Professionalism: Are we there yet? – Education feature part 1

Jassmyn Goh finds out what the industry’s concerns and expectations are relating to the new professional standards regime.

Conversations on professionalising the financial advice and planning sector are not new. Money Management reported on this very issue in 1995, and perhaps even earlier than this, on proposals to professionalise the sector by the year 2000.

Fast forward more than 20 years later, the Senate passed the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 last month in a bid to lift the professional, education, and ethical standards of financial advisers.

The bill has garnered industry wide support and bipartisan support in Parliament as evidenced by its passage through both houses in early February. The industry expected the reforms would regain trust in the financial services industry.

The reforms include compulsory education requirements for existing and new advisers, supervision requirements for new advisers, an industry code of ethics, an exam, and an ongoing professional development component.

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Prior to these reforms, the Australian Securities and Investments Commission’s (ASIC’s) guidelines allowed some advisers to become qualified to provide advice after only eight days of training under RG146.

The Financial Services Council (FSC) chief executive, Sally Loane, said the reforms were a positive for consumers as lifting education and training standards provided more authenticity to the label and the profession.

“It will mean that there will be change in the industry and that some of the advisers will need to do additional courses of study to get up to scratch over a period of time,” she said.

Despite support for the eventual outcomes of the reforms, there were still many unknowns that required clarity and certainty including what constituted as a degree equivalent qualification, which entities would be part of the independent standards body, the new curriculum, and what the exam would entail.

Who’s first?

The Financial Planning Association (FPA) said the first aspect they would like the standards body to focus on was everything a new planner would need to comply with from 1 January 2019.

FPA head of policy and government relations, Benjamin Marshan said: “Realistically the first cab off the rank is the educational requirements for new planners, the exam, and the professional year”.

“The code of ethics and CPD [continuing professional development] requirements come in a little later, and then the transitional arrangements for existing planners and the degree equivalent have got a bit later – in about a year or two years to get those developed,” he said.

“They’ll also need to figure out how much of the existing framework they have to pick up and how much they have to develop themselves.”

However, education provider, Kaplan Professional chief executive, Brian Knight said taking away uncertainties for existing advisers should be addressed first.

“The earlier they can make a determination on what they want to do for a bridging program for existing advisers are I think that will be a good start,” he said.

“They have to appoint people, set course curriculums and things but the course curriculums are for new courses and to have courses registered. The big one is taking uncertainties out for existing advisers.”

The Association of Financial Advisers (AFA) general manager for policy and professionalism, Samantha Clarke wanted the body to first actively consult with the industry and understand the challenges facing advisers at all career stages.

“Their first job is to come together as a board and come up to speed on each other’s areas of expertise and knowledge,” she said. 

“The board needs to understand the challenges facing advisers at various stages both from the younger advisers with the professional year requirement ahead of them all the way through to the mid-year advisers who are facing the challenge of being required to become degree equivalent when they may have had 30 years of experience and a strong track record of quality of advice, and CPD throughout their career.”

Clarke also noted that it could be especially challenging for older advisers who had not sat an exam for many years and that they would need to figure out how to approach and ready themselves for the exam.

Standards body concerns 

AdviceIQ Partners director, Phillip Leslie, said the makeup of the standards body needed to have reasonable practitioner representation.

“In the past the industry has suffered because the people who had written the rules for it were not the ones that made a living from it or understood what the issues were. Therefore you had a combination of inept regulation, and sheer naivety. So at the moment the rules focus on the form of advice rather than the content of advice,” Leslie said. 

“Again, you have things like subjective risk assessment where you’re supposed to ask a whole range of questions to the client in order to find out how much risk they can tolerate from a psychological point of view.”

Leslie likened this approach to a doctor asking a patient whether they were the type who preferred surgery or drugs.

“That’s nonsense, the doctor asks what your symptoms are, they run a whole set of tests, check things and they diagnose what the issue is based on a large amount of principally objective information,” he said. 

“In the same way financial planning should be about looking at a person’s objective criteria and devising plans around that rather than things like whether they like risk of shares or don’t and so forth.”

Loane was concerned with the size and costs of the board. 

“I think the standards board has got to be kept quite lean and tight. It’s very important that this doesn’t blow out to become some big costly board that furthers regulatory costs to the industry,” she said.

Loane said the banks were interested in initial funding for the board and that the government would establish a longer term funding mechanism so that the body had appropriate funding over time, funded by the whole industry.

“We’re very keen for there to be clarity around what the funding mechanism will be sooner rather than later, and we’re happy to work with the government about what the funding will look like,” she said.

For Clarke, the main challenge for the body was to be both fair and fast.

“What I mean by fast is that there is uncertainty and concern that the industry doesn’t know the details so the sooner the standards setting body can set the standards with broad and deep consultation the better. The first criteria is to be fair,” Clarke said.

“The key message for advisers is don’t wait. When it comes to education pathways and getting a head start on that, don’t wait for all the details to be clarified, get started as soon as you can.”

Getting ready

The AFA said it had a professional standards working group that covered all the aspects of the new legislation.

“I expect there will be sub-committee input into support for that around that cohort of advisers [late-career advisers] who choose not to look towards degree equivalents,” Clarke said. 

“That said, we have strong and increasing interest in our education pathway, which is the designation of the FChFP [Fellow Chartered Financial Practitioner], which is valuable, and we believe will be an appropriate education pathway under the standards that we look forward to discussing with the standards setting board.”

Knight said that his firm was working towards helping advisers get into the discipline of studying for exams as many had not sat exams for years.

“We’re also doing a lot of individual pathways. We’re not just telling people to do a course but individualising and personalising the service so that we can help them understand where they are and what credit they can get from previous studies and things like that,” Knight said.

“We’re encouraged by the large licensees that want to talk about moving their advisers along the journey.

“We’re getting a lot of that from advisers themselves saying ‘we get it, we know the standards body will set something and we want to do it anyway’ so we’re getting an enormous take-up of people wanting to get their grad cert, grad dip, or masters, or professional designation.”

Knight said there was a real cultural change in that a lot of people wanted to talk about and get guidance on what education they needed. 

The FPA said they were preparing a number of position papers to put towards the body to explain their views and what each of the standards they would be setting should look like.

“Going forward longer term we’ll need to see what standards the new body sets and then we can start to make decisions around whether or not we develop courses, whether or not we partner with others to develop courses,” Marshan said.

However, Marshan noted that while the FPA were looking to present their Certified Financial Planner (CFP) program to be recognised by the body, they did not expect the program would be considered to meet the full degree requirement.

“It would be part of what some members may be able to count towards meeting the requirement. So we have no expectations that the CFP will actually be considered a degree but there are five subjects and are all AQF9 [Australian Qualifications Framework 9] which are all a significantly higher level standard than a degree requirement,” he said.

Marshan said regardless the CFP would still be relevant as members who wanted to enter the program were required to have a degree.

“It sits significantly above a degree, and a master’s program, it’s a professional service program – the global gold standard for professional certification for financial planners so the relevance of CFP is maintained in any case.

Unethical advisers

With the industry riddled with scandals and unethical behaviour, education has been seen as a mechanism to change. But is education the key?

Leslie said the difficulties the industry had experienced over the last decade arose “from the fact that we had legislated structure and we allowed product providers to own AFSLs [Australian Financial Services Licences]”.

“If the medical profession was structured the same way, doctors would have a licence from a medical centre that was a wholly owned subsidiary from a drug company and the profession and the public wouldn’t tolerate it,” he said. 

“By making advisers degree qualified professionals with a specialty qualification on top of a relevant degree you force a degree of professionalism into the industry which means such people are unlikely to want to work for AFSLs that are owned by product providers and manifestly pushing funds under management under managed institutions.

“Once you stop that, then you’ll get rid of unethical advice.”

Westpac partner, executive financial adviser, Roger Perrett, said education could help overcome unethical behaviour as advisers would have to be committed to the industry to take on extra education and not the people who saw it as a money making exercise.

“With that extra training and education, hopefully we may not have those unethical participants. But it really comes down to people’s moral code. I think to a degree it can and we hope so.”

Click here to read part two of this feature: To study or not to study