Posted 16/11/2015 by Jola Olender
On 20 October 2015, the Australian Government released its response to the Financial System Inquiry (‘Murray Inquiry’). The Government agreed with the Murray Inquiry’s recommendation 25 that the minimum competency standards of financial advisers should be raised.
The Financial Planning Association (FPA) has raised concerns about whether the proposal will apply to current financial advisers, or solely apply to new financial advisers.
Current minimum education requirements
The current minimum education requirements for financial advisers are outlined in Table 1. The level of education required of financial advisers corresponds with the type of financial products that are advised on. Financial products are divided into two categories: tier 1 and tier 2 products.
Table 1: Summary of current educational requirements
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Financial Products
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Education Requirements
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Tier 1
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All financial products except those listed under Tier 2
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Broadly equivalent to the ‘Diploma’, level 5 under the Australian Qualifications Framework (AQF). No ongoing education requirements.
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Tier 2
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- General insurance products except for personal sickness and accident (travel insurance included)
- Consumer credit insurance
- Basic deposit products
- Non-cash payment products
- First Home Saver Account deposit accounts
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Broadly equivalent to the ‘Certificate III’, level 3 under the AQF. No ongoing education requirements.
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Source: Australian Securities and Investments Commission (ASIC), ‘Regulatory Guide 146: Licencing: Training of Financial Product Advisers’, July 2012, p. 20.
Government proposal
The Government agreed with the Murray Inquiry to raise the education requirement for financial advisers to a minimum of a ‘relevant tertiary degree’ and agreed that financial advisers should have ongoing professional development. The Government proposes that financial advisers will also need to:
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pass an exam
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undertake continuing professional development
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undertake a professional year and
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subscribe to a code of ethics.
These new standards are to be set by ‘an independent, industry funded body, which will be recognised in legislation’, which was not a recommendation made by the Murray Inquiry. The educational status of financial planners is intended to be published on the financial advisers register, which was a recommendation of the Murray Inquiry.
The proposals for standards are similar to the recommendations set out by the Parliamentary Joint Committee on Corporations and Financial Services inquiry into financial products and services in Australia (PJC Inquiry) which reported in November 2009. The PJC recommended establishing the Financial Professionals Education Council (FPEC), which would be funded and controlled by professional associations that have been approved by the Professional Standards Councils (PSC). The Rudd Government’s response to the PJC inquiry was to not support the establishment of the FPEC. The PJC Inquiry considered raising competency standards for financial advisers, noting that considerable evidence to the inquiry contended that minimum education requirements should be raised, while many others cautioned that raising these requirements would increase costs for consumers. The PJC Inquiry supported consultation by ASIC with industry to determine how to raise training and qualification standards, but did not specifically provide a recommendation in relation to education requirements.
Impact on existing advisers
Deakin Prime research suggests that about 75 per cent of current financial advisers do not have a relevant tertiary degree. ASIC’s 2014-15 Annual Report states that there were 22,548 financial advisers on the financial advisers register. If the Government’s proposals apply to existing planners, using this figure, potentially 16,911 advisers would need to gain the necessary qualifications. Only around 5,637 would hold the required minimum qualification.
The FPA offers the Certified Financial Planner® (CFP) certification, which requires a degree, or a person to be working towards finishing a degree, to enter the certification program. An October 2015 FPA brochure states that there are over 5,500 CFP certified financial advisers in Australia. These financial advisers would likely meet the Government’s proposed minimum education level.
As yet, there is no indication of how the Government’s proposals will apply to current financial advisers. Additionally, it is unclear whether the increased education requirements will only apply to advisers providing advice on tier 1 financial products, or to advisors providing advice on both tiers of financial products. The Murray Inquiry recommended that the education level should only be increased for those advising on tier 1 financial products.
There is also no information as yet on the composition of the proposed standard-setting body and how existing associations will be affected. Currently there are a number of associations that financial advisers can subscribe to, such as the FPA, the Association of Financial Advisers, Certified Practicing Accountants Australia, the Institute of Chartered Accountants, the National Insurance Brokers Association and the Stockbrokers Association of Australia. Membership of these associations is voluntary, with each having its own code of ethics. It is uncertain whether the Government’s proposed code of ethics will be separate to the existing codes of these bodies, a combination of these codes, or one that is approved by the PSC.