Establishing the financial planning professional standards body as a Commonwealth company will allow it to be easily transferred back to industry at some point in future, the Minister for Revenue and Financial Services, Kelly O’Dwyer has said.
O’Dwyer said she expects the standards body to be established by mid-2017. In her second reading speech for the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016, on November 23, O’Dwyer said establishing the standards body as a Commonwealth company would “balance the body’s independence with industry and consumer engagement”.
“It will also minimise the government’s footprint and allow for the possibility of easily transferring the standards body back to industry once trust and confidence in the sector is restored,” she said.
O’Dwyer said the government will not control the standards body from day to day, but “should the body not comply with its obligations, the responsible minister may give the body a written direction”.
“Such a direction would only occur in very exceptional circumstances,” she said.
O’Dwyer confirmed that the composition of the board would be an independent chair, three industry representatives, three consumer representatives, an academic and an ethicist.
This clarifies an earlier statement in which she said it would be made up of “three people from the industry, from bigger players; three people from smaller players; an ethicist; somebody who is an educational expert; and then someone who will be the chair of the particular body”.
“Industry will have a key role in the proposed model and will be consulted extensively as the body sets standards,” O’Dwyer said in the second reading speech.
“This is critical because industry must have a stake in the standards-making process if it is to be truly professional and to develop standards above the minimum.”
Sustainability of financial advice
O’Dwyer said a key objective of the new standards is to improve consumer trust and confidence in the financial planners and what they do, but “equally important is the sustainable future of the financial advice industry, which is integral to our economy”.
“I note that both the FSI [Financial System Inquiry] and PJC [inquiry into proposals to lift the professional, ethical and education standards in the financial services industry] reviews identified that the existing professional standards for financial advisers are too low and do not ensure that all financial advisers have the necessary skills to provide high-quality advice to consumers,” she said.
“These reviews recognise that the current regulatory framework was not enough to build professionalism in the financial advice industry and has not encouraged this industry to take a greater lead in setting standards.
“It is clear that the current framework lacks the incentives to encourage industry to go above and beyond the minimum.”
O’Dwyer said that although it was ultimately the standards body that would set and enforce minimum education standards, “it is important to note that not all existing advisers will have to return to university and complete a three-year degree program”.
“Some may not, but a majority are likely to receive credit for the education or training that they have already completed and will need only to gap-fill or undertake bridging courses to meet the standard required,” she said.
She said that a “core feature of these reforms is the requirement that all advisers complete an exam set by the new standards body”, mirroring requirements in the United States, Britain, Canada, Singapore and Hong Kong.
Completing a professional year
The professional standards legislation provides that new entrants to the financial planning industry will need to have a degree, pass the exam, and complete a professional year.
“The professional year trainee will be required to disclose to clients that they are completing the professional year and that they are not permitted to give advice unsupervised,” O’Dwyer said.
She said the ASIC financial advisers register will “clearly show that the person is completing their professional year and only authorised to give advice under strict supervision”.
“A supervising adviser will need to ensure that the new financial adviser is appropriately supervised and take responsibility for all advice given by the new financial adviser during the professional year,” she said.
“The standards body will develop guidelines on what constitutes ‘appropriate supervision’.”
Under the new rules, all financial planners will have to comply with an ASIC-approved code of ethics, monitored and enforced by approved monitoring bodies.
“The compliance scheme will specify which ‘monitoring body’ is responsible for enforcing compliance – this could be either a professional association or a third party who is independent of the licensee,” O’Dwyer said.
“It is important to note the significant role that professional associations, independent third parties and licensees will play in implementing these reforms.
These institutions will be directly responsible for ensuring financial advisers comply with the new standards.
Professional associations are likely to offer training and education services to their members, to assist them to prepare and to meet the new standards.”
