Qualifications and competence
3.1
This chapter discusses current qualification requirements, proposals to
lift the education standards and qualifications of financial advisers,
assessment of knowledge and competence, and continuing professional development.
In considering various proposals, the committee has focussed on personal advice
for Tier 1 financial products.[1]
Current regulatory requirements
3.2
The committee received significant evidence during the inquiry calling
for the qualifications of financial advisers to be increased as a way of
improving the standard of advice provided to consumers. Evidence was also
received to indicate that strong consideration should be given to creating a
framework to mandate ongoing professional development.
3.3
The committee has considered relevant recommendations from the
final report of the FSI. The final report noted that:
Consumers should have the freedom to take financial risks and
bear the consequences of these risks. However, the Inquiry is concerned that
consumers are taking risks they might not have taken if they were well informed
or better advised.[2]
3.4
As discussed
in Chapter 1, the final report of the FSI recommended that standards of
financial advice should be improved by lifting adviser competency
(Recommendation 25) and better aligning the interests of firms and consumers
and enhancing banning powers (Recommendation 24).
3.5
Through its submission, ASIC informed the committee about current
regulatory requirements, which include:
-
the overriding obligation in the law on Australian Financial
Service (AFS) licensees to ensure they and their representatives are adequately
trained and competent to provide financial advice; and
-
that all advisers must, as a matter of law, comply with these
training standards unless they fall within certain limited exceptions.
3.6
The Corporations Act 2001 requires AFS licensees to:
-
comply with the conditions on their AFS licence (s912A(1)(b));
-
maintain competence to provide the financial services covered by
their licence (s912A(1)(e)); and
-
ensure that their representatives are adequately trained and
competent to provide those financial services (s912A(1)(f)).[3]
3.7
Regulatory Guide 146 Licensing: Training of financial product
advisers (RG 146) sets out ASIC’s guidance on the minimum training
standards for financial advisers and how advisers can meet these training
standards.[4]
3.8
The requirements in RG 146 include the following:
- Educational level requirements: to give advice in relation
to Tier 1 products an individual must have the equivalent of a diploma under
the Australian Qualifications Framework (AQF). The level of education currently
required to provide advice on Tier 2 products is broadly equivalent to a
Certificate III under the AQF. These requirements apply for both general and personal
advice.[5]
- Knowledge requirements: All financial advisers providing
financial product advice to clients must have specialist knowledge about the
specific products they provide advice on and the markets in which they operate.
Any financial adviser who advises on Tier 1 products must also satisfy a
generic knowledge requirement, which includes training on the economic
environment, operation of financial markets and financial products.[6]
- Skill requirements: If the financial adviser provides
personal advice they must also meet the skill requirements. As the level and
type of skill varies so much for general advice, RG 146 has not mandated the
skill requirements for financial advisers who only provide general advice.[7]
- Monitoring, supervision and Continuing Professional Development
(CPD): RG 146 does not prescribe any period during which new entrants
to the industry must be supervised and there is no prescribed quantum of
continuing professional development. Instead, AFS licensees are required to
nominate an appropriate quantum for CPD, based on a financial adviser’s
activities and experience.[8]
3.9
The Department of the Treasury explained the relationship between the
requirements in the Corporations Act 2001, the regulatory guides and the
responsibilities of the AFS licensees:
The regulatory regime in Australia...requires licensees to
fulfil certain obligations, including taking reasonable steps to ensure that
its representatives comply with laws; that licensees provide efficient, honest
and fair financial services; and that they also ensure that their representatives
are adequately trained and competent to provide financial services...ASIC in
enforcing laws provides regulatory guidance to the industry to set out how it
might view what is adequate training...They provide additional information for
licensees for them to be able to comply with the law.[9]
Concerns about RG 146
3.10
Evidence put to the committee during the inquiry indicates that there is
a high degree of concern that RG 146 does not deliver appropriate standards. The committee
received submissions and oral evidence during hearings that was critical of the
RG 146 requirements[10]
and the varying standards of compliance.[11]
The potential for RG 146 requirements to be met through completion of a
short training course, possibly only requiring a few hours of study, was a
common concern.[12]
The committee was informed that while the training requirements for financial
advisers can be met in three days, the training requirements for professions
such as engineers, lawyers, accountants, doctors and dentists range upwards
from three years.[13]
3.11
ASIC submitted that in its view, there are numerous and fragmented
approaches to interpreting and implementing the requirements in RG 146, and that
training courses vary significantly in terms of content and quality. ASIC also advised
that there is no consistent measure of financial adviser competence.[14]
3.12
The FPA submitted that the training obligations in RG 146 are based on
the definition of financial product advice in the Corporations Act 2001 and
therefore are focused on training on financial products, rather than building
competencies in providing financial advice. In addition, the FPA informed the
committee that there are problems with how the training is delivered, and that
the requirements of RG 146 may not be keeping up with changing markets.[15]
3.13
FINSIA submitted that in its view, RG 146 lists topics that any training
program should cover, yet it does not specify the volume or complexity
of the coverage required.[16]
The Finance Sector Union of Australia (FSU) conducted a survey of 29 financial
planners, which found that 22 out of the 29 financial planners surveyed did not
consider RG 146 to be a satisfactory qualification.[17]
3.14
The FSU also submitted that:
Currently RG 146 places the onus on licensees to implement
policies and procedures to ensure they and their advisers undertake continuing
training. These policies and procedures can vary from organisation to
organisation and inherently create standards that are inconsistent across the
nation.
While there may be localised value in creating these at an
organisational level, creating national requirements and expectations removes
any localised interpretation and facilitates national enforceable standards
consumers can refer to.[18]
3.15
Dr Deen Sanders, Chief Executive Officer of the Professional Standards
Councils informed the committee that:
...before the Corporations Act was introduced there were at the
time six providers of qualifications in financial services. Six months after
the Corporations Act and RG 146...was introduced there were 432 providers,
including ex-hairdressing colleges, who saw the opportunity. This is the
challenge that emerges in education: introducing wholesale, industrywide change
just tends to lead to a massive flight to the bottom and increased competition
in providers.[19]
Proposals to lift standards of training
3.16
This section outlines proposals for improved training standards for
financial advisers. The discussion notes proposals developed in response to the
committee's 2009 inquiry into financial products and services, and proposals by
ASIC and others to the current inquiry.
Proposals prior to this inquiry
3.17
In 2009 the committee conducted an inquiry into financial products and
services in Australia. During that inquiry, ASIC raised concerns about the
training and competency of financial advisers.[20]
The inquiry noted a considerable amount of evidence to suggest that improved training
standards for financial advisers were required,[21]
and recommended that:
...ASIC immediately begin consultation with the financial
services industry on the establishment of an independent, industry-based
professional standards board to oversee nomenclature, and competence and
conduct standards for financial advisers.[22]
3.18
The government response to the 2009 inquiry included a proposal to
establish an expert advisory panel to review training standards and professional
standards in the financial advice industry. In November 2010 an Advisory Panel
on Standards and Ethics for Financial Advisers was established and in 2011 the
advisory panel made recommendations for the introduction of a new governance
framework for improving training, professional and ethical standards in the
financial advice industry.[23]
3.19
In 2011, ASIC published the findings of a consultation process in
Consultation Paper 153 Licensing: Assessment and professional development
framework for financial advisers (CP 153). CP 153 proposed introducing a
mandatory examination for financial advisers, as well as a requirement for
advisers to complete regular knowledge updates. The committee understands that work
on the CP 153 proposals was put on hold to enable industry to implement
the FOFA reforms.[24]
3.20
In 2013, ASIC published findings of a separate consultation process in
Consultation Paper 212 Licensing: Training of financial product
advisers—Update to RG 146 (CP 212). CP 212 proposed raising the level of
the training standards for financial advisers, to the knowledge and skill requirements
in RG 146 and increasing the educational levels for those providing financial
advice on both Tier 1 and Tier 2 financial products.[25]
3.21
The proposals in CP 153 and CP 212 were supported by broad-based advice
AFS licensees, consumer bodies and training organisations, while industry
bodies, insurance groups and stockbrokers raised concerns including:
-
that an examination was not a sufficiently sophisticated mechanism
for assessing competence;
-
the level of educational requirements;
-
the staged implementation process and grandfathering provisions;
and
-
costs to implement the proposed changes.[26]
ASIC's proposal
3.22
In its submission to this inquiry ASIC indicated that it had revised its
proposals for mandatory higher training standards for financial advisers in
response to comments made in relation to CP 212 and market developments. ASIC's
revised proposal for training standards is set out in Box 1 below and includes
training standards, assessment of competence and continuing professional
development. [27]
Box 1: ASIC's proposals for training standards
The educational level requirements for all financial advisers who provide personal advice
on Tier 1 products to retail clients should be increased. This includes financial planners
working in planning businesses and superannuation funds. It also includes stockbrokers.
From 1 July 2016, when accountants are required to hold a limited AFS licence, it would
also apply to accountants.
The mandatory minimum training standard should increase to a minimum degree
qualification in a relevant field. Relevant fields include financial planning, finance,
business, accounting or commerce, and that any relevant degree should cover the
knowledge and skills identified in CP 212.
This is a greater increase than the proposals ASIC consulted on in CP 212, which
supported an increase to degree-level qualifications (but not a full degree in a particular
field) for personal advice on Tier 1 products to retail clients. This level of education better
reflects the knowledge and skill requirements that financial advisers need to provide
competent personal advice on Tier 1 products to retail clients.
While a degree qualification would impose increased initial costs on financial advisers,
this would be consistent with the expectations of the community that advisers are
professionals. It should also, in combination with other efforts to increase ethics and
professional standards for financial advisers, result in better quality advice.
There would need to be an appropriate transition period for the introduction of increased
educational level requirements to allow time for courses to be developed, although we
note that there are a number of higher education courses already in the market.
Consideration also needs to be given to whether existing financial advisers should be
required to meet any increased minimum training standards.
ASIC, Submission 25, p.
22.
Other proposals and views
3.23
This section outlines other proposals and views on training standards
for financial advisers. Many submitters supported proposals to require a degree
qualification (AQF level seven) for financial advisers providing Tier 1
financial advice.[28]
3.24
In 2010 the FPA announced a requirement that all new members hold an
approved degree. The FPA also recommended that from January 2018 new financial
planners and financial advisers hold an approved degree to be eligible to
provide Tier 1 financial advice and have experience equivalent to one full
year within the last three years.[29]
The FPA set out proposals for curriculum requirements, including:
-
a minimum degree program (AQF level seven);
-
covering eight core knowledge areas each as discrete units of
study;
-
the equivalent of approximately 39 hours of contact time and
120 hours of non-contact time for each of at least the 8 core FPEC
subjects; and
-
assessment undertaken at a minimum AQF level seven.[30]
3.25
CPA Australia and Chartered Accountants Australia and New Zealand agree that
there are important benefits to increasing the requirements to degree level,
including that advisers would:
-
have broad, theoretical, technical and coherent knowledge as well
as the skills for professional work, rather than paraprofessional;
-
learn the skills to not only analyse but evaluate information;
-
have the skills to analyse, generate and transmit solutions to
unpredictable and sometimes complex problems; and
-
be able to communicate their knowledge, skills and ideas to
others.[31]
3.26
CPA Australia and Chartered Accountants Australia and New Zealand
suggested that in their view financial advice has a broader scope than
financial product advice and recommended that 'a comprehensive review is
undertaken to identify the knowledge and skills required to become a holistic
financial adviser.'[32]
They also called for findings from such a review to be a basis for a new
curriculum.[33]
3.27
Mr Robert Brown supported the introduction of a degree level
qualification for financial advisers and noted that this had been implemented
successfully in other professions such as the Chartered Accountants program,
which requires an appropriate undergraduate degree (not necessarily in
accounting), followed by an intensive diploma-style course in accounting
related disciplines.[34]
3.28
SPAA emphasised the difference between undertaking a complete degree and
completing separate units taken from an AQF level seven course, and called for
the introduction of a requirement that financial advisers have degree-level
qualifications:
SPAA believes it should be recognised that undertaking units
of study at AQF Level [seven] Bachelor Degree level is different to undertaking
an entire Bachelor degree. Undertaking a Bachelor degree is a cumulative,
knowledge building process in a particular area that allows a student to build
an in-depth understanding of a subject area as well as cumulatively improve
their ability to analyse and explain a subject. This is quite different to the
skills based training that the current RG 146 has embodied.[35]
3.29
The FPA informed the committee that 17 universities already offer
financial planning degrees, however the uptake of this degree is limited
because some employers only require completion of RG 146 which is a diploma
level qualification.[36]
3.30
ASIC and the FPA noted announcements by large AFS licensees regarding changes
to the training standards, including degree requirements and Certified
Financial Planner designations for their financial advisers.[37]
However, ASIC noted that the announcements, if implemented, will not completely
address the inadequacy of financial adviser training standards because:
-
the announced changes are voluntary;
-
the proposed higher training standards differ from licensee to
licensee;
-
the higher training standards do not cover the whole financial
advice industry;
-
the new arrangements involve extensive grandfathering provisions;
and
-
it is not clear how compliance with the announced higher
standards will be monitored and enforced.[38]
3.31
The Association of Financial Advisers (AFA) supported the introduction
of a degree level qualification for new financial advisers entering the
profession from December 2019. However, the AFA suggested that such a goal
may be difficult to achieve in the short term.[39]
3.32
The committee also notes evidence from submitters and witnesses that did
not support the introduction of a degree level qualification. Axiom argued that
a degree level qualification is theoretical and limited in relevance. Axiom did
not support the introduction of a degree level qualification.[40] Mr Peter Corrie argued that existing
educational requirements were adequate as, in his view, the percentage of
advisers involved with complaints or malpractice was low.[41]
3.33
FINSIA argued against a specific financial planning degree or vocational
diploma as they consider these specific qualifications would exclude those
wishing to move into the sector from other disciplines.[42]
There are not many entry-level adviser positions existing...it
is largely a career change and postgraduate degree. Financial services
providers, particularly the larger ones, will draw upon people who have
pre-existing financial services knowledge. They may have worked in a contact
centre at a bank or in a different sort of role. They may be progressed through
a para-planner type strategy before they move into a client-facing role.[43]
3.34
Mr Paul Moran informed the committee that he had similar concerns:
It should not be raised to a degree level...People who come
into financial planning tend to come in slightly older and one of the issues
with the undergraduate program that has been started is that no-one is
enrolling and a lot of the courses have been stopped. People are realising that
if they do an undergraduate degree in financial planning at 21 years, what
then? Where do I get a job as a financial planner?[44]
3.35
Instead of a degree level qualification, FINSIA proposed the following options,
both of which could be tested by a national exam:
-
A specific undergraduate degree (e.g. in finance, economics or
financial planning) and adherence to an accreditation framework, the latter
combined with two to five years of relevant experience; or
-
A non-specific undergraduate degree and adherence to an
accreditation framework, the latter combined with two to five years of supervised
mentoring by an employer.[45]
Committee view
3.36
The committee considers that little progress has been made to improve
the training standards of financial advisers since the committee's previous inquiry
and report in 2009. The committee accepts the view expressed by a number of
submitters and witnesses that increasing minimum training requirements are
insufficient on their own to comprehensively improve consumer outcomes.
However, the committee maintains that a suitable standard of education is an
important element in the system of defences.
3.37
The majority of evidence received by the committee in the current
inquiry supports raising the minimum training standard to a relevant AQF level
seven degree for financial advisers providing personal advice on Tier 1
financial products. 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 (discussed in more
detail in the section on the Finance Professionals' Education Council later in
this chapter).
3.38
The committee view is that this body should oversee not just the initial
education requirement to an AQF level seven standard, but also the competence
and theory requirements of a professional year. The professional year would be
administered by a relevant professional association.
3.39
An exam, to be set by Finance Professionals' Education Council, or FPEC,
would be the final threshold test prior to registration as a financial adviser.
This view is discussed in more detail in the next section of this chapter.
3.40
The committee notes the work undertaken by ASIC identified in CP 212 and
recognises that there will be relevant fields of study (such as financial
planning, finance, business, accounting or commerce) that may be common across the
various professional sectors involved in the financial services industry.
3.41
The committee's view is that the Finance Professionals' Education
Council should set core subjects to be undertaken by all students, and on
advice from the constituent professional associations, set sector specific
subjects that a student can choose to complete if they wish to become a member
of that particular professional group. As a minimum, the FPEC is likely to have
sub-panels working on the educational requirements for professional streams
including: financial planning, SMSF, insurance/risk and markets. The core and
sector specific subjects set by FPEC should cover both AQF level seven
education standards and the professional year to be administered by the
professional associations.
Recommendation 7
3.42
The committee recommends that:
- the mandatory minimum educational standard for financial
advisers should be increased to a degree qualification at Australian Qualification
Framework level seven; and
- a Finance Professionals' Education Council should set the core
and sector specific requirements for Australian Qualifications Framework level
seven courses.
Assessment of competence
3.43
This section outlines proposals for assessing the competence of
financial advisers. ASIC's proposal for a national exam, as well as other
proposals and views put to the committee during the inquiry are considered.
ASIC's proposal
3.44
A national exam to assess competence and deliver compliance with minimum
standards was proposed by ASIC. In its submission to the inquiry, ASIC argued that
in the past there have been significant issues with the consistency of training
and assessment and that a national exam is the most objective and efficient way
of assessing whether financial advisers can demonstrate competence and meet the
standards required of them. ASIC advised that implementation of this proposal
would require law reform and funding.[46]
Other proposals and views
3.45
Many submitters and witnesses supported the implementation of a national
exam.[47]
FINSIA noted that a national exam would ensure all participants would have to
meet the same technical knowledge benchmark.[48]
It was also noted that the national exam could be implemented more quickly than
other education requirements.[49]
3.46
The Superannuation Consumers' Centre advocated minimum entry level
standards in the form of a university degree combined with specialised learning
which would be assessed through specialist accreditation standards.[50]
3.47
CHOICE informed the committee of the advantages of requiring both the
degree and national exam:
We see an exam as a first step within a process. It is
something that can be set up relatively quickly compared to a long phasing in
of bachelor degree requirements and continuing professional development—all of
that infrastructure that needs to be developed to lift education and
qualification standards.[51]
3.48
Industry Super Australia and the Australian Institute of Superannuation
Trustees informed the committee that a national exam for financial advisers is
in place in the United States, the United Kingdom, Canada, Singapore and Hong
Kong.[52]
This was confirmed by ASIC's submission which noted that:
-
in the United States, to be a general securities representative,
a person must pass the Financial Regulatory Authority’s Series 7 examination;
-
in Canada, registered representatives dealing with retail
customers must complete an examination that is administered by the Canadian
Securities Institute;
-
in Hong Kong, a representative must pass an examination that is
administered by the Hong Kong Securities Institute.[53]
3.49
Some submitters and witnesses did not support a national exam on the
basis that it is not a suitable way of assessing practical competency in the
workplace.[54]
CPA Australia expressed concern that while exams might be an objective
method to ensure that advisers can demonstrate a minimum level of knowledge, an
exam will not ensure that a financial adviser has the combination of knowledge
and skills required to provide quality financial advice.[55]
3.50
Several submitters and witness raised concerns about the rigor of some
exam formats and argued for independently assessed, well-structured exams with
a mixture of multiple choice, long form answer and case study questions.[56]
3.51
The FPA did not support a national exam and submitted that in its view,
a national exam would not be required if a degree level qualification and an
education framework were implemented.[57]
Committee view
3.52
The committee recognises the value of a national standard being set
through the requirement that all financial advisers undertake a common exam.
While a valid and useful defence in the system, the committee does not believe
that an exam by itself is sufficient to drive ethical application of the
knowledge obtained through study. The committee view supports the contention
that competent and ethical application of knowledge and professional behaviours
is best developed via a structured mentoring program. The need for FPEC to allow for current participants in the industry to
have their knowledge and experience recognised through a process of Recognition
of Prior Learning is discussed further in this report at paragraphs 3.94 and
3.95.
3.53
The committee supports the concept of a professional year administered
by a recognised professional association in accordance with the requirements
established by the FPEC and in cooperation with the AFS licence holder. The
formal assessment of professional year outcomes undertaken by the professional
association would be complemented by an exam set by the FPEC and then conducted
at the end of the professional year.
3.54
The committee view is that the FPEC would be best placed to:
-
set parameters for a structured professional year that enables
professional associations to conduct both mentoring and assessment of
competence in a range of specified areas;
-
set an exam to assess theoretical and applied knowledge which
must be passed prior to a professional association recommending to ASIC that an
adviser be registered; and
-
select and monitor the work of external invigilators to
administer the exam.
3.55
The committee considers that FPEC would be best placed to establish a
policy on the setting and conduct of the exam, including a policy on
re-examination options available to an individual who fails to pass at their
first attempt. The committee also notes that the proposal to assess financial
adviser competence through a national exam was supported by many submissions
and witnesses to the committee's inquiry. The committee also notes that the
final report of the FSI did not recommend a national exam for advisers, however
the FSI suggested an exam could be considered if issues of adviser competency
persist.[58]
The committee considers that issues with financial adviser competence and
standards have been allowed to remain unresolved for too long and that a
comprehensive system of defences, including an exam, are warranted. The committee
has noted that an exam is part of the regulatory regime in a number of
comparable jurisdictions and therefore offers a precedent in the Australian
context.
3.56
Concerns were raised during the inquiry about the rigor of exams and the
integrity of the process and conditions under which they are conducted.
The committee observes that in other regulated sectors such as aviation and
maritime licencing, as well as some universities, exam invigilators are used to
ensure that exams are conducted in a rigorous way.
3.57
The Civil Aviation Safety Authority (CASA) has approved invigilators to
oversee aviation exams. The exams are presented on the approved invigilator's
computer that is stored in a secure examination room. The invigilator is
restricted to the functions of examination administration and supervision of
the examination sitting. The invigilator must not provide technical advice on
the examination.[59]
3.58
The Australian Maritime College also uses invigilators to supervise
examinations. Their role does not include marking papers or providing advice to
candidates about their performance. In addition, the invigilators do not have
access to the examination answers and do not retain copies of the questions.
This approach is designed to minimise the possibility of misconduct by
invigilators and is intended to be consistent with current practices of most
educational institutions in regard to invigilators.[60]
3.59
The committee view is that successful completion of the exam should be a
prerequisite for the professional association to make the recommendation to
ASIC that a financial adviser be listed on the ASIC register of financial
advisers. The committee therefore recommends that ASIC should only list a
financial adviser on the register when the nominated professional association
advises that a candidate has successfully completed the assessed components of
the professional year and passed the registration exam administered by an
independent invigilator.
Recommendation 8
3.60
The committee recommends that 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 administered by an independent invigilator.
Continuing professional development (CPD)
3.61
This section discusses proposals for CPD for financial advisers. The FPA
informed the committee about the importance of CPD:
It is not possible for a university program to train students
in all the attributes required for high quality financial planning practice.
Rather, initial education needs to be supplemented by further vocational
training and meaningful Continuing Professional Development (CPD) experiences
enabling individuals to critically evaluate progressive changes in financial
planning professional practice requirements, and to apply their knowledge
appropriately throughout their professional career.[61]
ASIC's proposal
3.62
In its submission, ASIC argued that initial and ongoing on-the-job
training, monitoring and supervision, as well as CPD are important parts of
competence. ASIC supported the introduction of:
-
mandatory ongoing professional education requirements for
financial advisers who give personal advice on Tier 1 products to retail
clients;
-
a minimum of 30 hours of relevant CPD each year, including at
least 15 hours of structured training; and
-
the introduction of mandatory supervision for one to two years of
new entrants to the financial advice industry who provide personal advice on
Tier 1 products to retail clients.[62]
3.63
ASIC noted that these proposals are consistent with the ongoing
requirements imposed on lawyers, accountants and tax agents.[63]
Other proposals and views
3.64
A number of submitters and witnesses supported requirements for periods
of work experience, mentoring for new advisers and CPD.[64]
Dean Evans & Associates supported mentoring of new advisers:
The real benefit for the adviser (and ultimately the client)
comes from this practical experience, gleaned from the “coal-face” of financial
planning and investment advice. That is why it is crucial to have new advisers
under the wing of more experienced advisers, for a considerable time, so that
(1) they may be trained emotionally to deal with clients throughout various
market cycles, and (2) learn to devise practical strategies for clients and so
nurture them through the worst of market cycles.[65]
3.65
SPAA highlighted the need for experience in specialist areas such as
SMSF advice and explained that it sets a minimum of two years’ relevant work
experience for its SMSF Specialist Advisor program.[66]
3.66
The FPA, Industry Super Australia (ISA) and the Australian Institute of
Superannuation Trustees (AIST) submitted that there is currently no minimum
experience requirement to be authorised to provide personal advice and that it
is up to each licensee to determine the supervision and experience
requirements.[67]
The FPA advised that it requires one year of supervised experience before an
adviser will be eligible to be a ‘Financial Planner AFP’ member, and three
years experience to be eligible for ‘CFP Professional’ membership.[68]
3.67
ISA and AIST recommended compulsory monitoring and supervision of new
entrants into the industry by the licensee. Thye also suggested that there
should be some limitation on specialised areas of practice during the period of
supervision to ensure consistency of experience for new entrants into the
industry.
3.68
FINSIA advocated for the supervision and mentoring framework first
suggested in CP 153 and noted that a period of supervision and experience is already
required by many employers as a way of managing risk.[69]
3.69
The FPA noted the requirements of the Tax Practitioners Board for CPD,
which include a minimum of 60 hours over three years with a minimum of seven
hours in one year. The FPA recommended that all financial planners and
financial advisers be required to meet minimum CPD requirements of 90 points or
hours over a three year period.[70]
3.70
Mr Paul Moran argued for a flexible approach suggesting an advanced
formal examination every three years or a total of 120 hours of approved CPD
each three years.[71]
3.71
ISA and AIST supported independently set annual CPD requirements
overseen by licensees covering professional and technical skills, regulatory
updates, ethics and professional conduct, and practice management and business
skills. ISA and AIST also submitted that:
In ensuring that advisers meet these requirements, there may
be merit in adopting a similar approach to that in the UK, which requires each
individual financial adviser who sells investment products, securities or
derivatives to have a current ‘Statement of Professional Standing’. The
Statement (which must be reviewed annually) indicates that they have completed
at least 35 hours of professional training each year, signed up to a code of
ethics and that they are up to date with changes in both industry and
regulation.[72]
3.72
The Australian Bankers Association offered the following suggestions:
Continuing professional development (CPD) should provide a
pathway for ongoing training and competency development and improvement. CPD
attainment could be received through a variety of modes, including face-to-face
and online channels, however, should focus on relevant knowledge and skill
learnings and mandatory ethics components. CPD should be completed to maintain
accreditation achieved by the financial adviser.[73]
3.73
SPAA advocated moving the CPD requirements out of RG 146 and tasking
professional associations with setting specific CPD requirements for their own
members. SPAA submitted that in its view, CPD would then be more targeted to
improving and challenging advisers’ skills, rather than being viewed as a
minimum compliance requirement by advisers and licensees.[74]
Committee view
3.74
The committee found that there is wide support to enhance the work
experience, supervision and CPD requirements for financial advisers as it
provides yet another systemic defence of consumer outcomes. The committee heard
a range of views about the level, number of hours and content of work
experience, supervision and CPD requirements. While ASIC's proposal appears to
provide a workable balance, the committee recognises that the professional associations
will have a primary obligation to comply with the PSC requirements. The
committee view is that while professional associations must administer an
appropriate level of continuing professional development to meet the PSC
requirements, each association should also work with the FPEC to achieve a
level of cross-industry standardisation.
3.75
The committee recommends that the government require professionals in
the industry to complete a mandatory program of professional development each
year administered by their respective approved professional association. Beyond
the professional year, if an AFS licence holder or the professional association
assesses an adviser as requiring additional supervision in some areas of
practice, this could be a recommendation made to ASIC for inclusion on the
register. Such actions would represent best practice for both the AFS licence
holder and professional association fulfilling their responsibilities under the
Corporations Act and Professional Standards legislation.
Recommendation 9
3.76
The committee recommends that the government 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.
Finance Professionals' Education Council
3.77
This section discusses the committee's consideration of setting,
maintaining and accrediting the qualifications and continuing professional
development standards that should be applied to financial advisers.
3.78
FINSIA submitted that the regulation of qualifications and continuing
education standards, as well as an exam, (if implemented) should be carried out
by an independent industry-led body. Membership of the body would include ASIC,
peak industry bodies with accreditation frameworks and educators, but no adviser
training businesses or training arms, to avoid possible or perceived conflicts
of interest.[75]
3.79
The FPA submitted to the committee that in its view:
The lack of an overarching framework to financial adviser and
financial planner education has led to a piece-meal approach developed and
added to over more than two decades, which contains unworkable, incompatible
and inappropriate requirements, as well as gaps in the holistic system needed
to ensure an increase in advice provider competency is achieved.[76]
3.80
The FPA informed the committee that the training obligations in RG 146 are
based on the definition of financial product advice in the Corporations Act 2001
and are therefore focused on training on financial products rather than
building the competencies required to provide financial advice.[77]
The FPA further submitted that in its view:
RG146 was developed in 1997 prior to the introduction of both
the Financial Services Reform (FSR) Act and the Future of Financial Advice
(FOFA) reforms. The changes introduced under these two regimes were so
substantial they have significantly changed the shape of the financial planning
profession and financial services industry more generally. The FPA argues that
basing any changes to financial adviser and financial planner education on the
existing structure of the RG146 will significantly undermine the objectives of
the change.[78]
3.81
The FPA argued for an approach that provides a clear set of minimum
education requirements, includes course requirements, course approval, CPD, experience
and on the job training and an adviser register.[79]
The FPA advised the committee that it has operated its own education council
since 2011 as a way increasing the standards of advice provided by its members:
In 2011, we established the Financial Planning Education
Council...an independent body chartered with the responsibility of raising the
standard of financial planning education and setting the standards for
accreditation of financial planning education programs.[80]
3.82
The FPA proposed that the current RG 146 be replaced with a broader,
more holistic industry wide framework for financial adviser and financial
planner education.[81]
3.83
The Superannuation Consumers' Centre proposed an option that included the
establishment of an industry
based, professional and competency standards body or board which would have:
-
governance by an independent chair and equal numbers of consumer
and industry representatives;
-
three yearly independent reviews;
-
adequate funding; and
-
responsibility for both competency standards and professional and
ethical standards.[82]
3.84
The Financial Services Council suggested the development of an Advice
Competency Standards Board (ACSB) that would oversee an adviser competency
framework with the following components:
-
education requirements (including ethics training);
-
continuing education;
-
and/or a national exam;
-
professional standards or a code of conduct;
-
experience requirements;
-
an enhanced register of advisers including employee
representatives;
-
a training/course register to enable advisers, licensees and
regulators to keep track of which courses meet ACSB requirements; and
-
powers to recognise professional associations.[83]
3.85
In contrast, the FPA argued for the administration of education
standards to be separated from the administration of professional and ethical
standards:
The expertise and structures required to develop, implement
and enforce professional and ethical standards, are fundamentally different to
those required for identifying, developing and implementing appropriate
education standards for financial advice providers.
A co-regulatory model should be implemented via a dual
holistic education and professional standards framework which includes:
- An
education framework - based on the existing Financial Planning Education
Council’s...National Accreditation and Curriculum framework, and
- A
professional and ethical standards framework - which leverages the existing
additional oversight of advice providers through membership of recognised
professional bodies.[84]
3.86
ASIC informed the committee that in its view the preferred approach
would be a single, independent body to set educational standards:
It should have the expertise to set the educational
standards. It should have the resources it requires to set those standards. It
should consult with all the relevant stakeholders and it should be independent
of the key interested parties, which are the industry and the education
providers.[85]
Committee view
3.87
The committee considers that to have multiple bodies administering the educational
requirements for financial advisers is not in the best interests of consumers.
The committee notes that some submitters suggested that a single body should
cover educational standards along with professional and ethical standards.
However, such a body does not currently exist and would have to be established.
In Chapter 4 the committee discusses options for bodies to oversee
professional and ethical standards. In Chapter 4 the committee concludes that
the PSC provides a suitable vehicle to regulate professional and ethical
standards without the need to create a new body.
3.88
The committee notes that the PSC is not currently fulfilling the
function of setting and maintaining educational standards, nor is it resourced
to do so. The committee therefore considers that a separate body is needed to
set and maintain educational standards for financial advisers.
3.89
The committee notes the existence of the Financial Planning Education
Council established by the FPA and considers that it provides a useful model as
it is controlled by a professional body and is industry funded. It operates
efficiently and at no cost to government. The FPA submission to the inquiry
indicated that the FPA would be willing to cede control of this council to a
governance model that included equal representation of members from other
professional associations.[86]
The council currently has four academic members, drawn by mutual agreement from
the 17 universities who provide courses for the financial services sector.
Given the failure to assure good outcomes for consumers highlighted in recent
inquiries, the committee considers that the council should also include a
consumer association representative and an ethicist.
3.90
The committee recommends that an independent Finance Professionals'
Education Council be established, and that it be controlled and funded by the industry
professional associations. The committee does not support membership of the
council being available to corporate AFS licence holders. The committee
considers that the Council's membership should include:
-
a member from each professional association that is operating
under a professional standards scheme approved by the PSC;
-
an agreed number of academics with relevant expertise;
-
at least one consumer advocate,
preferably two who represent different sectors; and
-
an ethicist.
3.91
The committee notes that transitional arrangements would be required
until the professional associations have established Professional Standards Schemes
under the PSC. The committee view is that during the transition period,
representation on the FPEC should be open to professional associations that
have individual members (as opposed to corporate members) working in the
financial services sector who intend to establish a Professional Standards Scheme
under the PSC.
3.92
In framing its recommendations, the committee has been mindful of the
need for transitional arrangements for individuals who are currently practicing
in the industry. The committee has received some evidence in submissions and
hearings about transitional arrangements for the recommendations in this report.
3.93
In respect to both educational standards and the assessment of
competence through the professional year, the committee notes that a variety of
transitional arrangements may be needed for financial advisers who are at
different stages of their careers. The committee also accepts the arguments put
forward by FINSIA that there is a case for allowing a transitional path for
people changing careers. The integrity of the profession will only be
maintained, however, if the extent of recognition of prior learning for both
cases is assessed in a structured and consistent manner.
3.94
The committee is aware that even if they do not hold formal tertiary
qualifications, years of practice has equipped many existing advisers with
the knowledge and experience to provide effective and ethical advice to
consumers. The committee view is that such advisers require a pathway to
transition to full registration. There may also be professionals seeking to
transfer from related fields into financial advice who already possess
satisfactory knowledge in relevant areas. A supplementary role for the FPEC
should therefore be to determine the Recognition of Prior Learning (RPL)
criteria for such pathways.
3.95
The committee view is that the FPEC should establish standard frameworks
for RPL of both AQF level seven and professional year assessment
requirements, as well as adjudicating on individual cases that fall
outside of standard parameters. The committee view is that when
considering RPL, the FPEC should take into account the length of time the
adviser has been in the industry, the scope and nature of the advice that the
adviser has been providing, the nature of the ASF licensee that the financial
adviser is working under and any sanctions or complaints (or lack thereof)
regarding the financial adviser’s demonstrated knowledge or past
conduct. To ensure the integrity of the profession, all advisers would
still be required to complete the agreed RPL professional year requirements and
pass the registration exam in order to be registered by ASIC. The committee
suggests that the FPEC should be able to implement a modified professional year
for existing financial advisers, that takes account of the experience of the
financial adviser where competence in the assessed areas can be demonstrated.
3.96
The committee recommends that the Finance Professionals' Education
Council establish and maintain the professional pathway for financial advisers
as outlined in the report overview and in Figure 3.1.
Recommendation 10
3.97
The committee recommends 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;
- 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, insurance/risk or markets);
- develops a standardised framework and standard 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.
Figure 3.1: Professional pathway for a financial adviser

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