The proposed education and ethical standards body in the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2015, seeks to raise the standard of financial services by defining a new direction for the education and ongoing development of financial advisers.
Many groups have been vocal in their opposition to this new direction. Some have expressed concerns that this new body might take too long to get its act together, or worse still, that it becomes captured by special interest groups and in doing so, doesn’t act independently in the best interest of consumers by ensuring robust education and ethical standards.
These concerns are valid, but with careful design the body could be a powerful force, guiding the sector to become a true profession, just like law or accounting.
The body has the potential to define robust and transparent academic and ethical requirements. This will provide the consumer with confidence and improve trust, thereby taking the advice sector to a higher level of professionalism, acknowledgement and appreciation.
It has been mooted that this professional standards setting body (PSB) will now be made up of nine directors, with the chair to be appointed by the Minister for Small Business and Assistant Treasurer. The body would comprise three financial planner representatives – who are not representatives of any industry association – three representatives of consumers of financial services, one ethicist and one educationalist.
While the legislation has now been delayed until after the election and – depending on who wins the election – it could evolve again, disquiet is increasing. Some are calling for this body to be purely advisory in purpose and function, so as to ensure that it doesn’t become an additional special interest group or engage in mission-creep and perhaps even overlap with ASIC’s role in regulating the industry.
Risky business – how to de-risk it
Very strict and limited terms of reference are required to avoid this occurring.
Specifically, such a body could actually be de-risked by ensuring that the educationalist has strong expertise in the design of tertiary degrees and training. The body could be further enhanced by ensuring that the three financial planners are highly respected by their peers and have experience that reflects the full diversity of advice that a comprehensive financial planner may provide. That would go a long way to ensuring that the thinking of the body translates into concrete and effective educational outcomes.
Further de-risking could also be achieved by ensuring that its mandate focuses on the specific curriculum for a dedicated Bachelor of Financial Planning degree. By enshrining a true 24-unit bachelor’s degree in law, with all the requisite subjects in it – such as ethics and financial management to name just two – this will automatically guide the PSB in defining exactly what alternative pathways can exist for financial advisers to reach the required accreditation for their particular market niche, especially for those only wanting to provide limited advice.
I have always maintained that the Bachelor of Financial Planning degree should be mandated for financial planners providing holistic personal advice. Only such a degree can supply the breadth of knowledge necessary to provide comprehensive and holistic personal advice. It would also provide the basis for the industry to become a profession.
Existing advisers have (some) time on their side
The recent announcement by the government on revised legislation has pushed out the proposed completion date for the qualification and the industry exam. The government has said that “the education and exam requirements are proposed to commence on January 1, 2019 (revised from July 1, 2017)”.
“Existing advisers will have until January 1, 2024 (five years) to reach degree-equivalent status and until January 1, 2021 (two years) to pass the exam,” it says.
This announcement has raised concerns from both consumer groups and industry that that further delays to the start to the new era of professional financial advice are not in the best interests of the industry, consumers or the economy. I would argue that, irrespective of this delay, financial educational institutions and financial planners should prepare to comply with the new requirements so that they can hit the ground running when the legislation is passed.
Therefore, it is imperative that prior to the July 2 election, both major parties commit to mandating that the minimum education requirement for a comprehensive financial adviser of the future is a Bachelor of Financial Planning degree.
Drawing a line in the sand and firmly positioning the legislation to require a credible, nationally recognised financial planning bachelor’s qualification, on par with the accounting and legal professions, will redefine the advice industry and turn it into a true profession.
This is a once in a generation opportunity to ensure the financial planning sector garners a much needed boost in public confidence and sets in train the provision of the highest standards of quality of advice and professionalism.