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We don’t need no education – how much is enough?

Most industry associations accept the need for lifting education standards in advice but remain concerned for practitioners because of the possible impositions that will be placed on them by the Financial Adviser Standards and Ethics Authority. Specifically they are worried about accountants who have only recently had to comply with the scrapping of the accountants’ exemption, as well as the implications for professional designations. Malavika Santhebennur gauges the industry reaction.

With Easter recently having passed us by, it seems apt to label the education standards for financial advisers a moveable feast.

The Financial Adviser Standards and Ethics Authority (FASEA) announced on 10 April its chief executive, Dr Deen Sanders, had stepped down from the role just eight months after being appointed to the position.

On 20 March, Revenue and Financial Services Minister Kelly O’Dwyer released draft guidance on education pathways for existing financial advisers, information that was much anticipated from an apprehensive financial advice industry.

FASEA has indicated existing advisers will need to undertake either a relevant degree, or up to three bridging courses, including a FASEA Code of Ethics course, developed by the standards authority.

The most onerous requirements will be for existing advisers without a degree (Australian Qualifications Framework (AQF) level 7) or above qualification. They will need to undertake a graduate diploma AQF8 or other approved qualifications (degree or masters – AQF7 and above).

A graduate diploma includes eight courses, including courses covering the Corporations Act, with an emphasis on chapter 7 (financial services and markets), the FASEA Code of Ethics and behavioural finance (client and consumer behaviour, engagement and decision-making).

Existing advisers with a degree and a postgraduate qualification in a related field of study, or those who have an approved Financial Planning Education Council qualification, will only need to do a single bridging course covering the FASEA Code of Ethics.

For accountants who would like to advise on financial products and SMSFs, and would like to attain or remain on a limited licence, the new educational standards are in addition to the steps they had to take to comply with the scrapping of the accountants’ exemption to advise on SMSFs.

SMSF Association head of technical Peter Hogan says the industry body has conducted various member events to gather feedback on issues and concerns, which will be an ongoing process over the next couple of months until the consultation period for the draft guidance on education pathways ends on 29 June.

“I think accountants are feeling a bit shell-shocked in a way. Just based on earlier comments, accountants are saying they had to change their business model, they had to spend time and money getting additional qualifications leading up to 1 July 2016 with the new licensing requirements for accountants,” Hogan says.

“Then less than two years later the government’s turned around and said, no, that’s not good enough, you’ve got to do some more.”

Accountants had to obtain a limited licence or a full Australian financial services licence to allow them to continue providing advice in certain areas such as SMSFs following the scrapping of the accountants’ exemption, which Hogan says resulted in significant upheaval for the profession in general.

“They had to become licensed appropriately in order to do that and now even if they only have a limited licence, they still have to go through this process of additional qualification and education now. They’re caught up in this wider net again,” he says.

Institute of Public Accountants advocacy and technical executive general manager Vicki Stylianou says some accountants who decided to do the RG 146 course to get into financial services have been telling her they will exit the financial advice space as the educational requirements are becoming increasingly onerous.

“Those who have added financial advice to their practice are now looking at different models whereby they either completely outsource it or they bring someone in who’s already qualified rather than do some of it themselves,” Stylianou reveals.

However, those who have committed to providing financial advice have resigned themselves to having to undertake further education and complete the courses to fulfil the requirements.

“The other thing is they have to do continuing professional development (CPD) too. They’re used to ongoing training and professional development. The impost doesn’t seem to be huge. But saying that to a busy professional is always difficult,” Stylianou says.

What does this mean for designations?

When outgoing FASEA CEO Sanders addressed delegates at the SMSF Association National Conference in February, he made it abundantly clear the authority was obligated to follow the letter of the law as stipulated in the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017, which states a person must have completed a bachelor or higher degree or equivalent qualification approved by the standards body.

Sanders emphasised in no uncertain terms that attaining a designation, such as SMSF Association specialist adviser (SSA), certified financial planner (CFP) or chartered accountant (CA), is not the same as completing a degree and therefore would not be classified as a qualification.

“[The law] makes it unfortunately very clear. We need to apply the law in a very specific way to meet community expectations. The law is not about just your expectations but about the Australian government’s promise to the Australian consumers,” he said at the time.

Licensing for Accountants founder and chief executive Kath Bowler says the fact designations are not qualifications may impact on financial planners with a CFP more than accountants with a certified practising accountant (CPA) or a CA designation because a degree has been a prerequisite for accountants who wish to attain these designations for decades.

“Yes, there are older people without a degree, although not a lot, but by and large accountants, those with a CPA designation, have an accounting degree. So that’s why they’re able to go through on a bridging course,” Bowler says.

“I don’t know if the same could be said of the CFP because there were so many grades and it’s much newer than the CPA, and the degree requirement is only coming in next year, whereas the degree requirement for CPA has been here for decades.”

The Financial Planning Association (FPA), meanwhile, has been gleaning member reaction on the government’s draft guidance and FASEA’s stance on the educational pathways, with over 1700 responses received in the first 24 hours of the association asking for feedback.

“It’s a hot topic with FPA members, the whole FASEA piece,” FPA chair Neil Kendall says.

Kendall expresses exasperation on behalf of the FPA that its CFP program is not recognised by FASEA.

“What I can tell you is there’s outrage that FASEA have determined that they don’t want to consider the CFP program and they don’t want to consider the advanced diploma. Those are both study pathways that are directly relevant to the provision of financial advice,” he explains.

“But at the same time they’re prepared to say that a law degree is relevant. I think there is no lawyer in this country who would be able to go out with just a law degree and be giving financial advice. So I think we’ve got a real misunderstanding.

“It sounds like academic elitism where we’re valuing a degree in law, which is really not about financial planning, higher than other study that is completed specifically relevant to the provision of financial advice.”

Hogan is looking for clarity on how designations such as the SSA and CFP will fit into the broader education framework in the longer term, while also seeking clarity and direction from FASEA on recognised prior learning.

He wants FASEA to provide guidance to various educational institutions when recognising both subjects undertaken in other degrees and whether or not they are relevant degrees.

“I think that the extent to which these subjects have been undertaken in an appropriate education framework, and most of them have, means there should be some recognition of that, particularly how much the higher educational institutions are able to recognise everything that everyone has done in the past or whether they’ll have to draw the line somewhere in terms of how much credit they’re able to provide for recognised prior learning,” he says.

“Or a framework that only provided an industry designation rather than necessarily an educational qualification in its own right.”

A Chartered Accountants Australia and New Zealand (CAANZ) policy spokesperson says the body supports increasing minimum education standards in financial advice, as well as the draft guidance clarifying that a related disciplinary degree includes both majors in accountancy or an accountancy-related area.

However, the spokesperson points out the chartered accounting program is a fairly rigorous training course, which requires candidates to do a code of ethics course, have three years of experience and undertake a specified number of hours of CPD.

In addition, those who wish to offer financial advice will also have attained a financial planning qualification, which would have included another code of ethics.

“None of that past the basic degree has got much recognition,” the body says.

“So what we would be asking for is we would like for a combination of the CA program plus our own CPD standards plus our code of ethics plus additional training in financial planning, along with additional CPD in financial planning plus experience to actually equate to something more than it does now.

“We would therefore like to see that the three bridging subjects be reduced to one, which is what the case is for those with a related postgrad qualification. When you do the chartered accounting program, it is equivalent in our view to a postgrad.

“We feel the proposed requirements are not really looking at how a chartered accountant in the advice space operates, how much work they’ve done, how much ongoing work in planning and CPD they do, how highly they consider their code of ethics, and what additional training they have above and beyond their basic degree.”

Triple-decker ethics bus

The CAANZ says it would like to see its code of ethics recognised against the new FASEA code of ethics, adding the same principle should apply to those who undertake the FPA or SMSF Association ethics modules.

“Surely they’re not that different. I think there is a double up, particularly when you’ve got two codes of ethics already, which is what a lot of chartered accountants in financial planning have got,” it says.

Kendall agrees with that line of argument, saying there will be three codes of ethics in most financial planning courses FPA members undertake. “You’ll have the Tax Practitioners Board code, you’ll have the FPA code, and you’ll have the FASEA code. Now obviously we’re going to look at the code and work on how we can bring the FPA code together with these,” he says.

The FASEA code of ethics requires amendments and should be approached with caution and read carefully because planners will sign up to it and be monitored according to this standard, he points out.

“I think you could read it and say it seems pretty harmless, but if you actually think about the implementation of that and some of the things that are required, then there’s actually a lot to it and to fail to meet the code will effectively put people out of practice,” he notes.

“We think there’s a long way to go in getting the code to a workable position.”

Others were more optimistic, with Bowler saying the accountants she has spoken to are unfazed by the ethics units despite her prediction there will be significant overlap.

“I guess they feel they abide by a code of ethics so they don’t view that as an overly challenging course and they seem quite accepting of doing that code of ethics course,” she says.

Hogan says it is reasonable to expect all advisers to become familiar with their obligations under the FASEA code, which he said is principles-based rather than rules-based. He wonders though how the higher education institutions will offer this as a subject.

“And the cost of doing it as well given it is a different sort of subject to some of the other education pathways other people will be taking,” he says.

What next?

The industry is still seeking clarification on details surrounding the education pathways, with Stylianou also emphasising the need for stability.

“I understand it takes time to work through these things and it’s got the long transition period. But I think certainly we’re just looking for a period of stability,” she says.

“So as soon as this stuff is bedded down, which will still take a while, then what we’re looking for is a period of continuity and stability with no more changes.”

Kendall says it is unreasonable that the only pathway into financial planning for new advisers is a 24-subject AQF degree.

“For instance, from 2019, an accountant who has a degree in accounting has no pathway into financial planning but a financial planning degree,” he says.

“We have a real risk here that we will stop any form of meaningful career transitions if we simply say everybody regardless of their experience and other qualifications simply has to do the 24-unit AQF7 degree.”

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