Transitionary arrangements the key to new regime
A significant number of financial planners may choose to leave the industry over the next two years, but the Government and the regulators can minimise those exits by getting the transitionary arrangements right, Mike Taylor writes.
Consider this. There is growing statistical evidence that the demand for good financial advice in Australia is such that it cannot be met by the existing number of advisers. Despite this, experienced advisers are signaling their intention to depart the industry.
Nearly five years ago, experienced advisers were citing the changes being wrought by the Future of Financial Advice (FOFA) regime as the primary reason for their likely departure. Today, many of those same advisers are citing the new Life Insurance Framework and the higher educational standards and requirements entailed in the exposure draft of the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2015.
There will unquestionably be a significant number of advisers who depart the financial planning industry in 2016/17 but, in truth, many of those departures will be driven as much by generational change as they are by legislative change and regulatory tinkering.
Looked at objectively, many baby boomer planners will have been looking at their retirement options for a number of years and the requirement that they undertake study to lift their educational qualifications will arguably simply act as a catalyst for their ultimate decision to exit the industry.
However, there are also a significant number of existing, highly experienced planners who are now faced with undertaking some serious challenges if they are to be allowed to remain in the financial planning industry and to provide sound counsel to their clients. That is why the Government must allow for better transitionary arrangements than those outlined in the exposure draft legislation.
It says a great deal about the arrangements as outlined in the exposure draft that virtually every major financial services organisation has described them as unrealistic, not to say almost unfair for existing financial advisers.
As even the Association of Superannuation Funds of Australia (ASFA) pointed out in its submission — "a two-year period may not be enough for people to top up their education to a degree equivalent qualification on a part-time basis. This is an important issue since if an adviser fails to qualify by 2019 they are no longer eligible for transition and would need to go through the whole education and training process (including a degree or equivalent and a professional year)".
Given the importance of encouraging experienced advisers to remain in the industry, the Government would be foolish to ignore the pleadings of ASFA, the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) on this important issue.
The Government and the Australian Securities and Investment Commission (ASIC) would also do well to take on board the suggestions of the AFA and the FPA with respect to the transitionary arrangements around the new Life Insurance Framework, particularly those elements which go to the reality of the intricate commercial relationships which existed between clients, insurers and planners.
The FPA's response to an ASIC consultation paper pointed to the need for a "grace period" with respect to the time it takes for a policy to be approved, along with appropriate recognition of factors such as legitimately-earned professional services fees not be mistaken for commissions and instances where insurers choose to reduce premiums of their own volition.
Each of these elements has an impact on advisers' remuneration, and it should be incumbent on those overseeing the transition to ensure that there are no adverse unintended consequences.
Irrespective of recent adverse public perceptions of the financial planning industry, it is in no one's long-term interest to create a shortage of experienced financial planners.
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