Years before Australia began looking at ways to lift adviser education standards, the UK was already grappling with the consequences of its own similar reforms
When the clock struck midnight on New Year's Day three years ago, it meant that time was up for UK-based financial advisers transitioning to the newly adopted education standards.
From 1 January 2013, the minimum qualification requirement for UK advisers was raised to Qualifications and Credit Framework (QCF) level 4 – the equivalent of completing one year in a university degree – up from the long-standing level 3 standard.
This was part of the Retail Distribution Review (RDR) reforms, which were created in an effort to change the public's perception of financial advisers.
Leading up to the cut-off date, most advisers would have anticipated the change, since industry regulator the Financial Services Authority (FSA) had announced the new requirement in 2010. It was thought to be enough time for those who needed to fill in any gaps in their education.
It was not, however, enough to ease many concerns that the industry was about to experience a dramatic loss in the quality and quantity of financial advice.
In 2009, audit firm Ernst & Young had predicted the number of existing advice firms to decline by 10,000 just one year after RDR implementation. Three years later, it stood by its projection.
"We remain of the view that adviser numbers will continue to fall for some time," Ernst & Young said in a December 2013 report titled Navigating the New.
"We think our 2009 forecast of 20,000 [down from 30,000] by year end remains realistic."
Ernst & Young wasn't too far off.
According to a June 2013 analysis by City University London's Cass Business School, adviser numbers had fallen from 40,000 at the end of 2011 to 31,000 by the start of 2013.
This RDR consequence, coupled with ongoing changes in technology, had in turn created an "advice gap", where low-net-worth clients struggled to merit attention from financial advisers.
"This cannot be a desirable outcome, and surely was not the intended legacy of RDR?" said a report titled The Impact of the RDR on the UK's Market for Financial Advice.
"Advisers point to RDRs raising of minimum education levels to QCF4 as a major reason for the timing of the recent reduction in adviser numbers."
This notion of an advice gap is still a major issue for the UK industry, which is now made up of 22,500 working advisers as at December 2015, according to a report by financial services organisation True Potential.
That is equivalent to one adviser per every 1,000 potential clients.
"We believe that it is rare, if not impossible, for an adviser to look after more than 100 clients, by which we mean providing each client with one or two servicing visits a year," the organisation said.
"Too few advisers, too many potential customers with a growing need to save more, and finally a payment system that encourages financial advisers not to look for new clients, easily explains the entire problem."
Recently, the Financial Conduct Authority published a report with recommendations that look to address the country's difficulties with an advice gap.
Will Australia follow suit?
It would seem a similar story is playing out in Australia ever since the Federal Government released draft legislation that proposed setting the minimum qualification standard for advisers at Australian Qualifications Framework (AQF) AQF level 7 – a bachelor's degree.
The draft recommended giving advisers at most two years to match the new standard, but this has sparked widespread concerns comparable to those in the UK.
Industry associations argued that aside from a tight timeframe, the proposal, if implemented, could drive thousands of advisers to quit the industry.
"This would impact tens of thousands of clients and hundreds of small planning businesses, many of which would have to close doors and shed employees," said FPA chief executive Dante De Gori.
Meanwhile, AFA's Mr Fox said: "The prospect of thousands of quality, experienced advisers exiting early over the next three years is an extremely concerning consequence of the proposed framework if it is implemented without changes being made."
Those changes the groups are fighting for include extending the transition deadline out to three years from the date the qualifications are approved by a standards-setting body.
Further, they hope to get experienced advisers exempt from the degree requirement – all in an effort to save the industry.
A final version of the bill is due 1 July 2016, when the independent standards-setting body begins sorting out the transitional details for existing advisers.
However, until any amendments are made to the draft, at least one commenter on ifa.com.au has their next move decided.
"If I am now required to get a degree to stay in this industry, I'll use my fallback and go and work in real estate rather than spend years doing a degree."
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