If the financial advice industry wants to raise professional standards it cannot rely on self-regulation, the Financial Services Council has argued, calling instead for a new, government-run standards board and competency framework.
Responding to the negative public perception of the advice industry, which has been growing in recent months, the FSC has developed a model it believes will rebuild consumer trust and increase the competency and conduct levels of financial advisers.
The FSC model would see an external, independent statutory board appointed to oversee adviser competency standards, education and professional conduct. The Advice Competency Standards Board (ACSB) would have responsibility for setting minimum education and experience requirements for financial advisers, as well as maintaining a training register and administering a national advice exam, if this is deemed necessary. In addition, advisers would be required to comply with a mandatory code of conduct, to be enforced by the Australian Securities and Investments Commission (ASIC).
The Council has submitted this recommendation to the Parliamentary Joint Committee (PJC) inquiry into proposals to lift the professional, ethical and education standards in the financial services industry (see: Scrutiny of Financial Advice Sector Continues), and is calling on the wider industry for its support.
The level of trust in financial advice is at an all-time low
“The level of trust in financial advice is at an all-time low,” said outgoing FSC CEO, John Brogden, speaking at a media conference on the proposal this week.
“Recent events have rocked public confidence in financial advice, and we need to be zealots for better standards and better education.
“FoFA is the foundation; but in order to establish a profession we believe you need a professional board that will set the competency and professional standards.
“We believe the Government has to play a critical role in accrediting financial advisers.”
The FSC is recommending that the Government-appointed ACSB be made up of members of ASIC, the Tax Practitioners Board (which enforces the Tax Agent Services Act under which many advisers now fall), and industry representatives, to be chaired by an independent expert, possibly with an academic background.
“We also believe that the people who enforce the laws shouldn’t write them,” Mr Brogden said. For this reason, the model proposed by the FSC would take the responsibility of setting minimum competency and conduct standards away from ASIC, leaving the regulator free to monitor advisers’ adherence to those standards. Similarly, while advisers would still be able to maintain membership of a professional body, they must first adhere to the minimum standards and code set by the ACSB.
“Self-regulation is no longer a credible option for establishing higher standards,” Mr Brogden said.
Self-regulation is no longer a credible option for establishing higher standards
If accepted, the FSC’s approach would also require a re-labelling of a number types of advice, in order to clarify who must adhere to the new standards. The FSC has recommended that general advice be re-named ‘general information’, and that its providers would not be subject to the same high professional standards as those who deliver personal advice. However, the FSC believes intra-fund advice should be treated as ‘scaled personal advice’, and therefore providers would be required to rise to the same competency levels as financial advisers.
Asked about whether he thought this reclassification would cause friction with the Industry Super Network, which represents superannuation funds that deliver intra-fund advice that is not currently subject to the same training levels, Mr Brogden said: “Well, they can’t have it both ways.”
“You can’t be critics of financial advice and then be unwilling to accept higher standards of regulation.
“This has been a constant issue of conversation – do you have high, professional standards for those that do the face to face advice, and lesser standards for those who answer a question over the phone? If we’ve learnt anything over the last 12 months it’s that the public expectation is that every person who gives advice, at every level, must have higher standards.”
Mr Brogden added that he felt sorry for the good advisers that had been caught up in the negative commentary about the industry.
“For anyone who’s played with a straight bat, this is terrible, because it tars them with the same brush as the bad ones. But you don’t make laws for good people, you make them for bad people,” he said.
Submissions to the PJC inquiry have now closed, and the Committee is expected to hold public hearings with key stakeholders in the next few weeks.
We would have to be the most over regulated industry in the universe. 99.9% of advisers to the right thing and give back to the community in various ways.
Just waiting for the day I get a SOA to have an operation that is life changing???
I’m all for education standards and ethical behavior but i think we have all had enough of this.
Unbelievable. The banks and instos come and and promote themselves as being ready to provide advice rather than relying on the established advice businesses, stuff it up by underestimating ( having no idea !) of what is involved in giving advice and developing enduring trusted relationships, and now want to argue that all advisers should be better regulated. No banks and instos that is not the answer. The solution is that you stick to product manufacture and let advice practises take care of the advice and client relationships. That is a proven model that is not broken.
I always get nervous when I hear bureaucrats use words like “zealots”. Keep your fanatical regulation out of the industry. What the FSC is really saying is that it thinks ALL financial advisers need to be regulated and treated like children. It is a fear based approach to giving advice and running our businesses and it’s being driven by the rogues who are a minority. Rather than having the cajones to stand up and say that these few advisers are a minority, what the regulating bodies do is play to the media and fear and insist on more regulation. Talk about being out of touch with what happens in 99% of the client/adviser relationship.
The issue is not more regulation but more so who owns the “advise” that is being provided
If the financial services industry wants to raise itself to a professional level it cannot self regulate?? Why not? Other professions do eg Accountancy, Legal. There are criminals in those professions as well, but we do not hear the same cries for “higher standards”, increased education, remove self-regulation and so on. Can we please have some consistency here? The implication in this article is that high standards and regulatory requirements in terms of client treatment do not exist. On the contrary, they do. The issue is that on occasions, some people do not adhere to them and no amount of shuffling overseers, legislation, auditing etc will stop those people existing and trying to get away with something.
Just what does having “higher standards” mean anyway? We already have high standards … I repeat, the issue is that on occasions some people do not adhere to them. Having a Uni Degree will not change that one little bit. Having a Uni Degree should simply be about the quality of advice that can be delivered. There is no evidence anywhere that having a Uni Degree stops criminal intent, mismanagement or carelessness.
I’d love to see the evidence that is touted around, that less people trust our profession today than previously. The reason I question it is that more people than ever are using Planners. Hardly seems likely if the public trusts them less.
All I am saying is that if there are valid reasons for higher education standards such as Degrees, then lets hear them. So far I have read a lot of supposition. If there are valid reasons for saying the existing legislation regulating Planners is insufficient, then lets hear them. If the Dealer Groups and Associations decide that they want to get rid of self-regulation and internal auditing and hand it off to an Independent Commission or regulatory body, because they believe that will relieve them of the responsibility along with associated costs and they think that will improve governance, then let them say so and provide valid reasons.
Just what we need… more bureaucracy with an academic leading the way! As an ethical adviser with over 20 years experience – I am so over it. Those who break the law should be jailed or banned. APL’s should be abolished. Clients should be able to pay an advisers fees from any account or fund they like- it’s their money! The system we work in is full of hypocrisy and double standards from Licensees and Industry Funds who both want to control where the ‘money’ goes. The adviser and the client are the ‘meat’ in the sandwich, we didn’t create the system but we are sure paying for it. MAKE IT STOP!!!
I agree with both Robert & James. I’ve certainly had enough to the point where I am consdiering studying in an alternate field because I cannot see myself putting up with more legislative and industry change over the next 30 years of working life I have left. James, I agree with your comments about the banks. I have a friend who is a bank adviser. He tells me they are falling all over themselves at the moment trying to re-establish relationships with ongoing clients, the majority of whom have not had any adviser contact despite paying for it and while trying to get them to pay a higher (fixed) fee than what many pay under current arrangements.
Well said Peter.
You know all these so called outside experts and Industry stalwarts inside have never had to sit in front of a prospective client or they have conveniently forgotten that they did.. Not only would they run for cover and hide if they had to, but they have been doing so since I have been in the business since 1969.A political football and regressive regulations and red tape have been going on relentlessly since the 1970’s,however more so in recent years. We were never really given a chance to self regulate.
This Industry is never going to go forward ,as it should be, or make it easier for us to operate if they continue to run for cover and hide.
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