“Professional is not a label you give yourself – it’s a description you hope others will apply to you.”
— David Maister
Seven questions about transforming from a provisional adviser to a relevant provider
Advisers, and licensees, are quite used to adapting to change and most have embraced the need to transform distribution to advice and a trade to a profession. Increased qualifications, a renewed focus on ethics and greater emphasis on experience and training are hallmarks of the profession slowly emerging from the legacy models.
But not all changes are clearly explained and well understood. In this article, we’ll address seven common questions we’re commonly asked about how provisional advisers transform to advice professionals.
Before we dive into the detail, let’s start by defining some key concepts.
A provisional relevant provider (“provisional adviser”) is a special type of relevant provider defined by s910A who can only provide personal advice to retail clients on a supervised basis during their professional year.
If you were providing financial product advice before 1 January 2019, you meet the definition of an ‘existing provider’ on the basis of your training and experience . This is an important distinction because it frees you from the need to complete a professional year before you can provide financial product advice without supervision.
For the rest of you, Subsection 921B(4) requires you to undertake at least 1 year of work and training (Professional Year) that meets the requirements set by FASEA before you can advise without direct supervision.
This may seem outrageous to some, but an Australian Financial Services Licensee is unable to authorise an individual to provide personal financial advice to retail clients unless that person has satisfied both the Education and Training requirements and the work and training standards.
The requirements, like a lot of regulation, seems opaque and there are a lot of questions about how to apply and operationalise these requirements. We can’t address every question, but we’ll start with the following commonly asked questions:
- When, and how, do I register a provisional relevant provider on the Financial Adviser Register?
- What does ‘indirect’ or ‘limited supervision’ mean?
- Can my provisional relevant provider prepare and sign an SoA?
- What, if any, disclosures do I need to make the client about my provisional relevant provider?
- Who is ultimately responsible for the advice provided by a provisional relevant provider?
- What do I need to do if I am a supervisor?
- When does my provisional relevant provider turn into a relevant provider?
1. When and how do I register a provisional relevant provider on the Financial Adviser Register (FAR)?
A licensee is required to register each provisional relevant provider on the FAR when
- they have passed their exam; and
- they have been authorised as a ‘provisional relevant provider’.
Registering provisional relevant providers, like registering other relevant providers, is done via the ASIC Connect portal by:
- Selecting lodgements & notifications;
- Selecting the radio button next to the AFS licensee or AFS representative;
- Selecting “appoint advisers/authorised representatives”;
- Entering the key information to progress to appoint application;
- Selecting the type of representative you are appointing (i.e. provisional relevant provider);
- Entering the date of their appointment;
- Entering either the representative number (if ASIC has allocated one), or if they do not have a representative number, by providing their ABN (if applicable);
- Selecting whether the adviser will provide advice to retail clients under the supervision of a financial adviser who meets the FASEA supervision requirements;
- Entering the year that the adviser started their year of work;
- Confirming whether they have been on an accelerated path;
- Entering various details about the adviser including their name; DOB; authorisation details; qualifications; professional memberships; employment history; and
- Reviewing your entry, declaring the contents to be true and paying ASIC.
Once a provisional relevant provider is registered on the Financial Adviser Register, they are under the Licensee’s direct supervision until they complete their professional year. (Advisers are always subject to their Licensee’s supervision, but the supervision of provisional advisers is much more prescribed).
TIP: Before you register a provisional adviser, ensure that you have an appropriately qualified adviser with the time, skills and inclination to provide the provisional adviser with direct supervision, mentoring and training .
In the first quarter of the professional year, a provisional adviser should be:
- shadowing their supervisor;
- completing post meeting documentation and
- discussing advice strategies with the supervising adviser.
In their second quarter, they could:
- prepare for client meetings;
- conduct supervised meetings with clients;
- preparing draft documentation for clients; and
- complete relevant administration/back- office activities related to the provision of financial advice.
In their third and fourth quarter, after they have passed their exam, they can:
- conduct client engagement without a supervisor;
- model strategies and research products;
- determine and prepare appropriate client documentation (SOA, ROA etc); and
- complete relevant administration/back-office activities.
Over time, the role of the supervisor becomes less demanding as the provisional adviser’s capability improves. In the 3rd and 4th quarter, for example, only indirect or limited supervision is required.
Unpacking what that means, in practice, brings us to the next question.
2. What does “indirect” or “limited” supervision in the 3rd of 4th quarter of my professional year mean?
Unfortunately, ‘limited’ and ‘indirect’ are not legally defined and there is limited guidance to assist Licensees.
If you consider the professional year as analogous to driving, the provisional adviser has outgrown their “L Plates” but still needs help and guidance to gain confidence and improve their capability.
Once they have passed their exam and have been registered on the FAR as a provisional relevant provider, they can engage with clients without supervision.
In the first half of the professional year, the provisional adviser has limited autonomy, is subject direct supervision and oversight and supplements the advice and services provided by the supervisor. In the second half, their autonomy increases and they either complement (or provide an alternative to) their supervisor.
It is important to appreciate that ‘limited’ and ‘indirect’ supervision is a transitional stage and should not be interpreted as “no supervision”. The Licensee is still obliged to ensure the provisional adviser is supervised, but the nature of that supervision may be more relaxed than it was in the first two quarters of the professional year.
A crucial point to make here is that even though the provisional relevant provider may, in the second-half of the professional year, be providing the advice to retail clients, their supervisor is ultimately considered to be the advice provider.
This is a significant point for both the Licensee and Supervisor to appreciate; The supervisor is responsible for the provisional adviser’s advice, so the Licensee and Supervisor need to decide what level type of controls need to be in place to be satisfied that the provisional adviser complies with the laws.
3. Can my provisional relevant provider prepare and sign an SoA?
Yes, your provisional relevant provider can prepare and sign SOA documents however with the following conditions:
- Your provisional relevant provider must have passed the exam. As previously mentioned, a provisional relevant provider must have passed the exam: (a) before they can start quarter 3; and (b) before they can conduct client engagement without the supervisor.
- The supervisor must approve in writing any SOA provided by the provisional relevant provider. A supervisor of a provisional relevant provider must approve, in writing, any SOA provided to a retail client by the provisional adviser.
Once the provisional adviser is freed from direct supervision and able to independently engage with retail clients in the final stages of their professional year, what do you need to tell those clients with whom the provisional adviser is dealing?
4. What, if any, disclosures do I need to make the client about my provisional relevant provider?
ASIC may have (finally) recognised the limitations of disclosure, but it’s still an important consumer protection mechanism; and that means that clients need to be informed that the adviser, with whom they might be dealing, is subject to supervision and ongoing training.
The status of the provisional adviser must be clearly disclosed to each retail client BEFORE the provisional adviser provides any oral or written advice.
The law requires the responsible Licensee to ensure that, before the provisional adviser has any direct or indirect interaction with a retail client, the client is provided with a written notice:
- confirming that that the person is undertaking supervised work and training; and
- providing the name and details of the provisional adviser’s supervisor.
In addition, the provisional adviser is required to complete and maintain an accurate record (i.e. a logbook) confirming this notification to the client and recording the name and contact details of their supervisor.
5. Who is ultimately responsible for the advice provided by a provisional relevant provider?
If you are shocked and horrified by the heavy burden the supervisor carries, let’s focus some attention on their obligations.
6. What obligations does a supervisor have?
Supervisors are responsible for creating the next generation of advice professionals and, with great power, comes great responsibility.
In accordance with the FASEA standards, an appropriate supervisor:
- Has relevant experience. To satisfy the legal requirements, a supervisor must have at least 2 years’ experience working as an adviser (not counting any period during which the supervisor was a person undertaking his or her professional year).
- Is willing, and able, to supervise. A Supervisor must provide supervision that actively assists the provisional relevant provider in getting the full benefit of the professional year in accordance with standard 12 of the Code of Ethics. A Supervisor must also ensure the requirements of standard 8 of the Code of Ethics are met, regarding appropriate record keeping during the professional year.
- Must issue Completion Certificates. A supervisor must, at the end of each quarter of the professional year, issue a completion certificate.
- Must keep adequate records. Both the law and the FASEA Code require supervisors to maintain adequate records about the provisional adviser’s professional year. They must be satisfied that the provisional adviser’s logbook is complete and accurate and confirm this in writing. They must maintain complete and accurate records of their assessments of the provisional adviser’s work activities. In quarter 3 and 4, the supervisor must keep a record of the provisional adviser’s resolution of ethical dilemmas, their achievement of outcomes and their key competencies. These records must be kept for at least seven years.
- Ensure compliance with usage of ‘provisional relevant provider’ name. The Supervisor must ensure that the terms “Provisional Financial Adviser” or “Provisional Financial Planner” are not used by, or attributed to the provisional adviser, until they have passed the exam and been authorised by the Licensee.
And when your budding financial adviser is ready to spread their wings, when can you authorise them as a relevant provider?
7. When does my provisional relevant provider turn into a relevant provider?
The law states that you cannot authorise an adviser unless they have either met the education and training standards or are exempt because of experience and prior authorisation (pre-2019 authorisation).
To be clear, s921B of the Corporations Act provides that a person meets the required education and training standards by:
- having completed a bachelor or higher degree, or equivalent qualification, approved by the standards body under s921U;
- having passed an exam approved by the standards body;
- having undertaken at least 1 year of work and training that meets the requirements set by the standards body; and
- meeting the requirements of continuing professional development (noting a provisional relevant provider is not required to meet this standard).
There are definite stages, checkpoints, and obligations you need to comply with. If you need help understanding, or operationalising, these requirements (or want to talk to us about the policies, tools and templates we’ve developed) please don’t hesitate to contact us.