While the first week of the parliamentary year has brought plenty of the expected front-bench fireworks to supply evening-news highlights, it has also delivered – after long gestation periods – two crucial pieces of legislation for the financial advisory industry.
On Tuesday, the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 passed the House of Representatives, after having been introduced in November 2016. Today, the bill proceeded through the Senate.
Earlier today, the Senate also passed the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016, after it moved through the lower house in October.
The Professional Standards of Financial Advisers legislation includes compulsory education requirements for both new and existing financial advisers, supervision requirements for new advisers and a code of ethics for the industry.
The legislation also mandates an exam that will represent a common benchmark across the industry and an ongoing professional development component.
The new professional standards regime will take effect on January 1, 2019, after which new advisers entering the industry will be required to hold a relevant degree. Existing advisers will come under transitional arrangements, allowing them until January 1, 2021, to pass the exam, and until January 1, 2024, to meet the education requirements.
The new requirements under the Life Insurance Remuneration Arrangements legislation will start on January 1, 2018. There will be no carve-outs for direct sales of life insurance, existing clients will be grandfathered, policy fees and frequency loadings will be included for commission calculations, and there will be greater fairness in the clawback rules.
Advisory groups welcomed the bills. Dante De Gori, CFP, chief executive of the Financial Planning Association of Australia, said the passing of the Professional Standards and Education legislation would provide assurance to consumers that their financial planner would be “highly trained, experienced and subject to an enforceable code of ethics”.
Advisers who do not have a degree or equivalent qualification will be required to complete further studies, such as a bridging course that will be determined by the new independent body, by January 1, 2024.
“The FPA will be advocating that those who have obtained the CFP designation, or will obtain the designation after July 1, 2019, be recognised as [having] an equivalent qualification,” De Gori said.
Brad Fox, chief executive of the Association of Financial Advisers, said the changes brought by the Life Insurance Remuneration Arrangements legislation would encourage the public to have more trust in financial advisers when buying life insurance, which he said was “still the best consumer option, by a mile”.
