The structure of the financial advice sector could be altered significantly if recommendations from the latest Parliamentary inquiry into financial advice are accepted by the Government.
Just prior to Christmas, the Parliamentary Joint Committee for Corporations and Financial Services (PJC) issued its highly anticipated report into proposals to lift the professional, ethical and education standards in the financial services industry.
The PJC made 14 recommendations, including a proposal to rename ‘general advice’ and ‘personal advice’, the introduction of mandatory professional association membership for all advisers, and the establishment of a new governance body to set education and competency standards.
The recommendations were developed to address four key issues:
- Clarifying who can provide financial advice by protecting the title and function
- Improving the qualifications and competence of financial advisers
- Enhancing professional standards and ethics
- Implementing transitional arrangements
…for far too long, there has been a significant minority of financial advisers being driven by self-interest
In setting out its recommendations, the PJC said that increasing the professional, ethical and education standards applied to financial advisers was an important defence mechanism to help reduce the risk of failure in the broader system.
The Committee also pointed out education is just one element of a wider system, which needs to be supported through professional standards and ethical conduct.
‘While acknowledging that there are many financial advisers who operate to very high ethical standards, the Committee considers that for far too long, there has been a significant minority of financial advisers being driven by self-interest. It is the committee’s view that professional ethics should be a driver of the behaviour of financial advisers,’ the report stated.
The PJC recommendations include the following proposals:
- The Government legislate to protect the titles ‘financial adviser’ and ‘financial planner’, and that to be eligible to use the title an individual must be registered as a financial adviser
- The term ‘general advice’ be replaced with ‘product sales information’
- The term ‘personal advice’ be replaced with ‘financial advice’ and only those individuals who are registered as a financial adviser will be permitted to give ‘financial advice’
- To be registered as a financial adviser, an individual must complete a structured ‘professional year’ and pass a registration exam
- Financial advisers be subject to a minimum educational standard of a degree qualification and complete mandatory ongoing professional development
- The education standards be set by a new governance body, called the Finance Professionals’ Education Council, including representatives from industry professional associations, consumer advocates, academics and an ethicist
- Industry professional associations be required to establish Professional Standards Schemes under the Professional Standards Councils
The report also sets out a range of transitional arrangements for existing advisers, and a recommended timeframe for implementation. On the issue of timing, the PJC said it was ‘…firmly of the view that swift and decisive action is required in order to raise the professional, ethical and education standards of financial advisers’. On this basis, the PJC is recommending that the Government implement these reforms within three years of providing a response to the report.
Riskinfo will provide a comprehensive analysis of the PJC’s recommendations and the industry’s response in the next edition of our eMagazine, due out in March. In the interim, click here to view the full PJC report.
As it is the Advisers who will have to live under the new regime, I would have thought that as well as having academics, consumer advocates and ethicists to oversee the new world of advise, it may be an idea to also ask advisers for input, as after all, they just may have some relevent education and experiance, that could actually have a positive significance, which will improve real world advise in the real world.
When is the time going to come when Politicians have to subscribe to some of the standards they are setting for advisers. Advisers affect individuals, politicians affect masses so why don’t we expect onerous standards such as, in the best interests of their constituents, ethically and morally responsible, certain standards of education?
I agree with Jeremy. I would also add that it is about time that dedicated Life-Risk advisers had their own category, outside of “Financial Planner” and were qualified as such. A different qualification, exam and title. As a Life-Risk adviser myself I am being tarred with the same brush as full financial planners, having to do irrelevant Kaplan CPD’s and now these new mooted ‘Financial Planner’ exams. What a waste of my time! I don’t mind exams that test and prove me for what I do all day – insurance advise. to sit me down and test me on derivative, options, structured managed products is a waste of my time and money. It seems a no-brainer to me, to treat us separately. Why is it not done?
Brian is right. We have been having this discussion for many years, as it is patently unfair and ridiculous to put Life Insurance advisers into the same basket as Investment planners, which of course they are two completely different businesses.
Risk writers are being forced to adhere to regulations, ongoing training and a plethora of rules that have no bearing on risk writers and add to the under-insurance epidemic, with constant distractions that have little to do with Insurance advice, though take us away from doing what is the most important best interest duty, which is to get more Australians Insured.
When are the polies and all their mates who receive a tax payer funded gig to sit of all these committee’s going to learn that if someone wants to break the law, then they will…so making more rules and regulations just means those people who want to break the law will now have more laws to break…will they care…I think not?
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