Old advisers never die…except when its time to go back to school

There is a saying that old advisers never die, they just re-write their life insurance policies.

But ever since the Australian Securities and Investments Commission (ASIC) made the formal education of financial advisers compulsory under Policy Statement 146 (PS 146), the fear has been that many older advisers would be forced out of business — particularly those who moved into financial planning from a life insurance sales background with few recognised qualifications.

Now, with the June 30 deadline for PS 146 compliance well and truly gone, some of those fears appear to have been confirmed.

Late last month, Australia’s largest financial planning dealer group, AMP Financial Planning, still had some 62 financial advisers awaiting results to see if they had met the PS 146 requirements.

The group’s managing director, Greg Kirk, was expecting as many as 50 of those advisers to fail.

According to Kirk, many of these will be older advisers, prompting at least some of them to abandon their careers as financial planners.

If the experience at AMP is repeated at other dealer groups, then it is easy to see that the impact of PS 146 on the make-up of financial planning industry in Australia will be enormous.

But the true impact of PS 146 on older advisers will probably be measured not by the number who try to comply with the new requirements and fail, but the number who decide to leave the industry rather than go through the process of trying to comply.

And that number is expected to be substantial. While it is difficult to gauge just two months after the June 30 deadline for PS 146 compliance how many advisers have been prompted by the added educational requirements to leave the industry, the consensus is a significant number.

“Some advisers have definitely been weighing up the benefits of the extra qualifications needed [for PS 146 compliance]. I am sure that some people have decided to hang up their boots,” Financial Planning Association (FPA) senior manager of education and certification Ken Bruce says.

Joe Nowak, the president of the Association of Financial Advisers (AFA), a body made up largely of older financial planners with a background in life insurance, is even clearer about the impact of PS 146.

“In my opinion, a lot of good advisers who had a good client base and who had a trusted relationship with a lot of clients were forcibly put out of the industry because it was too hard for them to go back to school [to meet PS 146 requirements],” Nowak says.

The situation was exacerbated by ASIC’s initial decision not to recognise training courses undertaken by financial advisers before 1995 as counting towards compliance for PS 146.

After much lobbying by groups like the FPA and the AFA, ASIC reversed its decision in March this year, just three months before the deadline for PS 146 compliance. But for many, it was too little, too late.

“In the beginning, prior to ASIC changing its mind, I think some were too heavy handed in their attitude towards education, paying no due respect to the skills and training that some advisers already had,” Nowak says.

According to Nowak, many older advisers were also unaware they could meet the PS 146 requirements by having a qualified assessor individually assess their abilities in their own practices, rather than having to enrol in formal courses and sit exams.

As the rush to meet the deadline for PS 146 approached however, individual assessment quickly become the popular method for advisers from the old school to earn their stripes under the new regime.

That is not to say that the individual assessment was the easy option for advisers.

In fact, quite the opposite, according to training group Integratec’s sales and marketing general manager Nina Hope.

Hope, who is an ASIC-qualified assessor, says advisers not only had to prove to their assessor that they had the appropriate technical knowledge to provide financial advice, but also that their compliance systems, training manuals and business plans were in check.

It is no wonder then that Hope’s assessment of advisers takes anything from two days to a number of weeks, and not everyone passes.

“The assessment is like a compliance audit of an adviser’s business, although far less formal,” Hope says.

According to Hope, despite the cost and the unavoidable disruption to a financial planning business, the assessment process is generally well received by advisers.

Nowak is living proof of that. With a history in the financial planning industry stretching back to the 1960s, Nowak was one of the many older advisers who chose the individual assessment path to gain PS 146 compliance.

“The assessment has been marvellous because my whole office structure has been upgraded along ASIC’s guidelines,” Nowak says.

“But the fact that you could be individually assessed was not public knowledge [when PS 146 was first announced] and now the industry is missing some very good advisers. Personally, I found [the assessment process] enlightening and challenging. Change is tremendous, but it is the methodology and process of change that counts and it should be done in an atmosphere without threats and fear.”

The question now being asked in financial planning circles is whether the changes brought on by PS 146 will mean better advice for consumers of financial planning services.

Not surprisingly, Nowak is one who believes that PS 146 is by no means a guarantee of better financial planners.

“There are a lot of younger advisers who have done the testing [to comply with PS 146] and who have done well on the academic side, but have no idea on how to build relationships with their clients or give advice,” Nowak says.

“The older advisers are being missed in the industry at the moment. The industry lost a lot of good, experienced advisers [because of PS 146].”

That point of view is partly behind the AFA’s push to set up its own financial planning designation, the Chartered Financial Planner (ChFP).

The AFA plans to award the designation to planners who meet existing industry benchmarks for education, such as the FPA’s Diploma of Financial Planning, but will also insist advisers demonstrate more practical competencies in areas such as business practice and plan preparation.

However it is not just the AFA that is questioning the affect PS 146 will have on the overall quality of advisers in the financial planning industry.

Hope, who has spent much time assessing the quality of advisers, also agrees that formal qualifications do not necessarily imply better advice.

“Formal qualifications give advisers knowledge of the qualitative aspects of financial planning. What you cannot buy is life experience. A lot of the older advisers are good with clients because they have been there and done that,” she says.

Even the FPA’s Bruce admits the jury is still out on whether PS 146 will raise the overall quality of advice given by financial planners.

“I would hope that ASIC would be doing some follow-up work in the near future — in the form of a survey for example — so that the industry could start to get a feeling that the quality of advice is getting better,” Bruce says.

“If you are going to put all those training requirements in place, you should be able to confirm the outcome in some way.”

Bruce says consumers will expect to see a noticeable improvement in the quality of the financial advice they receive within a year of the introduction of something as substantial as PS 146.

If they do not, the spotlight will again turn not only on the financial planning industry, but also on ASIC and the merits of PS 146.