The Hayne royal commission is considering an individual licensing system for financial advisers similar to doctors and lawyers, so dodgy advisers can no longer fly under the radar by flocking to "licensees of last resort".
In the banking royal commission interim report released on Friday, Commissioner Ken Hayne asked: "Should advisers be individually licensed?"
Currently, licensees authorise advisers to provide financial services on behalf of the licensees.
While the regulator can make a banning order against financial advisers, it is a time consuming process which may take up to two years.
"What is gained by having this structure? Would there be advantage in providing for the licensing of authorised representatives, thus bringing them under the direct supervision of ASIC?" Commissioner Hayne asked.
The royal commission exposed issues with the current system which allows financial advisers to simply jump from one licensee to another when conduct issues were raised.
Dover Financial, for one, hired three financial planners before doing background checks and continued to employ them after finding out they had conduct issues with their previous licensees.
Better discipline of advisers
The commission is also demanding the corporate regulator, licensees and industry bodies share information about advisers more, so rogue advisers cannot simply avoid disciplinary action by shopping for another employer.
The commissioner said licensees are not providing enough background references for their previous employees, and the Australian Securities and Investments Commission rarely uses its power under the Corporations Act to alert licensees about advisers with poor history.
Industry associations such as the Association of Financial Advisers and FPA almost never get reports from licensees, and the two groups do not share disciplinary information between them, the commission said.
The commission also said employers and industry bodies should not try to address breaches of law by advisers internally, but notify ASIC instead.
The commission exposed gaping holes in the self regulation of advisers, with the peak industry body Financial Planning Association proven to be powerless to impose sanctions against its members.
Dover's Terry McMaster hired three advisers who had conduct issues with their former employers. Stefan Postles
Unlike professional organisations representing lawyers, FPA membership is voluntary for financial advisers.
Although FPA can impose sanctions including expulsion, it has no teeth because expelled members can still provide financial advice.
No great confidence in industry self-regulation
The inadequacies with the industry body's disciplinary process was highlighted when Fair Work Commissioner Donna McKenna made a complaint to FPA about celebrity adviser Sam Henderson of Henderson Maxwell.
Mr Henderson recommended she goes with the more expensive self managed super fund option that would have meant she would have lost half a million dollars in her super.
But when she made a complaint to FPA, it acquiesced to Mr Henderson's demands by agreeing to to not publish his name.
Meanwhile, FPA's independent disciplinary body failed to resolve Ms McKenna's complaint as of April this year, more than a year after the complaint was made.
Commissioner Hayne said in the interim report FPA's handling of the complaint "did not encourage great confidence" in the association's disciplinary arrangements.