The education you need to be a financial adviser

In order to hang out the shingle as a financial planner these days, all an adviser legally needs to do from a training point of view is satisfy theAustralian Securities and Investments Commission’s (ASIC) Policy Statement 146 (PS 146). If they also want to hold a financial services licence, they must also satisfy PS 164.

For those dealer groups and advisers already operating under a licence, PS 146 applies now. For everyone else (generally insurance agents) it becomes effective at the latest from March 11 next year. It will be earlier if an agent enters a new agency agreement, or if their principal applies for a new AFS Licence.

PS 146 and PS 164 are guidelines, they are not laws, and neither are they regulations. They are, however, ASIC’s interpretation of the Corporations Act.

The Corporations Act says a licensee must ensure their authorised representatives (previously described as proper authority holders) “ are adequately trained, and are competent, to provide those financial services” that are covered by their licences. PS 146 is ASIC’s guideline on how dealer groups can meet that obligation.

Integratec’s John Prowse explains: “To satisfy PS 146, advisers must complete a course or courses that are on the ASIC register, and that cover both generic knowledge and specialisations in their chosen area of expertise. For example, an adviser wanting to operate purely as a life adviser would need to complete a course or courses covering generic knowledge and specialist life insurance. PS 146 also provides an option for experienced advisers who have not completed the required courses to submit to an assessment process.”

A course on the ASIC register must be assessed by an authorised assessor, which generally means an approved registered training organisation (RTO) and must also satisfy the National Finance Industry Training Advisory Body (NFITAB).

“NFITAB doesn’t really care about the structure of the course itself,” Prowse says, “but about whether or not the required competencies have been covered and are properly assessed. The big change in many courses is that they now contain a much larger skills component for which there is a skills assessment.”

If an adviser wants to offer advice in all areas of financial services, they need to complete the generic course plus all relevant specialisations — the diploma of financial services and the advanced diploma of financial services will often (although not always) fulfil those requirements, as will financial planning undergraduate and postgraduate courses offered by many universities.

“It is a bit like getting a bachelor of arts degree,” Prowse says.

“The capacity in which you can actually work depends on what specialisations you take. Simply holding a diploma of financial services (financial planning) does not guarantee you can operate across the board as a financial planner.”

Satisfying PS 146 will allow an adviser to legally operate as a financial adviser — but of course dealer groups may impose other requirements. A dealer group may, for example, require all its authorised representatives to qualify as certified financial planners (CFPs).

And while PS 146 compliance is all ASIC requires of advisers in terms of education, it is regarded by many in the industry as a base line requirement.

That said, Sharon Taylor, senior lecturer in the school of accounting at the University of Western Sydney, says there are thousands of advisers operating in the industry who are not CFPs and possibly have no inclination to become one.

Whether or not higher educational standards become the norm will, she says, largely depend on whether or not dealer groups and consumers embrace the idea.

“Do dealers value the CFP?” she asks. “If they do and they push their authorised representatives to become CFPs, then there will be a large number of people looking to undertake degree programs. The other question is, what will the consumer do? Will they value the CFP?”

The answer, she says, lies in how well theFinancial Planning Association(FPA) sells the designation to the public.

“The CPAs did a terrific job in selling the CPA designation,” she says.

“Consumers embraced it because they realised it gave them the automatic assurance that their accountant had the necessary qualifications.”

She expects a similar reaction from financial planning consumers.

“The marketplace is much more savvy,” she says. “Consumers are going to start looking at their financial planners and they’re going to start asking questions like — ‘do you have a degree?’ And personally, I think it is the way the industry has to go.”

Taylor believes that the FPA’s push for its members to become CFPs and for those CFPs to hold degrees, is not just because it wants its members to be better educated, but also because of a push in that direction from the US, which licenses the CFP designation.

“The US is saying that from 2007, CFPs must hold a degree, and that follows through to all those countries that are licensed to use the designation,” she says.

However, Taylor says some dealer groups are a little slow in recognising that people holding specialist financial planning degree qualifications are usually PS 146 compliant.

“I’ve had calls from previous students telling me their dealer group is insisting they undertake DFP1 — that’s ridiculous for someone holding a PS 146 compliant degree in financial planning. I’m finding that dealer groups are not very well educated about the degree programs.”