The new rules for financial advice that professional accountants need to know

On 1 January 2019 the financial planning sector will see a new professional standards framework come into force. But what does it mean for professional accountants who offer or are thinking about offering financial planning advice to their clients?

Brought to you by CPA Australia Advice

On 1 January 2019 the most significant education and conduct reforms will come into play for the financial planning sector in more than a decade.

But what do they mean and how did we get here?

The current education and training standards to become a financial adviser are set by ASIC in Regulatory Guide 146 Licensing: Training of financial product advisers, leading to the commonly used phrase RG 146 when referring to training.

In essence, to meet the requirements of RG 146 a person must complete training in the areas of advice that they will be authorised to provide advice and services in. The training must be at least at a Diploma level, but this does not mean you actually need to complete a Diploma.

Importantly, even though ASIC set the training standards in RG 146, it is the responsibility of the Australian Financial Services (AFS) licensee to set its own training standards.

While many AFS licensees have set their minimum level of training at the Diploma level training, it is not uncommon that the areas in which you will need to complete training vary between licensees –  even when providing the same scope of advice.

These standards have largely remained unchanged since 2001, despite ASIC consultations on possible changes in both 2011 and 2013.

In 2012 ASIC also placed sections of RG 146 under review and ceased the ASIC Training Register, creating a level of uncertainty over the appropriateness and quality of available RG 146 training, which continues to exist today.

In 2014 the Australian Government announced it would review the professional standards of Financial Advisers, working cooperatively with the sector. Following a range of consultation, working groups and meetings, the result was the introduction of the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017.

The new legislation will implement a number of key changes focused on education, experience and ethics for financial advisers providing advice to consumers on most, but not all, financial products.     

While these changes are significant, they are importantly broadly supported.

The financial adviser requirements from 1 January 2019

This means from 1 January 2019 to become a financial adviser a person will need to:

  • complete a bachelor or higher degree or equivalent qualification
  • pass an exam
  • undertake at least one year of work and training, and
  • meet the requirements for continuing professional development (CPD).

Importantly, all of these elements must be approved or set by the new Financial Adviser Standards and Ethics Authority Limited (FASEA), which was established in April this year.

Leaving the detail for FASEA to set provides the flexibility for the requirements to evolve with the sector, rather than requiring possible future amendments to legislation. However, in the interim it means that we do not know, for example, what an approved bachelor degree is or will look like.

While there will be transition provisions for current financial advisers, which includes professional accountants holding a limited AFS licence, they will still be required to pass an approved exam by 1 January 2021. Depending on previous education and training, they may also need to complete one or more bridging courses to bring their education up to a degree or higher to meet the new education standard.

Aiming for a level of consistency for advisers

The objective is by 2024 all financial advisers will have completed at least degree level education and passed a uniform exam, resulting in a level of consistency for the first time in the sector.

This timeframe does leaves a tight window for FASEA to consult and finalise its proposed requirements, so education providers and Australian Financial Services (AFS) licensees can be ready for 1 January 2019.

FASEA will also be responsible for setting a new Code of Ethics effective from 1 January 2020 and to ensure compliance, all financial advisers and AFS licensees must be covered by an approved Code Monitoring Body.

It’s easy not to think that these reforms have no impact for professional accountants who are not authorised to provide financial planning advice – but this is certainly not the case.

We know the traditional model of accounting and tax firms continues to shift compliance. We also know that research shows in the SMSF space, for example, there is an unmet need for financial advice.

New opportunities for professional accountants

Public practitioners need to consider where they want their practice to be not only now, but also in five years’ time. If providing financial planning advice to their clients, either full or part time, is a consideration, then it is time to consider the impact of these reforms on their pathway.

While not all the details are known, we do know the pathway pre-and post-2019 are very different, including the timeframes.

CPA Australia can provide guidance on these reforms and options, including a range of public practice resources and training.

Your options

Become authorised

Becoming an authorised representative of another entity’s AFS licence will allow you to provide a broader range of advice and services to your clients, without having to manage the compliance requirements of running your own licence.

If you are considering this option, you need to decide if you will complete your RG 146 training and become licensed before or after the new professional standards framework commences in 2019.

Become licensed

Becoming licensed by applying for your own AFS licence will also allow you to provide a broader range of advice and services. However, you will also be responsible for meeting the compliance obligations as an AFS licensee.

In addition to meeting the training requirements, you will need to have at least three years’ experience as an authorised representative. For many professional accountants, this means you will need to become an authorised representative when you first move into this space.

Refer

Do nothing and refer clients who require financial product advice to an appropriately licensed entity or individual. This can include joint venture arrangements. It is important to know what exemptions you can operate under, including any requirements such as providing written disclaimers.

Is CPA Australia Advice a suitable option for you?

 In May 2017 CPA Australia Advice relaunched its offer to better meet the needs of CPA Australia public practitioners who require a financial advice solution for their practice.

Your options

We are committed to providing the practical support, resources and training professional accountants need to transition to advice. To learn more about our offer, visit the CPA Australia Advice website.


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