The announcement on Monday by the Minister for Revenue and Financial Services, Kelly O’Dwyer, that the Turnbull government will “introduce legislation into the Parliament this year to mandate professional standards for financial advisers” adds almost precisely nothing to what is already known.
At a Financial Planning Academics Forum in Melbourne in June, O’Dwyer’s chief of staff said the legislation would be introduced into the parliament this year – as Professional Planner reported. Everything else in the minister’s statement yesterday is already contained in the draft legislation.
O’Dwyer announced that reforms to the education, professional and ethics standards of financial planners will include:
• Compulsory education requirements for both new and existing financial advisers
• Supervision requirements for new advisers
• A code of ethics for the industry
• An exam that will represent a common benchmark across the industry, and
• An ongoing professional development component.
Central to all of this is the establishment of the so-called standards body, which (among other things) will determine the education requirements – including what degree-equivalent qualifications will be accepted, and what recognised prior learning (RPL) will count. The body will also develop the industry-wide code of ethics and exam for all financial planners.
The only new information in the announcement is that the standards body will be funded by the big banks and AMP, at least in its initial phase. What we still do not know is who the chair of the body will be, nor who its other eight directors will be. As Professional Planner has written extensively, the composition of the board is probably the single most important issue the minister will need to address. Yesterday’s statement was silent on this issue – as it probably had to be, until the body is established as a Commonwealth company. And there isn’t much time to get all of that sorted out.
The body’s directors must be independent – and be seen to be independent – of its funding, otherwise this race will be over before it starts. Board appointees – which will include an ethicist and a consumer representative – must have credibility in the eyes of both the public and the financial planning community that will be subject to the standards the body imposes. They cannot be stooges of the industry’s biggest and most powerful players, yet they must be able to deal with the technicalities and nuances of the tasks they’re being asked to carry out. Think of the accounting profession’s standards body, the Accounting Professional and Ethical Standards Board (APESB) as a good starting point (notwithstanding the black mark that was that body’s backdown on APES230).
The minister’s announcement does reinforce some critical issues, however.
All financial planners will be monitored for compliance with the code of ethics. Monitoring bodies must be approved by the Australian Securities and Investments Commission. Monitoring the code requires significant resources, including the ability to level meaningful sanctions for code breaches. This underlines why financial planners must consider carefully the associations they choose to belong to, which may become the body that monitors their ethical compliance.
Recent calls by the leaders of an industry association for financial planners to resign from two of the associations most likely to be recognised as monitoring bodies look even more reckless in light of the minister’s recommitment to monitoring ethical compliance.
The minister’s statement said the body will be “responsible for … determining the education and development requirements for both new and existing advisers”.
This means time is absolutely of the essence. There is not a lot of time for this body to be established, staffed and resourced and for it to ratify the new standards. That’s another reason the statement is disappointing, because by announcing nothing new it gives little confidence that its deadlines can be met. And the profession remains in a holding pattern, still awaiting clear progress and direction.
