School’s in session for financial advisers

30 March 2015
| By Malavika |
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The value of book learning is back in the spotlight following the financial planning "scandals" and revelations of poor advice delivery that rocked some major institutions.

The push for higher education standards may seem like déjà vu for the industry, which saw a similar drive by Australian Securities and Investments Commission (ASIC) in 2011 after the scandals that engulfed Storm Financial in 2008.

Back then, ASIC had called for a national adviser certification exam before providing personal or general advice on tier one products to retail clients, along with 12 months of full-time or equivalent monitoring by someone with at least five years' relevant experience.

Fast forward three years and the Financial System Inquiry (FSI) called for the government to raise the minimum competency standards for financial advisers, including a relevant tertiary degree for those advising on tier one products, competency in specialised areas like superannuation, and ongoing professional development in technical and relationship skills, ethical behaviour, and compliance.

The Parliamentary Joint Committee (PJC) concurred, calling for assessment of competence through a professional year followed by a registration exam.

It called for the minimum education standards to be raised to a degree qualification at the Australian Qualification Framework level seven. It also said the ASIC register should only list financial advisers who have satisfactorily finished a professional year and passed the exam set by the Finance Professionals' Education Council and administered by an independent supervisor.

The accounting profession went through a similar transitory period in the 1970s, when accountants needed a relevant undergraduate degree and a rigorous diploma-style accounting-related course to qualify for the chartered accountants program.

Lining up and signing up

Players in the industry heeded the education drive by the major institutions, which was kicked off by AMP Limited and National Australia Bank/MLC (NAB/MLC) in August last year, with the Commonwealth Bank (CBA) following suit in October.

The Financial Planning Association (FPA) noted a 200 per cent rise in its current Certified Financial Planner (CFP) designation enrolments compared to previous enrolments.

"Ideally we wouldn't have been dragged kicking and screaming towards this situation. As a profession we should have taken steps collectively ourselves because it's the right thing to do." - Tim Mackay

FPA chief executive, Mark Rantall, believes it is a good thing lifting education standards across the industry will take time, because anything worthwhile should take time and have substance behind it.

"We'll start to see results of this over the next 12 months to two years. I think there's broad recognition in the PJC inquiry into education, ethics and professional standards, that the recommendations have the right principles and are setting the right levels of higher education and professionalism," Rantall said.

Major institutions now require advisers to have a relevant degree, CFP or Fellow Chartered Financial Practitioner (FChFP) designations, or a Masters of Financial Planning (MoFP) qualification.

"We strongly support moves across the industry to lift education standards and boost transparency," a NAB spokesperson said.

"We've set new education standards for our financial planners to further build the professionalism of the industry and back an enhanced national register of financial advisers."

CBA increased education standards in October last year, requiring authorised representatives of Count and Financial Wisdom to have a minimum of three years' relevant full-time experience within the recent five years as an adviser or a paraplanner.

CBA's executive general manager, wealth management advice, Marianne Perkovic, said the advice business has approved seven financial services industry professional associations for membership by advisers and the team.

These include the FPA, the Association of Financial Advisers, the SMSF Association, the Financial Services Institute of Australia, CPA Australia, Chartered Accountants Australia and New Zealand, and the Institute of Public Accountants.

"Applying these educational standards across the CBA Wealth Management Advice business is an important step in ensuring the financial advice industry is recognised as a profession," Perkovic said.

Independent financial advisory group Quantum Financial's certified financial planner, Tim Mackay, said the banks have been reactive to scandals rather than proactive in lifting the education standards.

"Ideally we wouldn't have been dragged kicking and screaming towards this situation. As a profession we should have taken steps collectively ourselves because it's the right thing to do."

Rantall is seeing support for higher education, ethical standards and culture across the board, adding that while the need for commercial outcomes is a reality, there needs to be a balance between that and quality compliance culture.

"People understand that when the pendulum swings too far to sales at all costs, that's an inappropriate metric for the organisation to deal with," he said.

The FPA is seeing demand from advisers across the gamut, from the big four banks and AMP, to advisers from other licensees.

Kaplan is another educational institution that has seen demand surge for its courses. It introduced a MoFP in the first quarter of 2014, which had a sluggish start in trimester one and two.

But according to chief executive, Brian Knight, the enrolment rate went up 400 per cent from trimester two to three. It saw a further 40 per cent rise between trimester three last year to trimester one this year, with around 400 people doing it last trimester.

Knight said Kaplan is seeing both big bank advisers and people outside the big bank licensees signing up for the masters.

"A lot of them are people with a degree, and when they come in they want to do it at a masters' level," Knight said.

"We think about 40 per cent of existing advisers are saying they want to increase their level to a masters."

Kaplan saw a surge in big bank planners signing up to boost their qualifications in September/October last year, coincidingwith the announcements.

The number of people signing up for the advanced diploma course rose by 50 per cent over the last 12 months, with 400-500 people enrolling in the course per month.

But these are existing advisers who are doing it of their own volition rather than being driven by the big banks.

Amelia Constantinidis, director for the trainer of planners for AMP-owned licensees, AMP Horizons, said out of around 3470 financial advisers within the AMP network, 30 per cent have already met the education standards set by AMP, while 70 per cent need to get on the pathway.

She also said she is seeing considerable interest from advisers for the masters' program that was launched in partnership with Griffith University.

"It's really great for me to hear some advisers coming up and asking questions like ‘I'm already a CFP, what's next for me', or ‘I'm already a MoFP, what's next for me', so they're definitely thinking about education," she said.

Education…it's about time

The industry is jumping on the education bandwagon, with many believing the lifting of standards were long overdue.

Mackay has a background in investment banking and accounting and said it is commonplace for everyone to undertake significant graduate and post graduate education.

He said financial planning is 10-15 years behind, but commends the steps to lift standards.

"I know the banks have taken that step but the FPA took that step in advance of that. They required new members to hold a degree so I think the banks are following the lead," Mackay said.

BT Financial Group's (BTFG) senior manager of advice strategies and knowledge, Bryan Ashenden, said their network is hiring advisers with a degree as a minimum standard.

Ashenden recognises that an RG146 is not enough and said an advanced diploma in financial planning should be a minimum.

"While a degree doesn't tell you everything, what it tells you is that people have a commitment to a certain level of education and studying as there are lots of requirements as you go through university and complete degrees," he said.

BTFG planners have to eventually attain either a CFP designation through the FPA, an FChFP through the AFA, a MoFP, or become a specialist financial planner designated through the Institute of Chartered Accountants or CPA Australia.

"When you look at the associations, you're talking about bodies that take that professional approach, you've got codes of conduct and ethics that you sign up to," Ashenden said.

The FSI warned advisers and firms of costs involved in embarking on further and ongoing education, but said this could be cushioned through a proper transition period.

Constantinidis said AMP Horizons is focusing much of its energy on supporting advisers as they attempt to balance running their business, advising clients, and upping their education levels.

"Most of them are focusing on trying to understand what the right pathway is for them," she said.

Setting it in stone

Rantall, Knight and Mackay believe enshrining higher education standards in the law, as recommended by the FSI, will be a boon for the industry as it will ensure a global industry standard across the board.

Mackay said he would welcome a national exam if it can help the industry weed out the bad apples, and help him reassess his own knowledge base.

He does not expect even senior financial planners with many years of experience to get grandfathered.

"I can't imagine that exam's going to be set at too high a level. If they don't have the knowledge and the skillset to pass that exam then that's unfortunate but we do have to set some standards," he said.

Can books teach ethics?

The question of whether education necessarily equates to ethics warrants asking as some poor behaviour emanated from highly educated people. Industry experts recognise this but believe education is crucial to inculcate ethics into advisers.

Planner at Commonwealth Financial Planning, Andrew Vacopoulos, said ethics comprises a large section of what is taught during the education process, with subjects detailing ethical behaviours, especially when encountering things like best interest duty.

Rantall said the first CFP unit around ethics and the professional code of conduct is a starting point on how to engage with a client in an ethical manner. He said advisers need to commit to ongoing education to keep themselves up to date and technically competent.

He also believes licensees have to have the right cultural dynamic that supports professional independence of financial planners to act in the client's best interest, which is a legal obligation.

"Ethics are about when you're met with a situation and it's not black and white. It might be grey. How do you go to the decision making process to ensure that you get the right decision," he said.

Consumer perception

The silver lining of the scandals plaguing the big banks is the increase in consumer savvy and awareness.

Vacopoulos said clients are asking their advisers more questions and putting the adviser under the microscope after the wide coverage of the scandals in mainstream media.

"They're asking ‘what are your qualifications, how are you qualified to look after my money, my investments, are you the right person for the job?'" he said.

Mackay said clients are also asking more questions about licensee alignment of advisers.

"They've seen CBA, they've seen NAB, and they've seen Macquarie Bank and so forth. So I think there is a greater awareness from consumers, and a degree and a qualification are some of the signals that they're looking for," he said.

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