FPA's 'knee-jerk reaction' to planner education standards

The Financial Planning Association’s (FPA’s) white paper on education expectations during its national conference last month appears to be a knee-jerk reaction to mounting criticism and scrutiny, write Rakesh Gupta and Ken Bruce. 

The release of the Financial Planning Association’s (FPA’s) white paper on education expectations during its national conference last month appears to be a knee-jerk reaction to mounting criticism and scrutiny by regulators, the Government and the public.

The financial planning profession has largely been operating as an industry and not as a profession. Industry participants have been content with this state of affairs as it has supported positive short-term business and commercial outcomes.

The Australian Securities and Investments Commission (ASIC) provides a framework for education and training through a set of minimum competency standards for advisers and it is the responsibility of the profession to take these minimum standards to a higher level.

However, it appears the profession has failed to grasp this opportunity as evidenced by a less than satisfactory take up of the CFP designation.

The FPA has been slow to act in its responsibility as the gatekeeper to the profession in setting appropriate entry-level education standards.

The profession was initially reluctant to accept a bachelor degree as an entry requirement to CFP and the FPA responded by offering generous transition arrangements.

The notion that a minimum entry standard to the profession be set at a bachelor degree level has up to now been largely rejected.

The FPA also failed to endorse ISO 22222 — personal financial planning — the requirements of personal financial planners and a global standard that would have provided a useful benchmark for the profession and educators.

The FPA has finally acted under the pressure of the Storm Financial fiasco and the Ripoll Inquiry, realising that sticking with minimum standards may not be sustainable and it will need to lift its game to sustain its relevance in the marketplace.

As an outcome of this process, the FPA has developed a policy statement and backed it with a huge media presence.

This policy statement has, at its core, educational requirements for new financial planners by 2015 and mentored training (professional year) by 2012.

In developing the policy, it appears the FPA has assumed universities will teach a common education curriculum as prescribed by the association and modelled on the US-based Financial Planning Standards Board’s list of topic areas.

However, this notion assumes that the purpose of university education is to impart training in a craft or trade.

This notion restricts the ability of academia to develop a body of knowledge that may be central to defining the profession. In this instance, it seems the profession may have been overambitious in its response by expecting to prescribe to universities what is to be taught.

Financial planning as yet cannot be characterised as a profession because it lacks the basic elements of professionalism, much of which relates to fiduciary responsibility.

Moreover, the development of professional responsibility has its roots in universities and by suggesting professional associations can prescribe a common curriculum, the industry undermines the role universities play in the creation and dissemination of knowledge.

Propagation of this view in the long run could be detrimental to the profession as it may result in excellent financial planners at a given time, but not necessarily translate into a well-recognised profession.

This will need careful planning and a concerted effort by the FPA and academia.

Full-time supervised work for all qualified financial planners is a good idea in principle. The FPA will need to allocate resources to implement such a scheme.

However, if not sufficiently resourced, this may become a source of cheap labour for planners and may not meet the objectives this scheme aims to achieve.

Furthermore, industry associations will require a strong will to manage the small number of unscrupulous planners who do not do the right thing.

It does not appear from the past actions of the FPA that it has the will to take a strong position in terms of disciplining rogue advisers.

In achieving what it aims to achieve as outlined in its announcements and media briefings, the FPA may need to contribute significant resources to the planning, development and implementation of the policies and future of the profession.

It also needs to actively and not selectively engage with the higher education sector. The FPA appears to have been guided and influenced by private vocational education and training providers to ensure compliance with ASIC’s RG146 requirements.

The adoption of the US-based Financial Planning Standards Board's curriculum is one example that does not appear to have been an outcome of wider consultation within the Australian higher education sector.

The FPA has an opportunity to build a relationship with universities to define and grow a body of knowledge and deliver graduates who meet the future demand for professional financial advisers.

To date, there has not been a lot of evidence that the FPA has been building these relationships (except for a selective engagement with the Future Financial Planners Council and an announcement in the referred white paper that the FPA intends to engage with universities). It will require more than opportunistic media announcements to achieve this.

Dr Rakesh Gupta and Associate Professor Ken Bruce are from the CQUniversity’s School of Commerce and Marketing. These are the views of the authors and do not necessarily represent the views of CQUniversity.