The Financial Adviser Standards and Ethics Authority (FASEA) released its Proposed Guidance on Education Pathways for Existing Advisers based on new minimum standards announced by the Federal Government in 2017.
We applaud the proposed changes for a significant lift in education standards, a reform for which we have been campaigning for some 25 years.
It is important to clarify that the absurdly low standard that existed prior to this reform was the edict of the Government who ignored pleas from professional associations like the Financial Planning Association of Australia (FPA), and individual financial planning firms like Hewison Private Wealth.
While some sectors of the financial services sector have recently been exposed for their disgraceful behaviour by the Hayne Royal Commission, there are many financial planning firms who are committed to a fiduciary duty to protect their clients' interests and maintain high levels of education standards and ethical behaviour.
Looking at the FASEA proposals I feel it is important to highlight that this is not an evolutionary development. There have been high education standards present in the financial advice profession for over 20 years in this country; Australia is seen global leader in this regard. For example, the CFP designation has been available in Australia since 1992 and has consisted of a rigorous course of study set at Masters level.
By way of using our firm Hewison Private Wealth as a case study, our minimum adviser standard via our Graduate Mentoring Program was established in 1997. This consists of recruiting candidates with an appropriate commerce or business degree, entering a 3-5 year program during which they are required to complete a graduate diploma or Master's degree in financial planning, followed by the completion of CFP professional program and the SMSF Association's SMSF Specialist Adviser program. They are also mentored by our senior advisers in the areas of ethics, professional standards, relationship management, written and personal communication skills and general personal development.
Whilst our associate advisers will have client contact during their internship, we do not recognise them as authorised to give advice until all aspects of their education have been completed and we are satisfied that they have developed the skills to advise clients in a professional manner.
In evaluating the FASEA guidance, at this point there is no recognition of the CFP certification which I think needs to be addressed as many quality advisers in Australia see this as the pinnacle education standard, which for some time has also had a minimum degree entry standard.
For over 25 years, there has been a requirement for members of the FPA and later as a license condition, for financial advisers to complete minimum number of hours of accredited Continuing Professional Development (CPD).
We have heard it suggested by some that CPD consists of attending conferences which have little educational value. But the reality is that most professionally qualified financial advisers spend countless hours studying legislative and regulatory change, maintaining currency with tax and superannuation laws, researching latest strategic trends and opportunities for their clients and studying investment market research. The structure of the CPD requirement ensures that all areas of competence and ethics are properly covered. However, there does not seem to be any recognition of this important element in the FASEA paper.
There is a proposal to require every financial adviser to complete an annual competency exam. To be frank, to test competency adequately via this avenue is unlikely to achieve the desired outcome. I would encourage FASEA to stay with the CPD model but ensure the accreditation of CPD programs is robust.
There are two missing elements in the FASEA paper in my opinion. The first is mentoring where an adviser receives adequate experience and guidance in learning how to become a professional adviser. Education alone will not achieve this outcome. The second is to audit where financial planning practices and practitioners have their advice and their processes audited on a user-pays biennial basis.
We have held a securities dealers/Australian Financial Services licence for around 25 years and have never been audited by ASIC. We are required to have an annual financial audit but we voluntarily engage an annual compliance audit at our own cost and volition to ensure we are achieving the appropriate compliance standards. I feel this should be the minimum standard.
After years of lobbying, negotiating, shouting and campaigning, we are delighted to finally see the acceptance of the need for appropriate professional standards. But let us not throw the baby out with the bath water, and embrace the good work and ethical practices that have already been established over many years.