This inquiry has been undertaken by the committee during a
period of significant change and scrutiny of the financial advice industry. The
committee wishes to emphasise that while increasing the professional, ethical
and education standards applied to financial advisers is only one of a range of
measures required to protect consumers, it is an important defence mechanism to
help reduce the risk of failure in the broader system.
The committee's recommended approach includes:
- clarifying who can provide financial advice by protecting the
title and function;
-
improving the qualifications and competence of financial advisers;
-
enhancing professional standards and ethics; and
-
implementing transitional arrangements.
Clarifying who can provide financial advice
As set out in Chapter 2 of this report, the committee is
proposing to clarify who can provide financial advice, through measures such as
protecting titles and clarifying what is financial advice and what is sales
information. The committee is recommending in recommendations 1 to 4 that:
-
the term 'general advice' would be replaced by the term 'product
sales information' which more closely reflects the nature of the information that
is currently given to the consumer under the term 'general advice';
-
the term 'personal advice' in the Corporations Act 2001 be
replaced with 'financial advice';
-
an individual must be registered as a financial adviser in order
to provide 'financial advice'; and
-
the government should bring forward legislation to protect the
titles 'financial adviser' and 'financial planner' and require that to be eligible
to use the title 'financial adviser', an individual must be registered as a
financial adviser.
The committee considers that the government register of
financial advisers is an important step forward. The committee supports the use
of all the information fields detailed in the government's announcement of the
register on 24 October 2014. In addition, the committee is recommending
further enhancements to the register in recommendation 5 to ensure that only
suitably qualified and competent financial advisers are allowed to provide
financial advice.
Improving the qualifications and competence of financial
advisers
In Chapter 3 of this report,
the committee considers improvements to the qualifications and competence of
financial advisers. The committee supports the findings of previous
reviews that there should be an independent body established to set and monitor
the educational framework that applies to financial advisers. The committee
recommends in recommendation 10 that the professional associations establish an
independent Finance Professionals' Education Council that:
- is controlled and funded by professional associations which have
been approved by the Professional Standards Councils (PSC);
- comprises a representative from each professional association
(which has been approved by the Professional Standards Councils), an agreed
number of academics, at least one consumer advocate, preferably two who
represent different sectors and an ethicist;
- receives advice from ASIC about local and international trends
and best practices to inform ongoing curriculum review;
- sets curriculum requirements at the Australian Qualifications
Framework level seven standard for core subjects and sector specific subjects
(e.g. Self Managed Superannuation Fund services, financial advice, risk, insurance
or markets);
- develops a standardised framework and standards for the graduate
professional year to be administered by professional associations;
- develops and administers through an external, independent
invigilator a registration exam at the end of the professional year; and
- establishes and maintains the professional pathway for financial
advisers including recognised prior learning provisions and continuing
professional development.
Education is just one element of the wider system and should be
considered across the whole of career of a financial adviser, with the
professional pathway that spans undergraduate, graduate and professional stages
as shown in Figure 1 below. Professional associations can elect to provide even
higher levels of qualifications in the professional stage if they see fit.
Figure 1: Professional
pathway for a financial adviser
The committee is also recommending, in recommendations 7 to 9 improvements
to education standards, assessment of competence through a structured
professional year with assessed elements followed by a registration exam, and
requirements for professional development as follows:
-
the mandatory minimum educational standard for financial advisers
should be increased to a degree qualification at Australian Qualification
Framework level seven;
-
following the transition period, ASIC should only list a
financial adviser on the register when they have:
-
satisfactorily completed a structured professional year and
passed the assessed components; and
-
passed a registration exam set by the Finance Professionals'
Education Council and administered by an independent invigilator.
-
the government should require mandatory ongoing professional
development for financial advisers that:
-
is set by their professional association in accordance with
Professional Standards Councils requirements; and
-
achieves a level of cross industry standardisation recommended by
the Finance Professionals' Education Council.
Enhancing professional standards and ethics
Professional standards and ethical conduct are also essential
elements of the system as discussed in Chapter 4 of this report. The committee
observes that requiring adherence to a code of ethics through membership of a
professional association may put some cost pressure on industry bodies and
industry participants. From the evidence received in this inquiry, industry
participants and bodies generally acknowledge that those resulting cost and
competition pressures are outweighed by the benefits of adopting codes of ethics
to enhance professional and ethical standards. The committee therefore
recommends in recommendation 11 that professional associations be required to
established codes of ethics which are compliant with a Professional Standards
Scheme under the Professional Standards Councils.
In order to link professional and ethical standards to the
register of financial advisers, the committee is also recommending in
recommendations 12 and 13 that:
-
professional associations that wish to have representation on the
Finance Professionals' Education Council and to be able to make recommendations
to ASIC regarding the registration of financial advisers should be required to
establish Professional Standards Schemes under the Professional Standards
Councils within three years:
-
the committee suggests that ASIC would act to suspend or ban a
financial adviser on the advice of the professional association that the
individual concerned has not complied with ongoing professional development
requirements or has breached the code of ethics; and
-
any individual wishing to provide financial advice be required to
be a member of a professional association that is operating under a
Professional Standards Scheme approved by the Professional Standards Councils
and to meet their educational, professional year and registration exam
requirements.
All parts of the system need to be operating effectively to
provide appropriate safeguards for consumers and investors while allowing
efficiency, innovation and growth within the industry. The committee is
therefore proposing the approach set out in Figure 2 which brings together
recommendations from this inquiry. The figure demonstrates:
-
ASIC's role in establishing managing the register of financial
advisers as already announced by the government with the changes recommended in
Chapter 2;
-
the role of education providers and the Financial Professionals'
Education Council and its professional sub-sector panels as recommended in
Chapter 3;
-
the role of professional associations in delivering professional
and ethical standards under the oversight of the Professional Standards
Councils as recommended in Chapter 4; and
-
the role of AFS licensees in managing licence obligations.
Figure 2: Financial advice education stakeholder
relationships
Transitional arrangements
The committee is firmly of the view that swift and decisive
action is required in order to raise the professional, ethical and education
standards of financial advisers. Bearing that in mind, the committee has
proposed the transitional arrangements set out in the table below.
Transitional arrangements and timeframes
|
Date
|
Provisional registration (available to existing financial
advisers from the implementation of the proposed government register until 1
Jan 2019 to address the goal of transparency)
|
Mar 2015
|
Finance Professionals’ Education Council (FPEC) established
|
1 Jul 2015
|
FPEC releases AQF-7 education standards for core and
professional stream subjects
|
Jun 2016
|
Establishment of codes of ethics compliant with
Professional Standards Scheme guidelines
|
Jul 2016
|
FPEC approved AQF-7 courses available to commence
|
Jan 2017
|
FPEC releases recognised prior learning framework (dealing
with existing advisers and undergraduates who commence AQF-7 courses prior to
Feb 2017)
|
Jul 2016
|
FPEC releases professional year requirements including a
recognised prior learning framework for existing advisers
|
Jul 2016
|
Professional associations operating under PSC Professional
Standards Schemes
|
1 Jan 2017
|
Target date for existing financial advisers to qualify for
full registration
|
1 Jan 2018
|
Cut-off date for full registration – provisional
registration no longer available
|
1 Jan 2019
|
The committee notes that its recommended approach does not
create new government or regulatory entities, but instead uses the existing
functions of the Professional Standards Councils and expands the membership and
function of an existing industry led and funded council that sets educational
standards. The approach complements measures already announced by government,
including the register of advisers and addresses the concerns identified by
stakeholders during the inquiry.
Navigation: Previous Page | Contents | Next Page