We're one month into the creation of a whole new generation of financial advisers, explains Zoe Fielding.
The start of 2019 marked the beginning of a new era in financial advice. From now on, education levels will rise and advisers will be held to higher ethical standards.
Meeting these Financial Adviser Standards and Ethics Authority’s requirements – that will continue to phase in until the start of 2024 – will be a burden for individual advisers and for bigger advice businesses that will need to take action.
Under new requirements this year, all new financial advisers must now:
- have a relevant bachelor or higher degree, or equivalent qualification
- pass an exam
- complete a year of work and training (professional year).
And all advisers must:
- meet continuing professional development requirements each year.
From January 1, 2019, only relevant providers who meet these standards are able to call themselves a 'financial adviser' or 'financial planner' or similar terms.
Some licensees are only now realising the scope of their own role in seeing advisers meet some of these requirements, says Brian Knight, chief executive officer of education provider Kaplan Professional.
Continuing professional development
For example, FASEA’s continuing professional development requirements took effect on January 1, but Knight says some licensees still underestimate what they’ll have to do to support their advisers in meeting them.
The FASEA standards for CPD are more prescriptive than previous rules. Advisers will have to complete 40 hours of CPD each year, with minimums in four categories:
- client care and practice
- regulatory compliance and consumer protection
- professionalism and ethics.
“One of the biggest challenges for licensees with CPD is to balance the FASEA obligations with their other obligations to make sure advisers stay competent and up to date,” Knight says.
For example, FASEA rules require five hours of technical competence, but this may be insufficient for specialists needing to maintain skills and knowledge, he says.
Licensees need to document CPD policies and plans by March 31 this year.
Taking a practical approach, RI Advice Group chief executive Peter Ornsby says advisers in his network will be able to accrue most of their CPD hours by attending professional development days and national conferences.
The licensee has already reviewed its annual training calendar and updated the sessions offered to align with the new learning requirements.
Stricter requirements will force licensees to undertake more rigorous due-diligence checks on advisers joining their networks. Ornsby lists four key criteria RI Advice will use in recruiting advisers:
- that they meet the requirements of the Australian Financial Service License in qualifications
- that files brought by the adviser to the new firm are “clean” and meet the standards of the new network
- their quality of advice to clients must be analysed
- the type of products they invested clients in must be reviewed.
Competition for talented advisers is likely to increase in the coming years with up to one third of existing advisers expected to leave the sector rather than meet the education standards by 2024.
With higher barriers to entry, fewer people are expected to become advisers in the short term. In addition to holding tertiary qualifications, new entrants must now complete a professional year before they can practice.
This professional year must include 1500 hours of supervised practical work experience plus 100 hours of formal training.
In the first two quarters of their first year, the trainee adviser will observe client interactions, shadow experienced advisers, and complete administrative tasks under direct supervision.
They must pass the FASEA exam before moving into the third quarter, after which they can work with indirect supervision. Each trainee needs a written professional year plan and must log their activities.
The licensee is responsible for ensuring new entrants are appropriately supervised, Knight says. Licensees will need to supervise the supervisors, and teach them how to perform their role and mentor trainees.
“Dealer groups are going to have a huge responsibility in selecting supervisors … the consequences of that supervisor not getting it right are massive,” he says.
Sophie Gerber, director of compliance consultancy Sophie Grace, expects the financial-planning sector to follow the lead of other professions.
“My view is that the professional year will end up being like what doctors, lawyers and accountants have to do,” she explains.
Advice groups must also review their approach to compliance. The FASEA code of ethics becomes mandatory from January 1 next year.
Six professional associations covering the financial-advice sector have agreed to join forces to monitor and enforce compliance with the code. This includes the Financial Planning Association and the Association of Financial Advisers. A central role in approval of compliance schemes will be held by the Australian Securities and Investments Commission.
“Ethics comes down to different values and it’s important the industry has a common way of supervising and monitoring the code of ethics,” Ornsby says.
Licensees will have to ensure their advisers have signed up to a code-monitoring body and make sure advisers are equipped, through training, to comply. They’ll also have to build checks on ethics into their compliance audit systems.
Exams and qualifications
In addition to such compliance systems, licensees will need to support all existing advisers to pass the FASEA exam by January 1, 2021, and upgrade their qualifications by January 1, 2024.
“We will have a role in helping advisers to prepare by providing learning and development resources,” Ornsby says. “It's making sure that the advisers are not doing it alone.”
Licensees can bring advisers together to study in groups and sit practice exams. They can provide access to legal and compliance specialists to answer questions.
Licensees can also help advisers to balance their study and business commitments to ensure the transition is smooth and clients stay satisfied through the process.
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