There is no dispute that education has many benefits to the individuals involved and to society as a whole. The question is though:
1. What will the impact of the education standards proposed by FASEA (Financial Adviser Standards and Ethics Authority) for financial advisers have on the quality of financial advice?
2. What impact will these increased barriers to entry have on the financial planning industry?
The recently proposed education pathway is an active step towards fulfilling one of the components of a profession; will very likely result in making a relatively large portion of financial advisers and support staff not meet education requirements and the correlation to quality advice is debatable.
The proposed education standards will have immediate and undesired impacts on competition, cost and access to financial advice and possibly, and quite ironically, lower quality standardised advice.
Impact on financial advisers
In the early 2000s education requirements (then PS146) were introduced. These new education standards saw many advisers and support staff with and without relevant university degrees enrol into courses such as the graduate certificate and diploma of financial planning aligned to Tier 1 and 2 of the Australian Qualifications Framework (AQF). These were most likely paid for by their employer or they went into further debt. After completing these courses they then received the “golden ticket” to becoming a financial adviser.
This education path was also viewed to some extent as the road to the industry building trust and as a move towards greater professionalism. Fast forward almost a couple of decades to 2018 and the industry is still in flux about what level of professionalism has been achieved and what the appropriate level is and, therefore, it seems that we may be experiencing a slight bout of deja vu with the introduction of the new Corporations Amendment (Professional Standards of Financial Advisers) Act 2017.
It is therefore understandable that those who have heavily invested their time and money to complete a degree such as economics, commerce etc, in addition to all the necessary financial planning courses and continuous professional development requirements and commitment to the financial planning profession/industry, would be angered to say the least with the prospect of having go back to school again as their current qualifications and prior work experience no longer ‘cut the mustard’.
This may in fact cause many to decide to exit the industry therefore potentially losing many high quality financial advisers.
Possible implications of increased barriers to entry
Market consolidation and reduced competition
The higher education proposal creates another and higher barrier to entry and impacts new entrants as well as incumbents. Economic theory tells us that as barriers have the effect of reducing competition through the creation of monopolies and oligopolies and, all things being equal, may cause a rise in prices and profit margins, therefore possibly increasing the cost of advice and reducing the demand for advice and its accessibility. The decrease in competition can also impact quality as there are fewer alternate advice providers.
The introduction of the higher education standards combined with high set-up and ongoing costs of running a licence could be the accelerant that transforms the industry from going down a path of a competitive marketplace to one less competitive with higher costs, little choice and no guarantee of higher quality advice.
Increased cost of standardised quality of advice
Financial institutions are either disposing of their financial advice channel(s) altogether or are merging and acquiring existing licences with the aim of building larger financial advice businesses to take advantage of economies of scale and provide large scale standardised advice processes and possibly standardised financial advice, enabling them to effectively compete on price initially and reduce competition. However, the combined effect of existing advisers leaving the industry and the migration to larger licensees who can subsidise this education may remove the need to compete on price and see the cost of advice actually rise.
Reduction in self-licensing
The trend of financial advisers moving to self-licensing may have been slowed dramatically with the introduction of new education standards. The possibility of a mass exodus of financial planners and subsequent increase in supply of client books for sale creates the opportunity for first mover advantage to purchasing such books at a discount. The discounted cost of the book can then be offset partially by investing that saving to upskill and control a key and now even more scarce pool of resources: yes, financial advisers (currently about 25,000).
The increased cost and commitment to new education standards may have substantial impacts on smaller boutique businesses in terms of potentially losing talent to larger practices or institutions that have a competitive advantage via being able to subsidise the cost of this education to their financial advisers, including the cost of compliance. Some dealer groups may see this is an opportunity to repackage their offer to attract new and existing financial advisers by also offering subsidised education at the cost of further squeezing their profit margins.
However, the cost of this option may be too great for some AFSLs to pursue, considering that the average cost of a degree may be $40,000 per adviser not including the cost of continuous education and lost time for study leave etc, with the added risk of advisers leaving their licensee once they have completed their degree.
Nikolas Kloufetos is principal of Advice Compliance Support
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So why wouldn’t risk only advisers have a separate licence ?? FPA? anybody else ?Seems like common sense .
Education without experience is a dangerous recipe. The experienced advisors will bring forward retirement not being available to mentor young well educated (but inexperienced advisers) . Dr Sanders of FASEA is taking a one eyed approach without understanding the unintended consequences of his educational crusade. The creation of advice without experience. Always a dangerous cocktail.
It’s marked as an opinion so I can’t criticise its counter-factual assertions, but we’re not seeing a migration to institutional licensees (but rather the reverse). In addition, the ‘barrier to entry’ should be embraced by existing businesses – just as FOFA increased the value of ‘good businesses’ these reforms will have a similar effect. They may be disruptive and I don’t want to trivialise the potential human impact but those advisers/licensees that invested in sustainability will only benefit from the disruption. FASEA is an ineffective cure to a misdiagnosed problem but it’s unlikely to be a terminal prescription.
The interesting bit about all of this and the supposed or proposed 10 year rule. If it is such that all old Degrees are not suitable and need to be refreshed to something new, then I assume that everyone who either has a relevant degree now or studies for a relevant degree so that they are educationally compliant by 2024, will when 2034 comes around have to go back to study again, whatever the current degree of the time is, as their degree will then be more than 10 years old and will need updating to a new degree. Have FASEA thought that through – as it is the only course of action that they can condone and support if they head down the 10 year path now. If that is not the case, then they cannot designate that degrees now are old.
Also interestingly if I decide to go back to Uni to study my new degree at the full rate of some $40,000 or more, I will firstly be checking that ALL of my lectures degrees have been obtained within the last 10 years, otherwise they will not be qualified to teach me. Similarly, I wonder about the qualifications of the course setters, are their qualifications current as well, because if not then there is a real problem that the courses that they have set and FASEA have approved could in fact be irrelevant for the same reasons.
This 10 year and your degree is useless rule has an awful lot of repercussions if that is the way they want to go.
Thanks Nick – great article!
I would like to provide all advisers with this apology because I voted for Kelly O’Dwyer, she is my local MP and I am a Liberal voter who honestly believed that as a politician mentored by former Treasurer Peter Costello, she would do a good job. Clearly not!
BUT in 10 years time when she becomes our next Liberal Prime Minister, she will be able to easily blame the decisions being made now on Malcolm Turnbull, a wealthy banker who did not understand the ramifications of these stupid decisions and she was just following his orders. So, SORRY to all the advisers who got pushed out of the industry and SORRY to those who wanted to get in but decided that the cost and effort just did not stack up, SORRY to all the people who wanted to get advice but could not afford the cost because the few advisers left only service HNW clients and most of all, SORRY about the crazy mess the Centrelink system is in. Education, degrees and compliance does not translate into good advice, integrity does and most advisers have that but I am not so sure about the politicians.
It’s way past time that the associations we are made to join acted in our best interests , and not their own. Take noteAFA &FPA, you have betrayed your members, and an adviser backlash is coming .
how, there are only 3 resignations to date. no one else is as bothered as you or I and the other two who have resigned
I have been a Riskie for 20+ years and moved out of doing any other financial planning for 2 reasons. 1st I’m really good at Risk (I mean really good). Second I found it to hard being all things to all people and found it better to send my clients off to other advisers for all other financial planning advice. Worked well for me. Take into consideration that even when I was doing financial planning (super and a bit of investment advice) I didn’t do retirement planning at all. Now I need to do a degree in areas of study which has 0 relevance to my area of expertise (did I mention I’m really good at risk). The thought of doing a degree where 99% of the study will have 0 relevance to my day to day operations is not something I would consider. How many risk advisers are in my situation? I’m tipping the vast majority.
For all the people out there who have issues with me calling myself a “Financial Adviser” without a degree I don’t. I call myself a Life Insurance Specialist.
I have no issue with doing further education although it should be relevant. Have a Risk Specialist course which includes risk relevant, super, estate planning, SMSF ect requirements and the vast majority will do it and continue on. Otherwise it’s game over for the risk industry.
Agree with the first post 2 year claw back crazy. I met with a client on the first year renewal 3 time and spoke to her on the phone 5 time for her to not renew her premiums and I convinced her to renew her husbands (insurer increased premiums by 10% on top of age increases and yes I spoke about level. The insurer increased them by 10% too). You can’t tell me that’s my fault and I need to pay.
What is happening to our industry has nothing to do with Commonsense.
I am still waiting to see how consumers have been, or will be, made better off by LIF.
Whilst I don’t wish it upon anybody I wonder if any of these government and Educational institution bureaucrats would develop greater clarity if they needed to claim on their TPD (Any) policy in a group scheme. They might then understand the value of Advice.
The mandatory education standards could create a less competitive market with higher costs, little choice and no guarantee of higher quality advice, but without it, there will guaranteed be no high quality advice.
good point this is often missed. we have to go through this pain and for those who survive we will be better off for it
Reading these articles about the nonsensical state of our once great industry saddens me and makes me despair. I have tried and tried and tried over the last few years to give the benefit of the doubt to regulators, the FPA, politicians and more recently FASEA that they know how to fix things. As hard as I try I cannot, in all honesty and good faith say that I can in any way justify the way these entities are conducting themselves – ANY of them. In the ‘risk’ world where I live, the life company executives are every bit as remiss.
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I’m a life adviser ( a riskie) who started in the humblest way in our once vibrant and exciting work back in 1985. I’m 57 currently and, as recent as 10 years ago, was looking forward to being here for my precious clients until I could no longer manage to drive out and see them! Let’s call that, for the sake of reference, age 80. In other words I would have loved to continue on in this invigorating career for at least another 20 years. It (was) what I bounded out of bed for in the mornings. It was what I would think about on a Sunday evening – getting straight back into seeing my clients Monday! It was exciting, always NEW, fresh and it never got old for me. I ABSOLUTELY ADORED AND LOVED IT! 🙂 I haven’t been able to say or think any of that, and feel I mean it for a good few years now and, thinking about it, since probably just before FOFA was mooted.
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I say this as I see fringe opportunistic elements (special interest groups, industry bodies) becoming mainstream in our once great and precious industry. Alas, it isn’t OUR industry anymore – it is the plaything of ‘reality-removed’ life company management, FPA management/FASEA and idiotic (yes, correct word!) politicians like O’Dwyer. I’ve given up and I really mean it. I have given up justifying staying in this absolute farce of an industry. Luckily is is only 3 years until I can access my super tax free so that’s when I’ll sell my precious client base to someone I trust.
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Honestly, even on a practice basis, it is not worth going on past 60. All I do is help clients with adjusting and monitoring their insurance – IP, Trauma, Life and TPD – that’s it. I’ve done exactly that for over 30 years. Never had a complaint. Never had a ‘truly’ unhappy client. I’ve made dozens of great friends from clients I see often on a personal basis. What better job could you ask for? Not any more though sadly. Always thoroughly enjoyed my work and had a real buzz from knowing I’ve protected my people the best way possible with excellent products from top providers. I’ve always and ONLY been remunerated by commission. I have offered a fee alternative to clients for the last 5 years and NEVER had a client prefer that even after being shown in detail a comparison of the two options. The very last thing on my mind with new business was ‘which company paid more?’. Couldn’t care less – they were all so close it didn’t matter anyway! I was fair in the explanation to the client re fees Vs commission. Commission won every time. I was curious to see how fees would go so I was completely balanced in the FULL explanation to the client. I have NEVER switched an insurance unless there has been a palpable benefit for a client and even then 99% of those were way after the ‘new’ 2 year period. anyway.
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Talking about the [b]2 year clawback thievery[/b] from life companies, I have stopped writing new business due to it. I refuse to take on a new client and have that ‘spent’ income threatened with reclamation for up to 2 years after it is honestly earned. I may change my tune when [b]life company execs[/b] start to have a 2 year [b]clawback on THEIR income[/b] based on lapse rates company wide! That’d be hitting them where they live!
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Now, $40,000 for a degree the article says. Hmmm . . . I outsource anything other than pure risk to a trusted adviser with whom I’ve worked for 20 years – trust him with my life! He’s ALWAYS done right by my clients – I know this for fact – I see the SoA’s. Now the politicians, FPA, regulators et al say I am no longer [i](or shortly won’t be) [/i]any good or qualified to KNOW INSURANCE and help my clients anymore UNLESS I pay the ransom to some academic mob ($40K++) and waste my time learning insurance all over again from someone younger and less experienced than I in a classroom. If I do not pay this ransom for my job and career I will be forced to leave the industry. I’ll survive quite well if I must leave. Will my clients? Possibly but where is the ‘client best interest’ dictum here from the industry and regulators? Is it in the client best interest to lose their adviser of 30 years when they ‘could’ have him for another 20 years instead of a paid clerk in a life company helping them with Roboadvice? Puurrlease!!! Truly, to advise a client to top up their IP or to simply action an increase in death cover upon the client’s request – this is the reason I need a degree all of a sudden??!! Blind Freddy can see the lunacy and fraud happening in that.
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Yes, I know DeGori says old advisers may not have this 10 year nonsense. They’ll find another way to fleece us, very soon, you watch. But I have no faith that this political correctness madness and authoritarianism is getting better anytime soon. I’m getting out before the FULL ban commissions and while my client base still has ‘some’ value. I’m not Robinson Caruso as a Riskie in this regard. Those others that have been crying out for a [b]separate risk licence[/b] (which would include reference to ‘some’ investment/principles and super) would no doubt comprise the majority of advisers slighted by this draconian impost of ‘over the top’ qualifications requirement. I still find it beyond belief the life companies didn’t support advisers, THEIR advisers, in a [b]separate risk licence.[/b] What on earth have they had to say for themselves in this respect?! You know, the only reason I won’t put my name to this comment is that it would be the quickest way to lose ‘friends’ in life companies . . . and I still need them for a short while!
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I wonder what out once-great industry will look like with over half the advisers gone and robo-advice managing applications and claims. We’ll fond out by about 2022 I’ve no doubt. Pity the life companies with no Riskies to earn them money. Pity the poor ‘once-precious’ client. They will become but a cow to be herded & milked and accorded less respect and care than a farmer gives his sheep. ASIC – pffftt! Where are the REAL lawmakers and REAL life company execs (Trevor Matthews-L&G, Jordan Hawke-TAL/AST) to sort this carnival out? Sadly, the days of top managers in life groups have ended. Principles of proper adviser support are deletable words on a screen. The life companies are fully bending over for the regulators and saying yes sir, how high sir. Advisers and client best interest be damned.
I agree anonymous, it was a bit ‘wordy’ but it also offered some deeper thinking about possible future scenarios. It was only a 3 minute read, so if you are one who needs to do more study, then I think you might struggle.
you are cruel.
A robust competency exam should be sufficient to determine technical competence for existing advisers that can demonstrate meeting prior education standards and ongoing CPD. If you can’t pass the exam, you don’t have a licence to advise. That’s fair, cost effective and gets everyone to a level playing field. I have 20 years of experience, have run a fee for service practice for 15 years, run an AFSL for 10 and didn’t need legislation to teach me how to be a professional. I’d happily sit an exam to demonstrate my technical knowledge – but we all know that’s only one element of great advice.
its a pity there is no justification for either – and exam or a degree – “just because we want too” sorry that doesn’t cut it. – When a regime seeks to impose a serious threat to ones ability to practice – Not one of the failures in recent past had anything to do with technical competencies – it was a failure of character – and last time I looked there were an equal number of self serving degree qualified accounts as there were financial planners- Warm fuzzy feelings just don’t cut it. Incidentally I have a 1983 commerce degree and its bloody useless as far as financial planners go. If we believe we need more skills – more competencies because there has been a failure – well that is fixed with training – not education. There is a very subtle but distinct difference.
to me this looks like a Trojan horse of the educational sector – carving up another market – giving them a solotion to a problem that frankly doesn’t exist. Rhetorically speaking – at what point having 15 years of successful commercial practice – having to jump every bloody lunatic compliance hurdle, having to meet 60 hrs of CPD training- that is blessed by our professional association does one become competent?
you have got to be kidding – the academics who cant function in the commercial world are now seeking to impose some form of Marxist ” we know best” – the old adage – those that can do – and those that cant teach – and this comes from and experience professional trainer. For those of you that are financial planners – I would be surprised to find any resistance to the premise “that a teacher or educator would be the worst possible client”
“enrol into courses such as the graduate certificate and diploma of financial planning aligned to Tier 1 and 2 of the Australian Qualifications Framework (AQF)” – this is not accurate. A Cert I-IV is AQF 1-4, Dip is AQF 5, AdvDip is AQF 6….Grad Cert/GradDip/Masters is AQF 9. Tier 1 & 2 refer to PS/RG146 not AQF.
Correction: Grad Cert and Grad Dip are AQF 8
Do support staff have to meet FASEA requirements as well? I only thought it was financial advisers? Not sure on the relevance of mentioning support staff.
Really? No relevance for mere support staff – are you serious? Those are the people that will probably NEED to do degrees to get anywhere, and the future of the industry.
But most financial advisers don’t see it that way, more as a means of unloading all the undesirable admin work, and not allowing them to become an adviser in the first place. These are the people who need to ensure compliance FOR the adviser, and should most definitely be studying more.
If support staff wish to further their careers in this industry, then yes.
I’m not sure there will be many support staff to bother about in the future. They will be the first ones squeezed out by the twin forces of technology efficiencies and regulatory costs.
Fantastic article. Pity it won’t be read by many advisers who struggle to read more than a headline and a Twitter post.
I’m already looking for another business. Anyone want to buy $1m in revenue?
BTW I have under grad, post grad plus additional FP specialisations incl SMSF specialist and tax adviser. I am NOT going for yet another round.
My next business will have no compliance whatsoever. I’ve still got alot of professional years in front of me. I don’t have the patience to put up with more of this sh!t.
This is a shame as I’m good at what I do and love helping people.
The hardest bit is explaining to clients why I’m leaving.
No doubt you will look after your ‘new’ clients in your new business with great care and in order with their best interest WITHOUT having to pay the extortion fees that our ‘once-great’ industry is now demanding for you to stay. I’m out soon too die to this lunacy and the fact that people like you and I are leaving due to the fraudulent actions of FPA/FASEA/Universities is a blight on financial planning and decencyt. All about money for them and opaque disclosure
Who is going to buy. Will it be the student with a Bachelor of Financial Planning from Griffith or Deakin Uni. That’s a huge pool. not. I reckon you’ll have to pack up and move your business to one of their campuses.
It will be one of us here on these pages more than likely. Not everyone is so pissed off they will leave. They’ll be advisers eager to snap up a well priced and well managed client base ESPECIALLY in the risk only market. Surprised anyone would ask “who is going to buy”. Are you an adviser? I’m surprised a real adviser would ask. Real advisers are generally looking to buy. A grandfathered book of trail commissions and clients is worth platinum bars!
I liked the lead in paragraph and I’m sure there was some great info in the body of the article. However I found it too long & wordy & repetitive to make sense of and gave up in the end. Was this written by a compliance consultant?
It says that at the end – are you serious? Nikolas Kloufetos is principal of Advice Compliance Support
Hahahaa! I think the commenter was joking! 🙂
i got it ha like reading a soa
It was a bit hard, not to miss the 2000 word disclaimer at the end.