Developing profession needs professional approach

financial planning regulators

30 March 2016
| By Industry |
image
image
expand image

There can be no question that reform is needed to the financial planning industry if perception is to change and for it to be regarded as a profession.

And this is not to say that many, if not the majority of, financial planners and advisers today conduct themselves as professionals and implement a professional approach when dealing with their customers.

The new professional standards framework that the Government had proposed in the draft legislation released in December 2015 is a good starting point. But you have to question if it is enough.

Amongst its many proposals, the draft legislation recommended that the following components of a framework be established:

A minimum level of education to be completed;

A code of ethics to be developed and followed by all financial advisers;

The commencement of a professional year (or supervision year) for new entrants;

Ongoing continuing professional education requirements on an annual basis, including attestation to having completed these; and

A new body (the Standards Body) to develop, administer and oversee the above and all other elements of the proposed professional standards framework. You would be hard pressed to argue that the above elements are not positive steps towards changing the current perception in the general community of financial planning and the planning industry as it stands today. However, when it comes to implementing a professional standards framework, one key element required is that the implementation is also done in a professional manner.

The appropriate level of change to develop the desired outcome will only work if those in the industry can see that change can be made in a reasonable manner. This doesn't mean it has to be easy, but it has to be achievable. It is in this context that I wonder if an important step has been missed that could make a significant difference to the ultimate implementation of this reform.

The need to avoid duplication

Many planners and advisers would look at the proposed framework today and question whether they need to undertake further study, and if so to what level.

On top of this is a question of why their years of experience cannot be taken into account.

Experience is an interesting question, as it always comes down to the question that if it was appropriate to consider, then how much is enough? Is it 10 years? And if so, does that mean that nine and a half years isn't enough, because you would then wonder what that additional six months has given you.

Perhaps the relevance of experience for existing advisers is why it is proposed that they may have alternative pathways available to meet the new minimum education requirements.

However, the real element of duplication that arises under the proposed professional standards framework is the overlap between the new Standards Body and the role of the Tax Practitioners Board (TPB).

Do we need a multiple regulators?

Today, virtually all advisers are registered with the TPB - either direct or operating under a licensee that is registered.

From a realistic perspective (under legislation), you would need to be registered as it is almost impossible to see how an adviser can provide quality advice to a client without discussing the tax impact of that advice on the client.

This essentially equates to the provision of a tax service, and presuming that a fee is charged for the advice, it means that TPB registration is now a must.

If you look at the requirements for TPB registration (some of which existing advisers will only need to demonstrate at the point of re-registration), there is considerable overlap with the proposed requirements under the professional standard framework. Indeed, the TPB requires the following:

A minimum level of education (currently relevant studies in Australian taxation and commercial law);

Adherence to the TPB code of professional conduct;

Completion of relevant experience; and

Ongoing continuing education.

There is clearly the potential for overlap (or preferably alignment) between the requirements of the TPB and the new Standards Body. And given the current delay in the professional standards framework legislation making its way into (and through Parliament), perhaps there is time for this to be appropriately considered and addressed?

It would be fair to say that the requirements of the Standards Body are likely to be higher than the TPB. For example, the TPB requires demonstration of certain competencies from an education perspective, while the Standards Body will require the completion of relevant degree.

Both bodies would require adherence to a code of ethics (or conduct) and have certain experience requirements prior to being able to register (for new entrants at least).

And while the TPB already has a requirement of 60 hours of continuing professional education every three years, there is talk the requirements from the Standards Body will be greater than this.

On the face of the above, this would naturally lead to a question (if not conclusion) of whether the TPB requirements are no longer needed for financial advisers.

Is the TPB still of relevance?

The TPB is clearly still relevant, as there are thousands of tax agents (who are not financial advisers) who are registered with the TPB pursuant to the Tax Agent Services Act.

Many advisers may also question why the requirement to register with the TPB arose in the first place, and whether this was a trade off to the accounting industry for their need to be registered under an Australian Financial Services Licence(AFSL) to provide self-managed super fund establishment advice from 1 July, 2016.

Whatever you may believe about why TPB registration for financial advisers arose in the first place, I believe it is the right thing for clients and consumers generally.

As mentioned earlier, it is difficult to envisage a situation where personal financial advice is provided to a client without some discussion about how the tax law applies to the recommendations being made. For example, a discussion about superannuation contributions would discuss whether the contributions are deductible to the client or not, how they would be taxed within the fund, and how that would be taxed when "returned" to the client in retirement.

The purpose that registration with the TPB serves should be viewed as two-fold. First, it places a requirement on financial planners to obtain, and then maintain a certain level of minimum technical competency about the operation of the Australian taxation system.

Second, though perhaps much less visible, is that it should provide consumers with some confidence that the person providing them with advice is appropriately educated in relation to the advice they are providing. These purposes are also behind the intent of the new Standards Body.

Where to next?

The passage of legislation to implement the professional standards framework has clearly been delayed.

It was expected to be introduced in the May sittings, but may now come earlier given that Parliament is being recalled in April. There is already talk of the commencement date and transitional timeframes being pushed out.

Of course, a profession is only as good as the people who operate in it. One element of a profession is its ability to self-regulate. For anyone who is sitting back and waiting for the final detail to come through and be legislated, you need to carefully consider if you are leaving your run too late. Professionals tackle these issues head on and try to stay ahead of the pack.

Bryan Ashenden is the senior manager, advice strategies and knowledge at BT Financial Group.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

This verdict highlights something deeply wrong and rotten at the heart of the FSCP. We are witnessing a heavy-handed, op...

2 days 21 hours ago

Interesting. Would be good to know the details of the StrategyOne deal....

1 week ago

It’s astonishing to see the FAAA now pushing for more advisers by courting "career changers" and international recruits,...

3 weeks 5 days ago

Insignia Financial has made four appointments, including three who have joined from TAL, to lead strategy and innovation in its retirement solutions for the MLC brand....

3 weeks ago

A former Brisbane financial adviser has been charged with 26 counts of dishonest conduct regarding a failure to disclose he would receive substantial commission payments ...

6 days 1 hour ago

Pinnacle Investment Management has announced it will acquire strategic interests in two international fund managers for $142 million....

5 days 4 hours ago