New financial advisers will be restricted from providing advice on their own for one year under the proposed draft legislation covering the professional standards for financial advisers, a close reading of submissions on the legislation has revealed.
The legislation is also likely to produce a single code of ethics with professional associations playing a larger role in the oversight and assessment of breaches of that code.
The changes, which are part of the second draft of the Corporations Amendment (Professional Standards of Financial Advisers) Act 2016, were mentioned in submissions made by the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) to The Treasury.
The latter was still receiving submissions on the legislation until the middle of this month, despite the Federal Election, after having released the second draft of the legislation to closed and targeted consultation with industry stakeholders.
As a result, the FPA and AFA and their members during consultation have been informed of the changes but they have not been released into the public domain by Treasury.
P-Plates
However, the submissions from the two adviser bodies indicate that new advisers, labelled as ‘provisional providers’ in the legislation, would be required to work under the supervision of another adviser, who was able to provide advice in their own right.
This position was evidenced in the submission from the FPA, which was concerned over who would be ultimately responsible for the advice given under supervision.
“We note that under the current drafting, the supervisor of the provisional relevant provider must approve the advice provided by the provisional relevant provider…”
“We note that under the current drafting, the supervisor of the provisional relevant provider must approve the advice provided by the provisional relevant provider. This raises a number of potential issues which may need to be clarified to ensure appropriate working of the section of the legislation as intended,” the FPA submission stated.
“Firstly, it isn’t clear who is ultimately responsible for the advice being provided…It therefore isn’t clear who a consumer would complain to, and who would bear ultimate responsibility for the advice,” the submission also stated adding the FPA believed both the supervisor and provisional adviser should be responsible.
The AFA also indicated it supported the introduction on a provisional year and supervisory model stating new entrants to the industry after 1 January 2019 should be required to complete a professional year of supervised work.
“We also support the provisions surrounding this supervisory framework and would like to see these provisions not being reduced to allow provisional advisers to operate without appropriate supervision during the professional year,” the AFA submission stated.
It also suggested that responsibility for the advice be shared between supervisor and provisional adviser but did not extend to the other activities of the adviser, which remained under the oversight of their licensee.
Model Code of Ethics
The submissions also indicate that a model code of ethics will be adopted under the legislation with moves by the advisory bodies to align it with their own existing codes of ethics and conduct, and thus renewing calls for mandatory membership of a professional association.
“The AFA acknowledges that the model code of ethics is to be standard across the industry…”
“The AFA acknowledges that the model code of ethics is to be standard across the industry, and that this can be embedded in the professional association codes that have already been developed and will be overseen and approved by ASIC,” the AFA submission stated.
“As the role of professional associations includes upholding the highest standards of behaviour of its members, professional associations are best positioned to improve, maintain, monitor and enforce standards.”
“The AFA recommends mandatory membership of professional associations and subscription to their Code compliance monitoring schemes.”
The AFA’s submission also stated that it would be more cost effective to establish and run compliance with any proposed ethical frameworks through professional associations than through the creation of new monitoring bodies.
However, the submission added that the costs of the development of parallel monitoring and enforcement bodies for non-members of associations would be borne fully by those advisers using these newly created bodies, and not by members of professional associations.
Other Recommendations
The two associations also made a number of recommendations including:
- clarity around how the new Standards Body would be funded on an initial and ongoing basis from industry (FPA).
- clarity around the cost for advisers to comply with the new education requirements via a fully worked Regulatory Impact Statement (FPA).
- the Standards Setting Body to have at least three directors with experience in providing financial advice (FPA, AFA) with at least one from a small business financial advice practice (AFA).
- that an exam should not be the sole measure of an existing adviser’s competencies and other appropriate assessments, including recognition of prior learning, be adopted by the Standards Body (FPA, AFA).
- that those who provide personal advice on time-sharing schemes should be excluded from this framework and unable to call themselves a financial planner/adviser (FPA).
