The three Rs: revisit, review and revise

By quantitative standards, financial planning education has come a long way since the mid-1990s when there were only two Australian universities offering relevant courses.

Compare this modest figure to today’s academia scrum, whose answer to a growing demand is to offer a smorgasbord of courses, and it is obvious that education institutions now recognise financial planning as a distinct discipline.

But, as we all know, quantity does not necessarily equate to quality and there are those in the industry who argue that the current offerings need to be reviewed and revised.

‘Credential creep’

Financial Services Education Agency Australia (FSEAA) general manager Deen Sanders is one of those people.

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He is concerned that advisers are victims of “credential creep” — the tendency to accumulate qualifications so that office walls display a plethora of framed certificates that mean very little.

Partly contributing to this phenomenon is the diverse nature of the financial services education marketplace.

In as little as a decade this space has been infiltrated by a multitude of players, including regulators, associations, employers and training providers, each offering their own versions of what needs to be taught.

So how does an individual decide what, how and where to study?

Sanders suggests that advisers consider all aspects vital to the provision of advice, and ensure they have those covered before moving onto more specialised topics.

He contends that there are five essential components of financial planning that should be included in every adviser’s education: capability, performance, ethics, critical thinking, and interdependence.

Capability is fairly straightforward, covering the compliant provision of advice and technical knowledge, and is closely related to performance, or how to advise effectively.

Ethics concern the process a financial planner uses to make an informed and good decision.

Critical thinking is the application of complex knowledge, while interdependence focuses on an adviser’s relationship with regulators, an understanding of the community in which they work and their professional attributes.

However, apart from an occasional mention of the others, Sanders said only capability and performance were taught at universities. Therefore, he said, it was through reflective practice, or considering what you were lacking professionally, that a more holistic education could be achieved.

“We encourage advisers to go wider instead of higher by asking ‘what don’t I have at my current level of education’, before they leap onto the postgraduate path,” he said.

“I’ve seen many advisers assume they have everything covered, but they don’t realise they need more. They have to ask themselves what they need to know in order to be part of a profession, and it’s not just the technical aspects, it’s everything in between, and then they need to fill in the gaps.”

Sanders said the current course structure only accommodated technical and compliance issues, which was not enough when trying to strengthen the notion of financial planning as a profession.

“What’s currently going on in the higher education community isn’t improving professionalism, in fact many of the courses are widely out of date,” Sanders said.

Surely then this poses a no-win situation for advisers — how can an individual ‘go wider’ with their education if the current course structure doesn’t provide that option?

Sanders believes that the very people applying for courses are actually the ones who have the power to change what is offered.

“One of the things not well understood is that universities are hurting because their international student numbers are dropping off. The universities fear what effect this will have, so at the moment they are trying to position themselves better for domestic students,” he said.

“Therefore, we want individuals to choose their education more wisely and that’s when we will see the real shift. A few key bodies, such as the Financial Planning Association [FPA], coming on board will also help to make this happen.”

More than the minimum

However, FPA education general manager Chris McMillan, who recently departed the association, said a significant proportion of advisers opted to satisfy only the minimum requirement when it came to education. This was highlighted back in 2003 when the compulsory number of units required in the diploma of financial planning (DFP) went from eight down to four.

“We expected people would go on to do the next four units but ended up finding that people are only doing the minimum requirement. There are two schools of advisers, those who say I’m only doing the minimum and those who say, no, I want to aspire to be a certified financial planner [CFP],” McMillan said.

Ray Griffin, managing director of Griffin Financial Services, believes a shift in responsibility could help to balance out this situation.

A CFP himself, Griffin would like to see advisers made more accountable for their progression through education, instead of the onus being primarily on the licensees’ shoulders.

“The culture of the profession isn’t right — it is too concerned with sales,” he said.

Griffin reiterated Sanders’ comments by saying there was a lack of professional ethics in some of the current course offerings, which he described as providing training and not education.

“When you look at PS 146 it isn’t talking about education, it’s about training, so it’s a good foundation, but it’s not enough,” he said.

Griffin added he was a strong supporter of postgraduate courses, but emphasised the importance of having professional ethics as their core component.

“When it comes to continuing professional development, I think a lot can be said for people who enrol in postgraduate courses. In my business PS 146 compliance is not enough … I want people who have CFP status,” he said.

Where the numbers are

However, it seems not everyone is in the same boat.

Education provider Tribeca Learning reported that the majority of its enrolments, which in the past financial year totalled about 16,000, were still in initial PS 146 compliance courses, although head of education Louise Trevaskis said interest in specialist courses had improved.

“Specialisation is definitely at the forefront of a lot of people’s minds,” she said.

“We have been able to develop courses, such as our self-managed super fund courses and mortgage broking courses, to meet client and regulatory needs. Enrolments in our specialist courses alone increased 12 per cent in the past financial year. But the majority of enrolments are still in the lower qualifications and further study is something people tend to put on hold until they are sure of the personal benefits it will deliver.”

Terrence Hallahan, program director for the master of financial planning course at RMIT University, said declining student numbers meant the university’s financial planning postgraduate program was no longer viable. He said he was aware of a few other institutions where this was also the case.

“I think this is because financial planning has a very fragmented education space. The Australian Securities and Investments Commission hasn’t done the industry any favours with PS 146; in fact it has reduced the educational standards. Subsequent to PS 146 coming in, the DFP required the completion of eight subjects, now it only takes four,” he said.

Let me in

But while some established, practising financial planners might not be able to justify the time, money and effort required to further their education, there is a section of the industry that views education as their top priority. They are the aspiring, entry-level financial planners who consider education the number one mechanism for achieving their immediate career goal — employment.

University of Adelaide international centre for financial services director Clive Perring said the school had experienced a renewed interest from people trying to break into the industry, which in his words was the hardest thing a young person who wanted to advise could try to do.

“A lot of our graduates are interested in the financial service industry, but are finding they need a degree to get in,” he said.

“This is because increasing numbers of financial planners in Adelaide are looking for people who have an undergraduate degree. Overall, in society when it comes to gaining entry into a high-paid profession, employers are looking for better candidates and study is the type of quality they are looking for.”

Many students therefore seek additional qualifications in a bid to distinguish themselves in a highly competitive and growing market.

Made for the job

But does this approach work?

According to Scott Baker, recruitment specialist with Profusion Group, while higher education is looked upon favourably, it is “not the be all and end all” from an employer’s perspective.

“If someone had completed a masters degree and another had done their PS 146 and had experience, the experienced person would most likely get the job,” Baker said.

“Certainly there are still firms looking for people who are degree qualified, but life experience and interpersonal skills are rated highly. Experience is the major shortfall, not education.”

However, he also said it was harder to break into the financial planning industry today than what it was five years ago and completing an undergraduate degree would give those yet to forge a career in the industry time to develop important life skills.

“A lot of university qualifications incorporate financial planning and I would recommend doing a degree before moving onto PS 146,” Baker said.

“Plus, degrees are going to become even more important at the end of the year as the preferred pathway into the CFP accreditation.”

It would also be wise for undergraduates to consider paraplanning as a means for gaining recognition, experience and, eventually, an advisory position within a firm. Spending time in this area of a business builds an individual’s technical competency and many companies offer the opportunity to progress from a paraplanning role to an adviser position.

Raising the bar

As Baker said, from January 1, 2007, a bachelor’s degree in financial planning will become the preferred and most direct pathway for entry into the CFP education program and will be necessary to attain the CFP designation.

This requirement will bring the minimum qualification of the designation in line with that of other professions, such as accounting and law.

Institute of Chartered Accountants in Australia manager of financial services and superannuation Hugh Elvy said the process of becoming a chartered accountant was rigorous and complex, involving a university education, work experience and mentoring.

He predicts the financial planning industry will eventually adopt a similar structure and is currently in a stage of transition, but noted that the profession was relatively young.

“When you look at any profession, they all have a degree as their basis,” Elvy said.

“But accounting, for example, has been around for a long time and we look at financial planning as being a recent phenomenon. As time goes on, the knowledge and requirements of financial planning will increase. One of the key issues here is the ethical requirements, which are very high for accounting, but need to increase for financial planning. The depth of the training and how long it takes also needs to be more robust. I think this should include a mixture of work experience and life experience. You don’t want to make it too easy to get into the industry.”

Paving the way

Over the past 10 years the requirements and expectations of financial planners have increased significantly, with education developing just as strongly.

Many would argue though that the current structure is far from perfect, especially when focusing on the profession’s minimum requirements.

But, despite the criticisms of PS 146, the course does provide an appropriate benchmark for future improvements.

The development of educational programs, such as the DFP, has been central to the growth of the industry and has spurred not only an increase in the number of Australian universities offering such programs but also the diversity of locations available and their mode of delivery.

If the past 10 years are anything to go by, the next decade should be just as pioneering.

From 2007, major changes will take place in the form of amendments to the CFP program’s prerequisites. It will be interesting to see if the number of people enrolling to become a CFP will change, considering a degree will become the preferred pathway into the program.

Regardless of whether giving people higher hurdles to jump will sort out the bad apples from the good, it should help improve the reputation of the profession in the eyes of the public.