The essence of financial planning – and what sets it apart from other professions – remains firmly and popularly rooted in the technical skills that all financial planners must master, the largest and most comprehensive assessment of the industry’s agreed-upon competencies has found.
The analysis, Financial Advice Competency Framework – An Industry Consensus, published by Beddoes Institute in conjunction with the Association of Financial Advisers (AFA), Asteron Life and Kaplan Professional, sets out seven knowledge domains that the industry itself agrees underpin financial planning competency.
They are: technical services, professionalism, client focus, self-development, connecting with people, business operations, and strategy and leadership.
Among these, the analysis has found that technical services – including the financial planning process, insurance, cashflow management, investment, and retirement and estate planning and taxation – garnered by far the strongest industry consensus as a required competency, followed by professionalism and a client focus.
Taxation, did not generate as strong a consensus as the other technical services that it is an essential competency for a financial planner. Issues such as developing strategic skills and leadership, while considered integral to overall competency, also were not as strongly agreed upon. Nor was demonstrating proficiency in running a business.
A director of Beddoes, Adam Tucker, says the findings should not be read as meaning that competencies such as strategy and leadership or competence at running a business are not important – they are; they just rank lower on the consensus scale.
“We’re not talking about importance, it’s not relative importance,” Tucker says. He adds that agreement on the required competencies of financial planners can’t be reached unless there’s a clear consensus on what financial planning is in the first place.
Defining financial planning
“A competency framework answers one of the ‘what is’ questions – what is financial advice?” he says.
Legislation and regulators dictate the financial planner’s minimum required skills and education, and it can be tempting to conclude that what the law requires is an acceptable definition of financial planning. In fact, financial planning is much more than just the technical skills and education that the law demands.
“This framework tries to redefine financial advice from the consumer’s perspective,” Tucker explains. He says the paper aims to reinforce and validate what’s already known about competencies, but also to “provide reassurance and some numbers around that”.
“That becomes particularly relevant to those areas that haven’t been well described in the past,” he says. “And the technical skills areas we can see are very traditional, very straight up the line. In fact, there’s a direct correlation with a lot of the framework from FPEC [the Financial Planning Education Council] and ASIC [Australian Securities and Investments Commission] documents there as well.”
Tussle over taxation
Tucker says the most contested aspect of technical skills was whether taxation was a competency; advisers were “quite keen to pull back on that” as agreed upon and necessary.
“We softened it by saying [it’s a required competency] only so far as it relates to the advice, and time and time again the issue of an adviser making an appropriate referral either to a lawyer or an accountant was raised,” Tucker explains. “That was perhaps the first echo of this whole idea of advisers specialising or not. It was very, very strongly felt by regulators that advisers should at least have a passing knowledge of all areas, whether they practise in those areas or not, and it was very, very strongly felt by advisers that they really shouldn’t be offering services beyond those they felt comfortable with and competent in.”
Tucker says taxation is the technical skill with which advisers feel least confident and least competent.
“People feel more comfortable with things that stay the same than [with those that] change a lot, and taxation is something that changes a great deal, and would require a great deal of time to be across,” he adds. “The financial advice process is fairly static. It changes little over time and we become very comfortable with that. Risk, risk assessment, platforms for providing product, etc, make that a fairly stable environment. Retirement moves a little but mainly around different rules and so forth.
“[In contrast, taxation] is not seen as core, like those other technical services, and it’s also seen as being something that moves very quickly. And we have access to very skilled colleagues, in terms of the accountants, to whom we can make an appropriate referral.”
Different skills at different stages
While strong technical skills might seem like a no-brainer in terms of a competency a financial planner needs, Tucker underlines the fact that they should not be taken for granted.
Different skills are acquired at different points in an individual’s development. Technical skills are essentially the ticket to the game, and they’re in many ways the easiest to acquire, so it’s no coincidence that those are the skills new entrants to the industry are first trained in and required to possess.
“The financial advice competency framework is an over-arching framework that includes and supports existing technical frameworks, such as ASIC’s and FPEC’s, and it extends them,” Tucker says.
Higher-order skills – including effective communication, resilience, judgement and developing trust – tend to emerge later in professional and career development, and often at older ages.
“I think of competency as knowledge then skills, then attitudes, then behaviours, not necessarily sequentially, but those four elements,” Tucker says. “It’s pretty easy to teach knowledge – you just provide them with a book and do questions and answers. Skill is, pretty much, you create a workshop and do some practical things. Attitudes and behaviours are where you need coaching and supervision and mentoring.”
Knowledge domain: Technical services
Here is how the six aspects of technical services were described for the study, and how each one fared in the survey.
- Financial planning process
Critically apply the financial planning process and create solutions tailored to clients’ needs and circumstances, including determining the client’s needs and goals, preparing, presenting and implementing a Statement of Advice, as well as monitoring and reviewing the plan over time.
This statement developed from the theme that advisers should be able to create customised advice for each client and track the outcome of this advice over time. The expert panel approved this statement with 91.5 per cent strongly agreeing and 8.5 per cent agreeing (100 per cent approved: Consensus Rating 0.50 – see note for description of Consensus Rating).
Analysing clients’ needs in relation to insurance, apply the principles of risk management, understand the types of insurance and know how to evaluate insurance products. This also includes the requirements for clear documentation and disclosure in relation to insurance, the implications of taxation on premiums and benefits as well as an understanding of personal insurance (life, income protection, and health), general and compulsory insurance products and the management of claims.
The expert panel approved this statement with 82.2 per cent strongly agreeing and 16.9 per cent agreeing (99.2 per cent approved: CR 0.41).
- Cash flow management
Managing cash flow including budgeting, securing and managing credit and understanding the impact on social security and government benefits, e.g. superannuation
This theme developed from discussion of the need to create and monitor budgets and cash flow in support of a client’s goals. The expert panel approved this statement with 79.2 per cent strongly agreeing and 19.2 per cent agreeing (98.3 per cent approved: CR 0.37).
Critically evaluating investment decisions including measuring risk tolerance, understanding the psychology relating to investing and the cost of investment. This also includes understanding the principles of portfolio construction and asset allocation, gearing, diversification, managed investment, securities, derivatives, shares, real estate, cash, foreign exchange, and international investments.
Interviewees were most interested in this competency. Consumers, in particular, believed advisers must be able to create investment strategies that are customised to the client’s needs, rather than templated and standardised. The expert panel approved this statement with 65.3 per cent strongly agreeing and 32.2 per cent agreeing (97.5 per cent approved: CR 0.22).
- Retirement and estate planning
Evaluating retirement and estate planning practices including superannuation structures, taxation and investment strategy, wills, trusts and powers of attorney, administration of an estate, business succession, asset protection, SMSF, taxation implications, superannuation and death benefits.
The interviews described the importance of being able to provide comprehensive retirement and estate planning advice. The expert panel approved this statement with 71.2 per cent strongly agreeing and 21.2 per cent agreeing (92.4 per cent approved: CR 0.21).
Applying the requirements of taxation to individuals, companies, partnerships, trusts and superannuation as far as these relate to financial advice including deductions, rebates and credits, fringe benefits tax, GST, salary sacrifice, assessable income, and superannuation.
Some interviewees considered that advisers should be able to evaluate the impact of advice on taxation. The expert panel approved this statement with 55.1 per cent strongly agreeing and 35.6 per cent agreeing (90.7 per cent approved: CR 0.05).
Note: The Consensus Rating (CR) is a standardised scale of expert panel approval between -0.5 and +0.5 enabling easier comparison of the approval between competency statements.
Source: Financial Advice Competency Framework – An Industry Consensus, Beddoes Institute, AFA, Asteron, Kaplan Professional