AFA & FPA Recommend Raft of Changes to Professional Standards Legislation

The Association of Financial Advisers (AFA) and the Financial Planning Association (FPA) have strongly recommended a raft of changes to the draft legislation around professional standards reserving their full support for the legislation until the changes are made.

Among the areas both groups raised in their separate submissions were better transition arrangements for existing advisers, no registration exam for some advisers, restrictions around the term financial planner and financial adviser and mandatory membership of professional associations and adherence to their codes of conduct.

Timeframes

While both groups created lengthy submissions, concerns were raised around the short timeframes given to provide feedback with the AFA stating it was “of significant concern” and that the timeframe spanned the end of year holiday period.

The AFA stated it managed to gather member feedback in the 13 working days between the release of the draft legislation on 4 December and the beginning of the Christmas break but supported round table discussions in 2016 prior to any further work on the legislation to consult further and consider any unintended consequences.

Transitional arrangements

Also looking at timeframes within the legislation the FPA rejected the proposed transition process for existing planners stating it was impractical and impossible to achieve a bachelor level qualification by the proposed date of 1 July 2019.

“It is physically impossible for any individual to be able to complete a bachelor degree within 2 years (i.e. between 1 July 2017 and 30 June 2019), let alone doing so working full-time.”

“It is physically impossible for any individual to be able to complete a bachelor degree within 2 years …let alone doing so working full-time.”

The FPA also argued the transition arrangements ignore the current qualifications and training, experience, and ongoing education of existing financial planners.

This position was also taken by the AFA which stated that experienced advisers are in the best position “to empathise with the large cohort of Australians approaching retirement and considering confronting lifestyle and financial decisions” and any move to force degree-equivalent qualifications in a short time would create a decline in adviser numbers.

“It is the AFA’s preference that the government set the standards for existing advisers at the AQF6 or equivalent assessment level in Regulation as that would provide much needed certainty and clarity in the near term.”

Recognition of Prior Learning

Both representative bodies also called for Recognised Prior Learning (RPL) with the AFA stating the draft legislation overlooks prior learning below a degree level that has been used in conjunction with the experience of existing advisers and that RPL should not be restricted to degree level training only.

The FPA stated that while “no blanket grandfathering should apply, there is a need to acknowledge RPL” and to let the proposed standards setting body decide on the appropriate transition pathway for existing financial planners instead of setting that under legislation.

The AFA also supported this approach as part of a consensus submission created by the AFA, FPA, SMSF Association, Australian Bankers’ Association, Industry Super Australia and Choice.

Standards Setting Body

This consensus report recommended the standards setting body be given more than the proposed 12 months to develop and put into the market new standards and it consults with all relevant parties when setting and reviewing standards and it remains inclusive, accountable and transparent to the public

However, the FPA stated it was unable to fully support the body as it was proposed without “further certainty regarding the new framework, especially where we believe draft legislation presents difficulties for our members, specifically the transition arrangements for existing financial planners and the recognition of professional body codes of ethics.”

Limiting use of financial planner/adviser

In contrast the FPA was strongly supportive of any measure under law to restrict the use of the titles financial planner and financial adviser to those that had met the new education and standards framework.

It stated that the lack of restrictions on the use of the titles was a significant gap in consumer protection and, along with the AFA, called for the removal of exemptions included in the draft legislation that allowed timeshare promoters or wholesale advisers to be labelled as financial advisers or planners to be removed.

Currently these two groups are also considered as authorised representatives by the Australian Securities and Investments Commission (ASIC) and listed on ASIC’s Financial Adviser Register.

Professional Associations and Codes of Ethics

While the legislation has suggested the creation and adoption of a model code of ethics across multiple professions in financial services the FPA has stated such a code will be non-specific to cover the different professions in financial services and will also compete with profession specific codes of ethics that dictate professional practice for those professions.

The FPA also stated a single code will have no practical legitimacy unless it is developed and owned by financial advisers and may be a lower standard than that of professional associations and thus could not be supported by the associations or their members.

…a single code will have no practical legitimacy unless it is developed and owned by financial advisers and may be a lower standard than that of professional associations…

As such both the FPA and AFA have suggested existing professional body codes of ethics be recognised as equivalent as the proposed model code with the AFA recommending mandatory Professional Association membership and code subscription as well as the removal of Licensee Codes of Ethics

“Given the costs involved to establish, monitor and enforce compliance with the future framework, it will be more cost-effective to build scale through professional association membership than to develop other monitoring and enforcement bodies,” the AFA said.

Registration Exam

While both the FPA and AFA did not favour a registration exam they each stated that if one was introduced advisers who had achieved high levels of education and professionalism should be exempt from undertaking it.

The FPA stated a new education framework with a degree qualification, a professional year, ongoing Continuing Professional Development (CPD) and professional membership with a Code of Ethics would provide planners with the skills and competences more effectively than a one-off exam.

It added that requiring advisers to have both a bachelor level qualification and sit an exam within a 2-year timeframe was not acceptable or appropriate and advisers who had reached Certified Financial Planner status should be exempted from any examination.

The AFA held a similar but wider positon stating that advisers with a minimum of the equivalent of the Advanced Diploma of Financial Planning or higher, with no ASIC breaches, adverse FOS claims or breaches of professional association codes, ongoing CPD, professional association membership and at least six years in the last eight years as practising adviser should be exempt from sitting an exam.