Reform of the advice industry's professional standards is now inevitable. While the details are being debated, how will the changes affect you and your business?
Late last year, the federal government released draft legislation framing the much-discussed higher standards required for advisers.
Among the proposals was a particularly controversial one that prior learning for existing advisers would be measured by the types of course advisers have completed, but not by the number of years they have been in the industry. While the industry met this with some concern, the government stood strong.
In a statement accompanying the release of the proposals, Assistant Treasurer Kelly O'Dwyer said: "The government recognises the importance of appropriate transitional arrangements to ensure that the skills and experience of existing financial advisers is acknowledged."
Speaking to ifa, also late last year, Ms O'Dwyer reiterated that the at-the-time proposed changes to adviser education standards emanate from the Parliamentary Joint Committee on Corporations and Financial Services (PJC) inquiry into lifting the professional, ethical and education standards in the financial services industry which led directly to the government's response to the Financial System Inquiry (FSI).
Effectively, the government was saying the proposals were not plucked from the air – they can be backed up by the findings.
"The Financial System Inquiry (the Murray Inquiry) identified that the existing professional standards for financial advisers are too low and do not ensure that all financial advisers have the necessary skills to provide high-quality advice to consumers," she said.
As well as the government, the corporate regulator has been vocal in its concerns about the competency of Australia's advisers. In January 2015, the Australian Securities and Investments Commission's chairman, Greg Medcraft, called for a national exam for financial planners.
"It is essential that we have a robust, nationally consistent qualification for advisers," Mr Medcraft wrote in an op ed for Fairfax Media.
"This will help ensure that Australian investors can have the trust and confidence in financial advice that they deserve. I believe a national exam for financial advisers is fundamental to this vision."
Speaking more recently to ifa about draft legislation covering the proposed higher standards for advisers, Joanna Bird, senior executive leader in ASIC's financial advisers team, reaffirmed that the regulator wants a financial advice sector that will deliver accessible, high-quality advice which consumers and financial investors can trust.
"Our surveillances of the financial advice industry have consistently found that many financial advisers are not adequately trained or competent to deliver financial advice to investors. This contributes to poor advice outcomes for consumers," she said.
Reiterating comments made by Mr Medcraft, Ms Bird said the regulator supports proposals to lift the professional, ethical and education standards of advisers.
"In fact, ASIC has long advocated for an increase in minimum education standards, including a degree qualification and a professional year for financial advisers," she said.
"We have also strongly argued for a mandatory examination."
These comments set off a firestorm when they were first published on the ifa website in January 2016.
For advisers who have been met with bad publicity and had to defend their reputation against those who think all in the industry are "bad apples", Ms Bird's comments are a slap in the face.
"Might be nice if someone at ASIC actually worked out that while there may be a need for improvement and [there are] some incompetent advisers out there (without doubt), that there are also competent and ethical advisers doing great work. Then analyse the difference with facts and provide information on how to differentiate for the consumer," writes Melinda Houghton, director of Houghton Strategic Solutions.
"This adviser bashing without showing any positives is not helping anyone and is stopping Australians getting advice from the great advisers we do have."
But Matthew Ross, an independent financial adviser from Roskow Independent Advisory, says he agrees with ASIC's comments.
"They aren't pulling these comments out of thin air. They are seeing some disastrous outcomes for consumers. Our profession (or as they call it, industry) has a lot of improving to do," he writes.
"We don't improve by being all lovely and nice about it. [A] few people ... are taking these comments too personally. This is about the profession. This article isn't written about you.
"Think bigger, people. Be objective."
Concerns are raised
It is clear the government believes it has the support of the financial services –and the wider – community.
"These reforms have widespread support across industry participants, professional bodies and consumer representatives [regarding] the need to raise standards for financial advisers in order to improve public confidence and trust in the sector," Ms O'Dwyer said when the proposed reforms were released late last year.
However, not everyone is convinced that the education requirements will fix shortcomings within the industry – including in the eyes of the consumer. An ifa straw poll conducted last year revealed a pretty mixed bag of responses when it came to whether advisers feel ready for the changes if they were to be introduced without amendment.
Fifty-one per cent of respondents said they did not feel prepared for the proposed new requirements, while 48 per cent said they did.
Some, like David Reed, a retirement adviser from the Retirement Advice Centre, are concerned that older, experienced advisers – yet by the new standards, under-educated – will leave the industry.
"I agree with the minimum education standards," he says.
"I guess my only comment would be the implementation of it, it's a more pragmatic issue. There are nuances when dealing with clients that I just don't see in the text book. The thing is that there are some fantastic advisers, but is this going to result in a loss?
"We've had three phone calls in the past week, saying 'we just can't do this, maybe it's time we leave'," he says. "There are some very quality advisers around who might not meet the requirements."
As it stands, there may be more than 11,000 existing advisers who will need to undertake further study. According to ASIC's adviser register, this is the number of advisers who currently do not hold a bachelor's degree.
The Financial Planning Association (FPA), long-time champion of the need for higher professional standards in the financial planning industry – and having setting up its FPA Code of Professional Practice and instated a Professional Framework – is supportive of the proposals.
But the association is also realistic. FPA chief executive Dante De Gori says while the details are still to be worked out, it is very likely some advisers will need to undertake some form of study.
"I can assure [you] that from the FPA's perspective, we're not advocating that all [advisers] go and do undergraduate degrees," he says. "But the reality is some additional study may be required – and the requirement to sit an exam is going to be on everybody."
According to the draft bill, a transition pathway will be provided to existing advisers and will recognise one or more courses that give "qualifications equivalent to the standard".
The standing of those courses will be determined by an independent, industry-established body, set to begin operating on 1 July 2016. The body will also have 12 months to develop the code of ethics and approve the one-off exam.
Once those details are lodged (by July 2017), advisers will have the next two years to meet the new standards or else be taken off the ASIC register. In addition, "all advisers both new and existing will be required to undertake continuing professional development (CPD) and be party to a code of ethics".
Ms O'Dwyer may be right in arguing the "government recognises the importance of appropriate transitional arrangements to ensure that the skills and experience of existing financial advisers is acknowledged".
Both the FPA and the Association of Financial Advisers (AFA) have voiced concern over some elements of the draft legislation.
FPA former chief executive Mark Rantall says a two-year timeframe for existing advisers to meet the new standards is "not workable". Meanwhile, AFA chief executive Brad Fox believes the month that the public had to comment on the draft bill was not long enough.
Both groups hope, however, that their own qualification offerings will be recognised as degree equivalents – a decision to be left up to the independent body.
These include the AFA's Fellow Chartered Financial Practitioner (FChFP), and the Certified Financial Planner (CFP) designation which is supported and promoted by the FPA.
"The meaning of 'equivalent qualification' also needs to be clarified to include professional qualifications such as the CFP designation," Mr Rantall says.
"The FPA will be advocating for appropriate recognition of our members who have completed higher levels of training and qualifications than those required by the law."
However, these were not the only concerns expressed regarding the draft legislation. Many commenters on the ifa website were surprised to learn that advisers' years of experience will not be considered as "recognised prior learning".
The draft states that the independent body will instead look at the types of courses advisers have previously completed to determine whether they satisfy the degree requirement.
It was the Parliamentary Joint Committee on Corporations and Financial Services which first suggested having existing advisers go through a 'Recognised Prior Learning' process that would consider the number of years an adviser has been practising.
"The PJC was of the view that even if existing advisers do not hold formal tertiary qualifications, years of practice have equipped many of them with the knowledge and experience to provide effective and ethical advice to consumers," the committee said in its March 2015 consultation paper.
"The PJC report considered that structured and consistent assessment of existing advisers and people changing careers is central to maintaining the integrity of the profession."
The latest draft bill has no mention of this. However, at least one credential provider is trying to change that.
Making the change
DeakinDigital chief executive Allyn Radford believes there is more than one way that advisers can prove they are competent aside from bearing a degree.
He is hoping what DeakinDigital does – which is offer assessments for advisers and their firms and provide credentials for them to prove their capabilities – will be considered degree equivalents by the independent body.
The program is based on what advisers already know, and does not require them to complete any extra courses, he says.
"The reason we created this was because we kept on hearing from people, who have been in the industry for quite some time, that they don't want to go back and do a higher degree because they already know that stuff," Mr Radford says.
"They've been doing it in their jobs day in and day out for a long period of time. A lot of them would turn around and say, 'We could actually teach that stuff. We don't want to sit in the classroom and have to pretend we're learning something'.
"What they need to do is have that levelled and assessed in a way that tells other people that they know how to do their job and that they can comply with the relevant standards," Mr Radford says.
But not everyone believes advisers' experience is entirely relevant. Independent Financial Advisers Association of Australia (IFAAA) president Daniel Brammall believes that for the industry to change, parts of the advice profession of the past should be considered obsolete.
"When people say, 'Well, I don't have a degree; I've been around for 20 years, I think I know enough', what that means – in my book anyway – is that they satisfied the year of professional training 20 times over," he says.
"Mind you, they've been doing it in an environment that we're hoping to never see the likes of again.
"You don't get to earn your stripes simply by being around in a dinosaur era. That doesn't mean it's irrelevant, but it's not entirely relevant to today. I think some level of professional education is going to be essential to ensure that everybody is on at least a basic footing."
Mr Brammall adds that the proposed one-off exam is not likely to make a difference either.
"The reason being you can cram for it, pass it and immediately forget it," he says.
"It doesn't actually change the culture or the behaviour, and therefore, having one national exam really says that anyone who passed it was at this standard on this day. The chances are excellent, if there is no requirement to step back up to the plate, for that standard to slip."
With the details of higher education and professional standards legislation still being finalised, the FPA's Dante De Gori explains that "technically", no one has to do anything differently as yet.
However, with the knowledge that they will have to undertake some form of further study in order to meet the requirements that will soon be mandated, many advisers have been scratching their heads regarding whether they should start further study now to get ahead or wait for the legislation to be officially brought in.
Some businesses are trying to get in early and require their advisers and authorised representatives to look at the former option, according to Mr De Gori.
"Technically, the RG146 will remain in play until the new standard is legislated. So licensees will only have RG146 as the criteria that they need their representatives to meet," he says. "But smart licensees, of course, will be trying to future-proof their advisers and can start looking at implementing and imposing higher standards for those advisers that join their business.
"They may want to wait until there is a little bit more certainty [in 2016], but technically RG146 is the minimum level that exists until such a time that legislation supersedes it.
"So, it is a choice that they need to make," he says.
In fact, the Securitor-aligned Kearney Group Financial Services' (KGFS') chief executive, Paul Kearney, says that in 2008 he "drew the line" and set his own minimum standard for advisers in his business.
"If you are going to provide advice in our practice you have to be degree-qualified or CFP-qualified," he says.
"For us, it's [the] minimum standard, so we expect and provide ongoing training and education and that sort of personal development as well as ongoing training and CPD," he adds.
Mr Kearney says that without a suitable minimum expectation concerning education, there will always be a question mark hanging over the profession.
"People will be asking: how well trained are these people?" he says.
"There are some good operators who have not got the education, but we have removed the question mark from our profession.
"And we get to become a profession much more easily when that question mark is removed."
It's not just players like KGFS that have embraced educational standards ahead of the government's proposals. In September 2015, AMP announced that candidates who want to enter the AMP Adviser Academy program would have to hold a degree equivalent as part of a raft of changes designed to increase professionalism.
Prior to this, in August the financial giant introduced several other more stringent education initiatives.
"All existing and new advisers must hold a Certified Financial Planner (CFP), a Fellow Chartered Financial Practitioner (FChFP), or Master of Financial Planning (MoFP) qualification, an AMP statement said.
"New advisers must complete this qualification within five years of joining an AMP licensee while existing advisers have up to 31 December 2019 to do so. These qualifications are post-graduate degree equivalent, making AMP's minimum requirements the industry's highest."
In early 2015, ANZ in its submission to the parliamentary inquiry into financial advice said it supported a US-style adviser exam – and would even stump up $600,000 to set up an organisation to facilitate the testing.
Where to next?
It seems that both the big end of town and the small players are primed for change and ready for the educational requirements that come with increasing professionalism.
While concerns for older advisers are justified, and the industry certainly is not united (despite what the Assistant Treasurer may say), the will is there and education is undoubtedly a central plank to the future of the advice industry.
With advisers also required to adhere to a code of ethics as a means to improve the standard of professionalism, according to Mr De Gori, this will create some difficulty, especially for those who do not belong to a professional association (which will supply its own code of ethics).
"Part of the discussion will be on how else [will advisers be] subject to a code of ethics if they chose not to be a part of a professional body," he says.
"Alternative options will need to be canvassed, but effectively most financial planners will meet that requirement through their membership of a professional body."
Mr Kearney perhaps puts it best when noting that, in the past, many advisers had come to the role in other ways, although this is changing.
"There is a much bigger raft of people who join the profession with the intention of making that their life's work from the beginning, so I think that the quality is rising dramatically.
"We're in a very fortunate position in that the profession we are in is in its infancy so we get to mould it – so it's not a profession that's been around for 100 years [and so] its operation has been dictated to us," he says.
"We're in a position where we can decide how this looks in the next 20 years. We can be dragged in a particular direction or we can forge our way forward and I think that is one of the really exciting things about financial planning. I'm very optimistic about it.
"I know it's received a lot of bad press over the journey, but I also know how much difference it makes to people's lives when done well."
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