Australians have watched with horror as the Banking Royal Commission uncovered findings of adviser misconduct at some of Australia's largest financial institutions.

Countless column-inches have been dedicated to this, from financial planners charging fees to dead clients, to billing fees for no service, and victims of poor advice fighting back tears in the witness box.

Sadly, we've seen this all before – on a smaller scale – with the Australian Securities and Investments Commission (ASIC) slapping major banks including Commonwealth Bank, National Australia Bank and Macquarie Bank with Enforceable Undertakings.

It could have been much worse. The Future of Financial Advice (FoFA) reforms introduced in 2014 put in place the Best Interest duty and introduced minimum education standards for financial planners. Though given the historical nature of most of the cases heard in the Royal Commission, these changes and others will come too late for the current cohort of mis-advised individuals.

While the efficacy of ASIC is a topic of ongoing debate, Australia's financial advice industry is one of the most highly regulated.

The FoFA reforms were first proposed by one side of government back in 2012. Some of its strongest consumer protections were very nearly removed by a new government, only remaining after the proposed changes were rejected in an eleventh-hour move by several cross-bench senators.

A key outcome was the removal of adviser commissions for investment advice. And while similar measures are in place in the UK, other markets like the US are more laissez-faire in their regulation of financial advisers.

In his latest column for, John Rekenthaler wrote about the Securities and Exchange Commission's (SEC) new rules on financial advice. With some confusion even among the SEC's commissioners themselves about exactly what the lengthy report's recommendations entail, he asks what hope others have in understanding the US financial advice industry.

"The issue that prevents advisers from being viewed similarly to doctors and lawyers is education. Doctors attend medical school for four years, then enter residency. Lawyers undergo three years of law school. Brokers ... not so much.

"It is true that financial advice also carries a poor ethical reputation. However, although…ethics are not the primary problem. When polled, the public views lawyers as being just as ethically challenged as brokers," Rekenthaler says.

He also grapples with the distinction between the terms "broker" and "financial adviser". There is similar confusion in Australia, with the term "financial planner" not legally defined at law.

Rekenthaler believes there should be two tiers of financial advice, defined by education.

"The top level would likely not require as much training as a law degree and surely not as much as obtaining a medical license. "

Talking directly to the situation in the US, he argues the second, larger level of financial adviser would resemble that of today's brokers, "albeit with stiffer ethical standards".

"I see no problem with the current, modest educational requirements. Such advisers could mostly (or entirely) give solutions that were packaged by the home office. However, the fiduciary requirements would need to be raised to match those of the higher-end advisors.

"People don’t expect nurses to act any less in their interest than doctors do. The same logic should apply to financial advice," Rekenthaler says.

He suggests the line between these two tiers "must be clearly marked and made widely known to the investment public…and sanctioned and enforced by the SEC".

In closing, he proposes a "top tier of adviser" with minimum education standards and a single fiduciary duty for advisers to uphold clients' best interests – measures already contained in Australia's FoFA reforms.

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Glenn Freeman is senior editor, Morningstar Australia.

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