October 1, 2018
Eighteen months ago, few people in the financial advice sector had heard of FASEA nor considered the impact it would have on advisers. Since its formation, however, the Financial Adviser Standards and Ethics Authority has raised concerns with its proposed education standards, qualification pathways, code of ethics and adviser exam. In this article, RiskInfo Senior Journalist, Jason Spits reviews what the Authority has proposed, as well as the response from the financial advice sector.
The financial services sector is replete with acronyms describing products, processes, legislation and regulation, regulators and overseers, and in the past two years advisers have become very aware of a new entrant that has the potential to reshape the industry for years to come.
Formed in mid-2017, the Financial Adviser Standards and Ethics Authority, or FASEA, has released a select amount of information about the future of adviser education, and at the time of writing, has made almost no further comments on its proposals.
Financial advisers and their representative bodies, the AFA and FPA, along with any interested party have in turn made a number of submissions in response to the proposals which have been released but the final outcomes of this process remain yet to be seen.
While the industry awaits the release of final policies – which are expected later this year given that some are due to commence in 2019 – here is a review of what has been proposed by FASEA, in the order they were released, and the industry responses so far.
New Entrant Degree Standards (October 2017, Updated March 2018)
New entrants into financial advice will be required to gain a bachelor level degree that covers the technical aspects of financial advice as well as ethics, professional attitudes and behaviours.
Relevant degrees would be made up of 24 units covering fields that include the financial planning and advice process, technical requirements of financial advice and ethics, professional attitudes and behaviours.
FPA Chief Executive, Dante De Gori said the degree qualification was a recognition of the work done by the Financial Planning Education Council in setting degree qualifications for future entrants into the advice sector
AFA Chief Executive, Phil Kewin said the degree requirement pathway for new entrants was “…an eminently sensible announcement and…is a positive beginning in providing certainty and direction for employers, education providers and of course those students aspiring to a career in financial advice” (see: Existing Advisers Will Require Study: FASEA).
Qualifications pathways for Existing Advisers (December 2017, Updated March 2018)
Existing advisers would be able to continue practicing from the start of 2024 if they:
- Hold a qualification that is on the FASEA approved register;
- Have completed an Australian Quality Framework level 7 (AQF), or bachelor degree level, qualification that is on the FASEA approved register;
- Have completed a course that offers at least 8 units at AQF level 8, or post-graduate level, covering fields that include ethics, professional attitudes and behaviours, financial planning and advice processes, and technical requirements.
Advisers with a degree in a related field of study would only be required to complete a shorter AQF level 8 bridging course, while those with an unrelated degree would have to complete 8 units at that level.
The FPA claimed that FASEA has overlooked past-training relevant to the provision of advice and only advisers with no degree should be required to gain an approved degree, graduate diploma or masters qualification by 2024. Advisers with any degree should be compliant if they hold a graduate diploma, CFP certification or the eight unit Diploma of Financial Planning by 2024 (see: FPA Claims FASEA Has Overlooked Adviser Effort).
The AFA claimed that FASEA had overstepped the intention of the Federal Parliament by not considering some forms of education and training already undertaken by advisers. It called for extended timeframes with the 31 December 2023 deadline for existing advisers to achieve degree equivalence to be pushed out to 31 December 2024 and for the 31 December 2020 deadline to complete the Registration Exam to be pushed out to 31 December 2022 (see: AFA Pushes For New Education Deadlines).
Code of Ethics for Financial Advisers (March 2018)
The adoption of an industry wide code for all advisers that addresses:
- Ethical behaviour, including acting within the spirit of the law and for the benefit of the client,
- Client care, including acting in the best interests, appropriate circumstances of each client
- Quality process, including obtaining consent to receive fees and payments, keep client-related records, and advice is not misleading or deceptive
- Professional commitment, including the development of relevant skills and knowledge, and being subject to a Code Monitoring Body
FPA Submission: “The FPA supports setting principles-based standards for financial advisers. Although this approach lacks the certainty of prescriptive rules, it allows the Code to be applied in a nuanced way that is sensitive to the details of each case. It also allows for the Code – without textual amendment – to respond more readily to changes in professional practice and community expectations.
Nonetheless, advisers and the community deserve to know in advance what in general terms the Code requires. Vague standards such as acting in the ‘spirit’ of the law have no content that expectations can be linked to.”
AFA Submission: “The AFA supports a financial advice sector-wide Code of Ethics as FASEA has been tasked to develop. It is appreciated that in this early stage, what has been provided, is brief and that over time more detail will need to be populated. We believe that greater detail will be required in order for financial advisers to understand their obligations and for Code Monitoring Bodies to be able to monitor the ethical conduct of financial advisers. In the absence of this certainty, the effectiveness of the Code will be undermined.”
Financial Adviser Examination (July 2018)
A five-part examination for all advisers requiring a 65 per cent pass mark in total, including a 75 per cent pass mark for FASEA’s Code of Ethics component, and a minimum 50 per cent pass for each of the other four components being examined.
The five examination components, and the weighting proposed to apply to each section, are:
- Corporations Act (emphasis on Chapter 7 – Financial services and markets) – 30%
- The FASEA Code of Ethics – 15%
- Financial Advice Construction – suitability of advice aligned to different consumer groups – 20%
- Behavioural Finance: Client and consumer behaviour, engagement and decision making – 10%
- Applied ethical and professional reasoning and communication – 25%
Existing advisers, as at 31 December 2018, will be required to have passed the exam by 1 January 2021, while new entrants from 1 January 2019 will be required to pass the exam after they have completed their tertiary degree, and before commencement of their professional year.
FPA Submission: “Overall, we support FASEA’s proposed guidance…We also note that there is a longstanding tradition of open-book capstone exams in the profession. In addition, such exams are typically no more than three hours. We ask that you defer to these traditions unless there are strong countervailing reasons for setting different requirements.”
AFA General Manager Policy & Professionalism, Phil Anderson said the Association “…is concerned that the FASEA proposed exam is positioned at a very difficult level and as a result advisers will find it extremely challenging” and concerns related to the exam which will be closed book and run for four hours.
“We think it is unreasonable to ask advisers to, for example, memorise 500 pages of Chapter 7 of the Corporations Act in order to prepare for the exam. We believe advisers will need more clarity around what parts of Chapter 7 will be tested. (see: AFA Concerns Over FASEA Adviser Exam)
Professional Year (July 2018)
New entrants to the advice profession will be required to undertake 800 hours of education and training and 1000 hours of work and supervised experience based on an approximate 1800 hour working year. Any formal education, including a bridging course or study to achieve a professional designation, or accreditation in specific financial products, or to meet the requirements for specialised financial advice would be included within the 800 hours. While undertaking the study and training, new entrants would be labelled as ‘Provisional Financial Advisers’.
FPA Submission: “While there is a need for new advisers to undertake a consistent PY program, there must also be consideration given to the requirement that the graduate must be able to operate commercially for their employer during their training program.”
“If an effective and workable balance is not achieved, and the PY requirements are too prescriptive and onerous, it could greatly restrict the ability of financial advice practices and licensees from taking on PY candidates, creating a significant barrier to entry for new advisers.”
AFA submission: “It is our view that the Professional Year consultation paper lacks the necessary focus upon the emotional intelligence skills that will ultimately determine whether the new financial adviser becomes a high-quality financial adviser. The emphasis on relationship skills and emotional intelligence is very different to what seems to be a very strong bias towards continuing formal education in the current FASEA proposal.”
Continuing Professional Development (July 2018)
Financial advisers to complete 50 hours of Continuing Professional Development (CPD) in the areas of technical competence, client care, regulatory compliance, and Professionalism and Ethics. Adviser will also track their own compliance with that standard for a period of six years.
70 per cent of the CPD activity per year must be approved by an adviser’s licensee and 25 CPD hours may be drawn from formal relevant education aimed at meeting legislative requirements, and any formal study towards other qualifications and designations. Non-formal education, such as sessions and workshops at conferences and PD days, would also be counted for CPD purposes.
FPA Submission: “We support efforts to ensure advisers develop and maintain the level of skills and knowledge needed to provide advice of a professional standard. We also generally support FASEA’s proposed standards for CPD. However, in our view, maintenance of such a standard can be achieved by requiring advisers to complete 30 hours of CPD per year rather than the 50 hours per year proposed by FASEA.”
AFA Submission: “We are very conscious of the additional cost of CPD that would come from increasing the current benchmark of 30 hours to 50 hours. CPD activity costs money to attend and it also costs money in terms of time out of the office and away from clients. In the context of a range of other cost increases impacting the sector at present, we think that this is an important factor that should be taken into consideration.”