [our] content and has had to issue copyright infringement notices."


Steph Nash was a staff writer at Money until 2017.
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