This year, 2011, is the Chinese year of the rabbit. It is also the year of dramatic change in the landscape of financial advisers and licensees. For those of you who missed it, earlier this month the Australian Securities and Investments Commission (ASIC) brought out Consultation Paper 153, Assessment and professional development framework for financial advisers (CP 153).
In a nutshell, CP 153 proposes a new approach to the training, assessment and professional development of financial advisers. Initiatives proposed include requiring all new advisers to pass a financial services competency certification exam; and requiring all advisers to undertake a knowledge update review every three years about changes to laws, market issues and new products. All this is coupled with an ongoing requirement for continuing professional development.
CP 153 is part of the Government’s review of the financial advice industry. The proposals are designed to improve practitioner qualifications, lift the technical abilities and standards of advisers and, according to ASIC, improve consumer confidence in the advice industry. It was developed after considering educational standards for advisers around the world – including the US, the UK, Singapore, Hong Kong and New Zealand.
CP 153 will bring into focus the debate about education pathways, the most sustainable professional development model and, finally, the best outcomes for consumers.
If implemented correctly, CP 153 will not only ensure all advisers have a sound level of education, but that they all operate on the same level playing field. This will be good for advisers, good for licensees, and most importantly, good for consumers. Interestingly, ASIC has stopped short of recommending that all advisers need to be degree-qualified. This is sensible, as imposing this requirement would mean sending many very experienced advisers to the wall.
However, it is fair to say most people now entering the industry are degree-qualified or close to it anyway. It is our view that just because someone has a degree doesn’t mean they can transfer the knowledge effectively to a consumer. While it makes sense to keep progressing adviser education towards a degree qualification, advisers also need practical skills and well-honed communication skills. There must be a balance between having a degree and practical knowledge and ability.
Along with CP 153, advisers across Australia will be responding and adapting to the Future of Financial Advice (FoFA) changes, tax agent changes and changes to the education process. The key issue will be effective implementation and close collaboration with ASIC to ensure that CP 153 is effective.
The AFA will be working closely on behalf of members to ensure this occurs, because building the professional capability of the advisory profession is such a key issue.
Most importantly, the advice profession needs to stay focussed on the consumer. That is where we spend our time. The community is under-advised, under-insured and lacks savings – therefore, all changes need to safeguard consumer outcomes.
As we determined in our Back to Basics consumer research in 2010, consumers value: “… a trusted adviser who can coach them through life decisions, provide peace of mind and facilitate in a path to financial freedom.”
In other words, when a client’s world is changing, they need a “change agent” who will help them make the right financial decisions at the right time. They need advisers who have runs on the board.
This is what consumers value from the advisory profession and these are the skills that CP 153 must seek to address.
Do educational standards for advisers need to continuously improve? Yes. But we believe educational courses need to have both theoretical and practical components. We also believe that today’s advisers are at different stages of their careers and have arrived there via different routes. As an industry, we need to create practical pathways that acknowledge and value the past experiences of our advisers and that are helpful and relevant to them, so that they can provide better outcomes to consumers.
The need to raise the educational bar should not knock out those advisers whose wisdom and experience have provided everyday working Australians with the courage and confidence to face their financial futures.
Adam Smith is the national vice-president of the Association of Financial Advisers.
