CPA Australia advocates a framework of new education and professional standards in the financial planning industry, to raise the bar on the quality of advice offered to clients.
A robust education and professional standards framework is integral to the provision of quality financial planning advice. However, such a framework still does not exist within the financial planning industry.
We must remember that in comparison with other professions, such as accounting, financial planning is still very young. The industry has undergone considerable change in a short period, but there is still much work to be done.
While some Australian Financial Services (AFS) licensees have already announced they are increasing education standards for their financial planners, education alone is not the panacea.
This was noted by the Financial Systems Inquiry Interim Report, released in July 2014, which observed that both improving standards of adviser competence and removing the impact of conflicted remuneration would improve the quality of advice. Arguably, a professional standards framework would address the impact of conflicted remuneration on the provision of advice.
At the same time, the Parliamentary Joint Committee on Corporations and Financial Services (the Committee, or PJC) announced it would be conducting an inquiry into proposals to lift professional, ethical and educational standards in the financial services industry.
The inquiry was a response to a number of cases coming to light, where the adviser’s desire to promote a product rather than give good financial planning advice drove a conflict of interest.
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CPA Australia made a submission to this important inquiry, jointly with Chartered Accountants Australia and New Zealand, and strongly supported the development of a new, robust education and professional standards framework that raises the bar on financial advice and implements core elements missing in the current regime. CPA Australia recommends:
- Increasing the minimum education level to Australian Qualification Framework (AQF) Level 7, Bachelor degree or equivalent
- The introduction of a structured professional year of experience
- The use of the Professional Standards Councils (PSC) 5 E model of a professional framework to recognise a body as a professional association
- A co-regulatory model where professional associations have a greater role to influence the ethical and professional conduct and behaviour of individuals, while AFS licensees retain final responsibility and accountability for the advice they provide
In December 2014, the PJC published its report, which had bipartisan support. It made a total of 14 important recommendations. These included that the mandatory minimum educational standard should be increased to a degree qualification, and a structured professional year should be implemented. It also recommended mandatory membership of a professional association, being an association operating under a Professional Standards Scheme approved by the Professional Standards Councils.
In March this year, the Australian Government consulted on the core elements of the PJC model, including how these elements could be implemented.
Recently the assistant treasurer, Josh Frydenberg, stated that the government had received more than 50 submissions and “that there was near unanimous agreement that reform is required to maintain public confidence in the financial services industry, and that new – higher – standards are needed”.
The government says the elements of the PJC recommendations that attracted strongest consensus included:
- Establishing an industry-funded independent council to set and monitor education, competence and training standards
- Lifting the minimum qualification standard for new advisers to an AQF level 7, Bachelor degree or equivalent
- A registration exam
- Introducing a professional year for new advisers
- Requiring all advisers to undertake higher standards of continuing professional development (CPD)
- Requiring advisers to subscribe to a code of ethics
- Developing transitional arrangements for existing advisers
The assistant treasurer also reconfirmed the government’s commitment to lifting professional, ethical and educational standards in the financial advice sector, noting that these substantial changes would deliver significant benefits for rebuilding trust and confidence in the Australian financial services industry. The restoration of confidence and trust in the financial planning industry aims to create the same kind of trusting relationship that generally exists between a client and other professionals.
Will these changes address the conflict between distributing product and the provision of quality advice? There are proposals to amend general advice and personal advice definitions, but there’s a strong argument that the definition which really needs amending is financial product advice.
Separating advice and product would result in financial planners being able to provide non-product, strategic advice in a more efficient and effective manner to clients, and deliver confidence and transparency to this sector.
It would also return the focus of the client to the true value of seeing a financial planner – the advice – and effectively remove the current product-centric focus of the industry.
This outcome may not be possible in the short term. It’s important that we first build the right educational and professional framework to allow the industry to continue to evolve. It could, however, be the next change the industry needs to keep it moving in the right direction.
Keddie Waller is policy adviser, financial planning at CPA Australia.