“How poor are they that have not patience! What wound did ever heal but by degrees?”
— Othello: Act 2, Scene 3
Competency and professionalism
Those that attended the 2018 ASIC Forum were left in no doubt that the most popular remedy for the harms done by the financial services industry, is increasing advisers’ education and competency.
Abandoning ASIC’s previous focus on culture in favour of a new focus on competency, care and ethics, a succession of Presenters criticised the industry’s lack of professionalism and asserted that a “greater level of professionalism” was needed to restore trust.
Although I’m not convinced that ‘professionalism’ can really overcome structural conflicts, information asymmetries and misaligned incentives, it’s clear that the Government, the Regulators and the Associations are entirely aligned. While we might wonder whether ‘professionalism’ is just the natural evolution of the now discredited ‘bad apples’ thesis, it’s apparent that Financial Adviser Standards and Ethics Authority Limited (FASEA) is the blunt instrument intended to force the transformation of the advice industry.
ASIC Chair, James Shipton, balanced his calls for greater professionalism with a heroically optimistic (if not hopelessly naive) wish that the industry would insist on increased professionalism and “lead without imposition of regulatory catalysts”. But his, and ASIC’s, support for FASEA was unequivocal.
To his credit, Mr Shipton’s comments were addressed at ‘finance’ generally. His academic analysis of the need for trust, care and ethics was not specifically directed at advisers, but advisers and mortgage brokers were frequently addressed in the subsequent discussions. Ironically, the Australian Banking Association were engaged to address the “importance of trust in financial services”.
The Hon. Kelly O’Dwyer MP elaborated on these theme and reiterated that “inappropriate advice has eroded trust and confidence” in the financial services industry. Her position might have been more credible but for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (and the actions of Banking Executives highlighted by the Commission).
Her initial remarks that it was critical to “raise training and education standards” to provide certainty and restore trust may have angered the advice professionals in attendance, even if they gratified, the conspicuously silent, Dr Deen Sanders.
To summarise O’Dwyer’s position, trust and confidence requires professionalism and professionalism requires formal qualifications. Degrees, not designations. Degrees not experience. Although she promised that more clarification was imminent, (a fact later confirmed by the FASEA CEO) all the models she presented for acceptable competency had a degree (or degree equivalence) at their core. Bridging courses can supplement the foundational degree but they can not substitute for a degree.
“Under the proposal, existing financial advisers will need to undertake a relevant degree or one or more bridging courses, including a specific course on the Code of Ethics that will be developed by FASEA.
Advisers who have not previously undertaken a degree, or who have undertaken a degree that is not in a related field will need to reach degree-equivalent status.
And advisers who have previously completed a degree in a relevant discipline will need to complete between one and three bridging courses, to bring them up to date with current ethical and professional standards. Some advisers will need to complete additional study.”
— The Hon Kelly O’Dwyer MP, Minister for Revenue and Financial Services
I’ve noticed that the popular view of minimum ‘training and education’ levels for financial advice professionals seems to increase with each new licensee failure and public scandal.
While many advisers may admit the initial base was quite low, expectations have increased dramatically. Some advisers hoped for a more easily achievable reform, but the first day of the ASIC Conference confirmed that significantly higher education requirements are an inevitability rather than a remote possibility.
In fact, with new education standards imminent, and with vertical-integration under assault, the landscape of financial advice looks to change forever.
This is a great outcome for the emerging advice profession, but it is not without its challenges. Personally, I think it’s ironic that reforms designed to provide certainty still lack the detail and clarity required by those most directly impacted. The foreshadowing provided by the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 and the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017 lacks the detail most advisers require.
Even in the absence of necessary detail, advisers are meant to embrace these reforms; notwithstanding that effectively addressing structural conflicts and holding executives to account might do significantly more for restoring consumers’ trust and confidence in both Government and the Financial Services Industry.
“Every adviser has a role to play in rebuilding that trust, and these new educational requirements are a critical step towards professionalising the sector.”
— The Hon Kelly O’Dwyer MP, Minister for Revenue and Financial Services
Whether you consider these to be “landmark reforms” or “ill-formed, illogical and untested” proposals may simply be a matter of perspective and self-interest. Legislative reform creates both winners and losers and some advisers will fall into both categories. There’ll be material consequences, only some of which have been anticipated, but perhaps none as profound as is currently feared by the more reactionary industry participants. The next few years will, however, be a challenging time for advisers, licensees and those that advise them.
In addition to maintaining an infrequently updated website, the Financial Adviser Standards and Ethics Authority Limited (FASEA) is responsible for matters including
a. approving degrees or higher or equivalent and foreign qualifications
b. approving and/or administering the exam
c. determining the requirements for the professional year
d. determining the bridging course requirements for existing providers
e. setting the Code of Ethics.
Download the fasea code of ethics
FASEA have started behind the eight ball. Time is not on their side. They’re accused of being conflicted and/or inappropriately influenced. They’re attacked as anti-adviser and their officers are being criticised for inconsistent public positions. Nevertheless, the industry revolt is largely just noise. Standards will increase and the Government understands the likely costs of insisting on higher levels of competency and care. Personally, I think the focus on current qualifications misses the point. The barriers to entry have been too low and the single greatest obstacle to the professionalization of the industry, excluding structural issues, is the complete absence of robust and effective CPD.
With new draft guidance on the education pathways for current advisers expected “shortly”, it’s important to appreciate FASEA’s ambitious timetable.
From 2019: New financial planners will have to meet four requirements:
a. an approved degree,
b. a professional year,
c. pass an exam and
d. be subject to a code of ethics.
From 2020: Everybody will need to be subject to a Code of Ethics.
By 2021: If you need to complete the exam, it will have to be completed it by January 1, 2021. If you don’t pass it by January 2021, you will not be able to practice from that point.
By 2024: If you do need to do further study, you’ll need to have that completed by January 1, 2024.
FASEA released their “Proposed Guidance on Education pathways for Existing Advisers” on 20 March 2018. The guidance offers some relief for existing advisers but is not significantly different from what was anticipated. Please be aware that while FASEA have invited feedback, the consultation period ends 29 June 2018.
Download Proposed Guidance on Education pathways for Existing Advisers
For clarity, the proposed pathways can be represented as follows:
FASEA have provided little guidance to the Industry, so their “Proposed Guidance on Qualifications Pathways for Existing Advisers” is likely to attract significant attention from an apprehensive advice industry. Appreciate that while FASEA’s focus is long-term, their core proposal is that current advisers obtain by 1 January 2024, an AQF7 Degree , or complete, by 1 January 2024, a course that offers at least 8 units/courses, at Post-Graduate Diploma level (AQF level 8).