Opinion piece written by John Maroney, CEO, SMSF Association
Published in the Australian Financial Review on 31 January 2019.
In the final moments of 2018 and early into 2019, the new standard setter for financial advisers – the Financial Adviser Standards and Ethics Authority (FASEA) – issued new educational and ethical standards for financial advisers.
These new standards have been a long time coming and many consumers and practitioners agree they are sorely needed given the poor advice practices that have been revealed. Although there are many good financial advisers who are knowledgeable, ethical and provide excellent service for clients, unfortunately this cannot be said of all.
Consumers have a right to expect the higher standard of financial advice these changes will usher in. It won't happen overnight, but it will happen.
Most importantly for consumers, and especially considering the revelations of Kenneth Hayne's royal commission, a key plank of the financial advice reforms is a new code of ethics that all advisers will have to comply with from January 1, 2020. Brook_Mitchell
Even if they have a long relationship with an adviser, it will be worthwhile asking them now what their views are on the new FASEA regime and what they will be required to do to meet the new standards.
As with all reform, there will be those who resist (there are estimates that up one-third of advisers might leave the industry) because they don't believe the changes are necessary and decide not to invest the time, effort and cost to bring themselves up to standards required by FASEA.
So consumers need to have a broad understanding of the new standards advisers will be expected to comply with. Only then will they know the right questions to ask their adviser.
What to expect
To start, all existing advisers will have to either have a bachelor's degree or equivalent by January 1, 2024. This is a substantial increase from the existing diploma level requirement. Many existing advisers who have a bachelor's degree will be required to undertake several bridging courses, including ethics and conduct, behavioral finance and financial advice law compliance.
Those advisers without a degree will have to either start an approved degree covering core financial advice subjects or undertake up to eight post-graduate courses.
Either way, by 2024 all advisers in the industry will have completed additional education to meet the new education benchmark.
FASEA's thinking is quite simple: consumers of financial advice are entitled to know they are being advised by professionals with relevant tertiary qualifications underpinning their advice.
Aside from tertiary education, all advisers will need to pass an industry exam by January 1, 2021. It will test advisers on financial advice regulations, financial advice construction and ethical and professional reasoning. The government intends this new exam requirement to set a minimum standard for all advisers delivering financial advice to consumers.
Importantly for consumers, FASEA has recognised the importance of advisers having ongoing training, with new continuing professional development (CPD) standards applying from January 1, 2019.
Although most advisers already undertake the CPD required by their employers or professional association, the new FASEA standard will ensure all advisers meet the same standard across the industry. This will give consumers greater confidence that their adviser understands the latest industry developments, market trends, and regulatory and legislative changes.
It means advisers will be required to complete 40 hours of CPD a year to stay up to date. And advisers returning from a career break will have to develop a plan on how they can catch up with CPD missed while out of the industry.
Most importantly for consumers, and especially considering the revelations of Kenneth Hayne's royal commission, a key plank of the financial advice reforms is a new code of ethics that all advisers will have to comply with from January 1, 2020. Currently consumers don't have the protection of an industry-wide standard of ethics.
All advisers will be required to sign up to a "code monitoring body" that will monitor whether the adviser is complying with the new code of ethics. The SMSF Association is working with other associations to establish a code monitoring body this year.
Advisers entering the industry from January 1, 2019 will also need to meet new minimum education and ethics standards. New entrants will need to have completed an approved bachelor's degree, undertaken a professional year where they are mentored by an experienced adviser, pass the industry exam, meet the CPD rules and comply with the new code of ethics requirements.
By 2024, the financial advice profession will be vastly different, with consumers hopefully the beneficiary. Higher standards will have been implemented with advisers better educated and operating under a new code of ethics.