Financial advisers know very well that uncertainty is not good for investment markets or for clients. The lack of any sense of control is damaging in many respects – not least of which is the impact that it has on confidence about the future.
Unfortunately, this is the problem many financial advisers are now facing. Challenges with respect to both the significant industry changes through the Life Insurance Framework and the total uncertainty with respect to the proposed increased education standard for existing advisers from 1 July 2019 are certainly impacting on the level of confidence about the future.
Advisers may retire early
For some time there has been an awareness that the financial advice profession has a demographic weighting to the baby boomer generation, and that at some point this might result in a large number of financial advisers leaving the industry at roughly the same time. It is unfortunate that the government has not fully researched this demographic exposure as part of their regulation impact statement for the proposed increase in education standards for financial advisers.
The uncertainty around the expectations for existing advisers has resulted in many advisers considering their future. It is likely that this requirement would force many financial advisers, including many baby boomers, to bring forward their retirement plans. Financial advice is a passion for many older advisers who are enthusiastic to work well beyond the age at which people in other industries have already retired. Such advisers continue to provide valued services to their clients.
If a large number of financial advisers decided the new standard was unachievable and chose to leave the industry by 2019, this would have particularly negative consequences for the profession and for the Australian community seeking financial advice.
Demand should increase
All the key stakeholders in the financial advice marketplace are supportive of an increase in professional and education standards. This will achieve a number of things, including the likelihood of increased consumer confidence in financial advice.
Increased consumer confidence would hopefully result in a significant jump in the proportion of Australians seeking financial advice, which currently stands at one in five.
The financial advice profession must build the capacity to meet the needs of current clients and potential new clients.
A realistic solution needed
Despite the long-running consultation on the issue of education standards and broad support for a realistic solution for existing advisers, the release of the draft legislation on December 3, 2015 indicated that even existing advisers would need to obtain a degree qualification or equivalent. The proposed standards-setting body will determine pathways for existing advisers, including bridging courses; however, this process remains unclear and will not be resolved for up to 18 months.
The industry response since the release of the draft legislation has been very consistent – it is simply impractical to expect existing advisers to get a degree by July 1, 2019.
Suggested solutions have been put forward, including the possibility of a delay in the commencement of the new requirements or a different category of licensing for these advisers, but the most appropriate long-term sustainable solution appears to be a more pragmatic lifting of the standard for existing advisers, in the legislation, to the level of an advanced diploma.
This increase, along with the introduction of a generic registration exam will deliver a material increase in standards. An advanced diploma and a registration exam, in combination with recognising existing experience, is a viable solution.
It is important that the government finds a sensible solution in the short term that provides the certainty that existing financial advisers require and ensures that all those good non-degree-qualified financial advisers remain a part of the financial advice profession. There is too much at stake to get this part of this important reform program wrong.
