Education Changes to Collide with LIF Transition Timetable

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Advisers preparing for the introduction of the Life Insurance Framework (LIF) are likely to be hit with a second round of changes over the next three years as new education standards are implemented.

While the recent release of the Federal Government’s response to the Financial System Inquiry (FSI) covered a number of key areas in raising the competency of advisers, others have been left out or only partially covered.

This has raised concerns that advisers will face the introduction of rolling changes around education, ethics and professional standards without sufficient time to comply, at the same time as many are working through the three-year transition period of the LIF.

A side by side examination of the recommendations of the Parliamentary Joint Committee into the professional, ethical and education standards of the financial services sector, released in December 2014, with the Federal Government’s Response to the FSI released recently, shows some areas of the former have not been addressed in any way.

A side by side examination of the recommendations of the PJC… with the Government’s Response to the FSI…shows some areas of the former have not been addressed in any way.

PJC recommendations that have been addressed under FSI recommendations 24, 25, 29 and 40 include changing the term ‘general advice’ to ‘product sales information’ as well as limiting those able to provide financial advice to those registered as financial advisers.

The restriction of this term as well as ‘financial planner’ was also covered in the FSI response as was the inclusion of a raft of adviser details on a centralised register, which has already been established by the Australian Securities and Investments Commission (ASIC).

A recommendation by the PJC to lift education standards to a degree level was also supported in the FSI response but lacked detail around who it would apply to and when, while a PJC call for an independent council to set standards was given broad support.

Ethics and Standards yet to be clarified

Notably, the PJC recommendations that have not been picked up relate to the role professional associations may play in setting benchmarks around continuing professional development, codes of ethics and professional standards and the mandatory membership of one of those bodies for people wishing to provide financial advice.

Netwealth, Head of Governance and Advice, Phil Anderson
Netwealth, Head of Governance and Advice, Phil Anderson

Netwealth, Head of Governance and Advice, Phil Anderson said the PJC recommendations were comprehensive and had intentionally focused on education as well as ethics and professional standards.

He said that ethics and professional standards should not be removed in favour of education and there was a need to ensure they were maintained in any further responses to the PJC or the FSI.

Anderson said the Federal Government had indicated this was an ongoing work pointing to its statement under Recommendation 25 in the FSI Response.

That statement said “the Government has already conducted extensive consultation on the PJC’s proposals in the first half of 2015. The Government will continue to consult on remaining elements of the PJC’s proposals”.

Anderson said while this was good news for people seeking greater clarity the timeframes were still problematic with both the PJC report and the FSI response pointing to a 2019 end date for these changes – which is the same end date for the LIF transition.

Once again the FSI Response highlights the amount of work facing advisers in the next few years: “The Government will introduce legislation to raise the professional standards of financial advisers by mid-2016,” it stated under Recommendation 25.

“A statutory review in 2019 will consider whether this new regulatory framework has raised the professional standards of financial advisers–and whether further changes are required.”

Anderson says the industry is expecting a 2019 end date for the PJC and FSI changes but said past experience with the Future of Financial Advice (FOFA) regime showed how large-scale changes take time to build and introduce before implementation.

“The start date depends on certainty and we don’t have any documents about how any of this will be implemented – via legislation or regulation, or how various bodies will be set up,” Anderson said.

Adviser numbers a key issue

The other issue is the sheer number of advisers who would be required to upgrade their qualifications before 2019, once final details are released.

According to financial services training provider, Deakin Prime, 75% of the 22,500 existing advisers do not have a relevant degree level qualification and are working off Regulatory Guide 146 qualifications, that is the Diploma of Financial Planning (DFP) or Advanced Diploma of Financial Planning.

The other issue is the sheer number of advisers who would be required to upgrade their qualifications before 2019, once final details are released.

Anderson said while many of the larger planning groups were working to have all their advisers holding a professional designation, such as the Certified Financial Planner or Fellow Chartered Financial Practitioner, by 2019 it was not reasonable to expect all advisers to become degree qualified.

“There may be a need to grandfather some across because it would be completely impractical to expect all advisers to reach degree level, no matter how long the transition period may be,” Anderson said.

“The PJC and FSI focused on new advisers but a key issue is when will someone be no longer considered as a ‘new adviser’ and what window will those who have started their DFP or Advanced DFP have to finish it before the new rules start?”

“The universities offering courses at degree level also don’t have the throughput for this many people so there will need to be more courses or some other bridging arrangements.”



4 COMMENTS

  1. If the regulatory powers require these education “upgrades” to be the standard, our industry faces changes that it likely won’t recover from.
    As if it isn’t enough that the LIF will be enforced on us, now we’ll face these realities:
    1. Significant loss of income
    2. Almost certainly further ramped-up compliance requirements
    3. Income instability because of a longer responsibility period on life-risk contracts
    4. The educational capability to undertake university courses, externally or internally,
    to reach the required standard – many of us have been out of school for a long time
    5. The time it will use up to complete these courses (time away from income-earning
    duties)
    6. The cost of these uni. courses – they won’t be offered at give-away prices
    All in all, it seems to point to over-academically qualified underpaid advisers stressed to the limits. And why? Because of the threat to their ability to work since they can’t keep up with over-the-top compliance requirements and all the other industry hassles we currently face.
    It’s been a Pandora’s Box from the beginning. Who can put a lid back on it?

  2. At what point did a uni degree ensure quality advice, client care & moral standards?
    This industry is imploding and the banks and union funds will be there maximising profits offering conflicted “advice” or no advice to the complete detriment of the customer and small business.

    • emkay – at the risk of sounding pessimistic, the heavyweights – life offices and banks – hold all the aces. These might grandstand and purport to be concerned about under-insurance and the Mums and Dads in our society, but they really don’t care at all in the end.
      The only way we stand any chance of changing things is through lobbying politicians (this isn’t a political issue) via a well-crafted letter and good follow-up. Above all, the letter would have to address all members’ self-interest. If it doesn’t, no matter how many valid arguments are presented and articulated in the loftiest of expression, we’re not going to win this LIF battle. That’s just the way it is.
      It will mean a significant restructure in the way we do business. If we can’t adapt we’ll be out of business because LIF will happen.

  3. This is on a par with Red Cadeaux breaking down in the Melbourne Cup and simply “takes the cake”! Not only being content to drive good advisors out of the business with the double whammy on commission levels and responsibility periods, the authorities have found yet another way to do so………and to think all of this is under a conservative federal government which SUPPOSEDLY champions free enterprise!!

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