Financial planning education standards: the debate rages on

While many would agree the current educational requirements for entry into financial planning are inadequate, there is little common ground on how to resolve the issue, writes Chris Kennedy.

Like virtually everything else in the realm of financial advice, education standards and requirements within the sector are in a state of flux.

What was once considered a trade with very little further education opportunities is now establishing itself as a true profession in the same vein as medicine and law, with specialised undergraduate and masters degrees now being offered.

The industry’s minimum qualification to provide financial advice, Regulatory Guide (RG) 146, is dismissed by some industry commentators as woefully inadequate.

But to phase in a university degree as a minimum qualification would take years, or more likely decades. Some sectors of the industry remain unconvinced that a degree automatically means a higher level of competency.

There is debate as to how much of a role the Australian Securities and Investments Commission (ASIC) should play in forcing the industry to lift its standards through regulation, and how much of the onus should be on the industry itself.

In the meantime, the most widely recognised industry qualification, the Financial Planning Association’s (FPA’s) Certified Financial Planner (CFP) designation, has recently moved to a degree requirement for entry, possibly signalling a long-term shift in the training that advisers will have to undergo to enter the industry.

Participants from across the industry agree that standards need to continue to rise, with widespread support for a proposal to gather all stakeholders together to agree on the best approach moving forward.

The FPA has been actively involved in attempting to lift education standards in the industry, last year releasing a white paper proposing, among other things, that all advisers obtain a degree in order to enter the industry, as well as undertaking a full year’s supervised work.

The FPA’s head of professionalism and deputy chief executive officer, Deen Sanders, says there will always be room in the industry for people at a minimum regulatory qualification, along the lines of an examination licensing model for those who may be employed simply to provide limited advice for retail clients.

“We’re proposing that there is a level of identity that is well above that, which is what we’re talking about with degree qualified,” Sanders says.

“We certainly don’t harbour any expectations that all financial planners in the broadest possible sense will be degree qualified, but we certainly propose that anyone who seeks to hold themselves out as a professional financial planner should be degree qualified.”

Degree minimum

The managing director of specialist financial sector educational organisation Pinnacle, John Prowse, agrees standards need to rise, but doesn’t want to see a university degree installed as a minimum qualification, saying the advanced diploma accreditation is adequate for many financial planning roles.

“I think there’s a big risk that we’ll move to a world where everybody’s required to have university degrees, which I think would be a retrograde step,” he says.

The problem, according to Prowse, is a lack of standardisation or policing of education standards.

“The list of competencies that are required in RG 146 is very skimpy and well short of what you’d call a curriculum,” he says.

“There’s a lot of discretion [given to] individual training providers as to exactly what financial planners need to know and to be able to do before they can be signed off, and some providers then take advantage of that discretion to offer courses that are inadequate.”

It is a point on which the FPA firmly agrees.

“For somebody to do RG 146 and then think they can just go out and be a financial planner is a little bit unrealistic — it’s nowhere near close to a professional designation,” says FPA chief executive Mark Rantall.

Sanders does not see any place in the industry for accelerated RG 146 accreditation. “It misleads consumers and leads to a poor quality adviser outcome,” he says.

Improving regulatory standards around the competencies required for advisers is one approach but, having been disappointed with the results of the FNS10 package, Sanders doesn’t hold great hope for results here.

The FPA’s recommendation is to move past training standards and focus on an objective, external industry-wide assessment that is not the domain of the training providers themselves.

That way, even though some training providers may continue to offer inadequate courses, if graduates are unable to pass an industry-wide assessment, the providers will be squeezed out of the market.

Prowse is also an advocate of the external assessment. “I’d like to see the assessment and the provision of training separated, [with] an external assessment process run by ASIC,” he says.

“While a training organisation is in charge of the assessment you’ve got a case of the rabbits in charge of the lettuce patch.”

Prowse has a high regard for the global designation awarded by the CFA Institute, which he says is well regarded worldwide.

Although there are many providers that provide training towards the CFA exam, because that exam is provided by the CFA Institute it doesn’t have to be concerned with the quality of the training, because if the provider is substandard, those candidates don’t get through the exam, Prowse says.

Richard Brandweiner, vice president of the CFA Society of Sydney, says the CFA holds itself out as upholding the highest ethical standards.

“What the institute has tried to do is to turn financial planning into a genuine profession, and that means ethics is [at] its core — it’s a very important part of what we do and could be a major competitive advantage for advisers going forward,” he says.

There is an annual sign-off that says participants have met the institute’s standards and reinforces all the learning undertaken during the year, he says.

The CFA course is a generalist course that covers a wide range of topics across economics, financial statement analysis, asset valuation and portfolio management from a global perspective.

Global exams

One day per year around 100,000 students globally sit the same exams, which are six hours long and have no exemptions for prior study. Generally, about one in five people who begin the course end up being able to use the designation, Brandweiner says.

“I’m quite optimistic that many more people within the financial advice community in Australia will start to embrace it, particularly as the challenge for a lot of advisers in the new regime is demonstrating a real value proposition for their clients as fees become a lot more transparent,” he says.

Mark Brimble, associate professor of finance at the Griffith Business School at Griffith University, is less convinced of the merits of an external ASIC assessment, which he says represents a “band aid fix” without addressing the underlying problem.

“Inevitably, you’re still allowing people to do a very short training course. And if they pass some kind of test that ASIC comes up with and someone is still prepared to give them the licence to do it, you still have that perception issue around the quality of the services that are being offered.”

Brimble, who helped author the FPA’s ‘Education expectations for professional financial planners’ white paper last year, believes we should aim to make a degree compulsory for advisers in the longer term.

“We live in a complex financial world — people giving financial advice need to be well versed in all the technical and theoretical aspects of the products that they’re dealing with, and a broader base of knowledge will only help planners in that regards.” This will also help the industry to be viewed as a profession in the public eye, he says.

This is very much a long-term process, he concedes, because of the small number of universities currently offering specialist financial advice programs and the small number of academics in the country.

“We’ve got some very complex issues around the grandfathering of existing planners and recent planners who may have gained entry into the profession but don’t have that level of education,” Brimble says.

Griffith University is one of 14 universities in Australia linked to the CFP program. It offers an undergraduate and postgraduate degree in financial planning through its Bachelor of Commerce stream.

The undergraduate program is a full eight-subject major in financial planning and is an accredited pathway to the CFP. It does not offer any exemptions from the CFP, although the postgraduate masters course does.

Specialised degree

The University of Western Sydney (UWS) is one of the few universities in Australia that offers a specialised financial advice degree through its Bachelor of Financial Advising.

The course’s co-ordinator is Sharon Taylor, associate head of school, engagement, UWS School of Accounting, who says the 24-unit degree has seen a steady increase in both enrolments and interest over the past few years.

The Bachelor of Financial Advising was a response to the need for a program which brought together the disciplines that are important to be a financial adviser — not just a planner, Taylor says.

Graduates are equipped to give tax advice, accounting advice, small business advice and personal advice. They graduate with CPA and RG 146 accreditation and can apply for tax agent registration and gain entry to the CFP.

The related masters degree grants exemptions from the entire CFP course, apart from the ethics module and the challenge exam.

Lifting standards

Taylor also believes the industry needs to raise its standards in order to improve the public’s perception of advisers and agrees a degree should be the minimum qualification for entry in the future.

“I think the bar is way too low,” she says. “If we wish to see the industry as a profession, it needs to be underpinned by education, just as other professions are.”

The benefit of a degree is that it teaches people to not just be replicators of information but to be critical thinkers and problem solvers, she says.

The UWS program involves case studies and role plays where students are asked to interview clients, apply their learning then reflect and review the process to identify areas of improvement.

The masters course is even more research focused. For those already established in the industry, it provides an opportunity for CFPs to gain a qualification that will separate them from other advisers in the market, Taylor says.

Education is a topic that is close to the heart of the Association of Financial Advisers’ (AFA’s) national president, Jim Taggart. He has a diploma, two undergraduate degrees, two masters degrees, another diploma and a doctorate. Taggart is a CFP who teaches at UWS in the areas of risk and insurance.

He says the AFA’s Fellow Chartered Financial Practitioner designation is a post-nominal course — meaning one has to satisfy particular criteria in the industry and education to gain entry — that is well regarded in a wide range of countries. It is based around four courses on ethics, client engagement, financial solutions and business modelling.

“I believe all financial advisers are teachers,” Taggart says.

“We take very complex phenomena and put it into a meaningful form that helps our clients understand the consequences of doing or not doing something that affects and protects their wealth.

"My skill as an educator is taking that really complex [information] and breaking it down so that people understand that it has an impact on their lives.”

There needs to be more focus on not just maintaining but updating of knowledge, he says.

Continuing learning

“There needs to be a continuing reflection, testing and [re-evaluation of] standards. We need to be able to make sure that we are leaders in education and training because the beneficiaries of that are our clients.”

Taggart applauds any initiative from the Government aimed at raising education standards, and suggests a marriage between Government regulation and association involvement may be the way forward, but with ultimate responsibility on associations to ensure standards are met.

With more universities offering courses in financial planning and more pressure on standards, Taggart says for the new generation coming through, a degree is likely to be the main qualification that employers will look for.

With the increasing number of courses and enrolments at university level, it is important we continually monitor the content of the courses in the degrees and make sure we’ve got a better understanding of what constitutes courses and the quality of courses, Taggart says.

He points out the number of students in the UWS insurance and risk course taught by Taggart has almost doubled as a growing number of students in accounting and financial services degrees want to learn more about risk.

Kaplan vice president Marilyn Hill says Kaplan is seeing a large increase in demand as the organisation’s largely corporate client base focuses on up-skilling planners.

“Our clients regard the development and expertise of their planners as their point of differentiation. They’re looking not only for technical skills but relationship skills and business development skills to differentiate their client experience from other financial planning firms,” Hills says.

While a lot of focus recently has been on compliance and the RG 146 qualification, Hill says clients are now much more interested in planners maintaining competency as well as learning new business, relationship and technical skills.

External assessment

While Kaplan’s research shows some support for an external assessment for planners as it may provide peace of mind for prospective employers, it is in no way a replacement for any of the training or assessment provided by individual training organisations.

Because individual registered training organisations are able to use discretion around how they interpret the training requirements and how they build their assessments, the onus is on individuals and organisations seeking a training provider to do their research and make sure they are confident there is appropriate rigour and assessment, and that competency outcomes are being ensured with a high standard of assessment at that training provider, Hill says.

“Employers are being very responsible about making sure a planner is suitably qualified before they can engage with customers,” she says.

“Most organisations that are employing planners are demanding a range of professional expectations be met, whether that is through supervision of work, independent testing or looking at who awarded the qualifications.”

Although there are varying views on what role the Government should play in regulating education, or what the minimum requirements should actually be, there is a great deal of support for open conversation between the various industry stakeholders.

“The concept of collaboration between regulators, government, industry bodies, training providers and the profession itself is the way that collective standards will be agreed upon,” Hill says.

“Stakeholders in the industry involved in both the input through education and the output through services to customers — it’s critical they come together.”

Educational council

Sanders also supports the notion of an educational council in order to generate consistency across the industry.

“We intend to get the universities to co-ordinate and combine on the development of good and comprehensive education in this space because at the moment there’s still a lot of variability — the differences between universities [and] the differences in educational content can be quite vast,” he says.

“We want to get to the stage where we can all have confidence that a graduate from a program in one university has a similar nationally accepted outcome to the next university.”

There is a global curriculum in place that universities are drawing on but there are still gaps, and it is difficult for a student to know which program or university will be most suitable, he says.

Sanders also dismisses suggestions that it is inappropriate for the industry’s most widely recognised certification to be owned by an industry body, with a recent report suggesting some planners maintained their FPA membership purely for the CFP designation, which requires ongoing membership of the group.

“Professions are not just about a designation, they’re about obligations — the FPA membership brings the obligation,” Sanders says.

“We have a separately structured certification division — we have clean lines of clarity around that and it’s certified on a regular basis by the international standards body,” he says.

Sanders points to what he says is a similar arrangement in the fields of medicine, law and accounting.

“In order to satisfy our designation you have to satisfy objective international standards for that certification, and we are the best in the world at it, so we see no logical reason to shy away from that.”

Brimble also did not see it as a problem, although he concedes there is the potential for a conflict where entry standards are concerned.

“If they increase the barriers to entry and the standards for maintaining membership, will they lose members?” he asks.

The broader issue of regulation and self regulation is one where the professional bodies and the Government can work together more closely and provide support to professional bodies in terms of requiring membership of a professional body, professional codes of conduct, indemnity insurance and so on, which will then help them progress the issue of quality, he says.

Brimble says the formation of an educational council is the single most important step forward in the short term.

“[An] educational council [could] bring all the parties together so we can commence this dialogue and work out who plays what role and where we want to be as a collective group of stakeholders in the future,” he says.

In the longer term, the focus is on turning this industry into a profession that can address barriers to entry, attract legislative support, provide clear designations of ‘financial adviser’ and ‘financial planner’ and maintain educational requirements for both entry and ongoing practice, Brimble says.

“The time is nigh to get all those parties together and work out what we can do so we’re not working at crossed purposes and we are collaborating.”

This will involve universities building degrees that meet industry demand, with input from the industry, professional bodies building the professional program required to sustain ongoing entry and the Government legislating to protect the process, he says.