The federal government has endorsed proposals to raise the professional, ethical and education standards of financial planners, and will require planners to be degree-qualified, pass an exam, undertake continuing professional development, subscribe to a code of ethics, and undertake a professional year.
The government will also effectively enshrine the terms “financial planner” and “financial adviser” in legislation, preventing the use of them by individuals who do not meet new standards.
In its response to the Financial System Inquiry (FSI), released on Tuesday, the government says in Recommendation 25 that an independent, industry-funded body — to be recognised in legislation — will set the new standards.
It says details of the new standards will be legislated by mid-2016, and reviewed in 2019.
“When we say this will cement the profession of financial planning, if everything is implemented, we mean it,” says Mark Rantall, chief executive officer of the Financial Planning Association.
He described the FSI response as bringing out “significant reforms to our industry and our profession — and the key now is we have got to work quickly to get these things implemented”.
Mirroring the PJC
The government’s response mirrors some but not all of the recommendations set out by a Parliamentary Joint Committee (PJC) on Corporations and Financial Services inquiry into proposals to lift the professional, ethical and educational standards in the financial services industry, which reported in December 2014.
The government responded to the PJC report on March 25 this year, saying it would “carefully consult on the model recommended by the PJC, and implementation and transitional arrangements, before making any policy decisions”.
In its FSI response, the government says it has “already conducted extensive consultation on the PJC’s proposals in the first half of 2015”.
“The Government will continue to consult on remaining elements of the PJC’s proposals,” it says.
The FSI’s final report, published in November 2014, said its recommendation to “raise the competency of financial advice providers and introduce an enhanced register of advisers” was designed to achieve three objectives, namely to:
- Increase the likelihood of consumers receiving customer-focused quality advice
- Promote confident and informed consumer use of financial advisory services, and
- Facilitate consumer access to information about financial advisers’ experience and qualifications to improve transparency and competition.
The government’s FSI response says it will bolster the financial advisers register to require details of whether individual advisers meet the new professional, ethical and education standards, to include details of “relevant bans, disqualifications or code breaches applicable to that individual”.
“We will also restrict use of the term ‘financial adviser’ and ‘financial planner’ to those listed on the register,” it says.
Dante De Gori, general manager of policy and conduct for the FPA, says the standard-setting body will also be responsible for setting transition arrangements for individuals currently on the register who do not immediately meet the new standards.
De Gori says that once the transition arrangements are determined, individuals who do not measure up will be removed from the register.
Standard-setting body
There are no details in the government’s FSI response of how the proposed standard-setting body will be constituted. The PJC inquiry recommended, in Recommendation 10, the establishment of the Financial Professionals Education Council (FPEC), to be controlled and funded only by professional associations which have been approved by the Professional Standards Councils (PSC).
It recommended that the FPEC comprise a representative from each such professional association, an “agreed number” of academics, at least one consumer advocate (and preferably two), and an ethicist.
And while the FSI response says the government will require financial planners to “subscribe to a code of ethics”, it does not say whether it supports the PJC recommendation (Recommendation 11) that any such code should be one also approved by the PSC.
Committed to raising standards
At a press conference yesterday the Assistant Treasurer Kelly O’Dwyer said the government is “committed to raising the professional standards of financial advisers”.
“There will be some transitional arrangements but in essence financial advisers will need to hold a degree, they will need to undertake a professional year, they will need to undergo an exam, they will need to have ongoing professional development and finally they will need to subscribe to a code of ethics,” O’Dwyer said.
“This raises financial advisers in line with other professions and will give consumers confidence that when they go to financial advisers that they will be receiving the best possible advice.”
O’Dwyer also said that the remuneration provisions of the Life Insurance Framework (LIF) will start on July 1 next year.
“The Government has been working very hard with industry to improve remuneration in particular in the life insurance sector and I’d like to congratulate the former Assistant Treasurer [Josh Frydenberg] in this regard,” she said.
“On 25 June in 2015, earlier this year, he announced an industry reform proposal with the Association of Financial Advisers, the Financial Planning Association of Australia and the Financial Services Council.
“Today we are announcing the adoption of that industry proposal in response to the inquiry and that will commence from July 2016. There are changes to the up-front commissions that will be applied and also the trailing commissions.
“There will also be a claw back period that also applies for remuneration.
Industry reaction:
AFA supports Government’s FSI Response
SMSFA supports Government’s green light for LRBAs
Government response on FSI a win for consumers and the professionalism of financial planning: FPA
FSC Statement on the government’s response to the Financial System Inquiry
Government response to FSI: considered approach required
More responses and reaction in Cut+Paste
