Growing pains: moving from an industry to a profession

Vicki Stylianou

Earlier this year, the Parliamentary Joint Committee (PJC) delivered its report on the inquiry into lifting the education, professional and ethical standards in the financial advice industry. The Financial System Inquiry (FSI) also made recommendations in support of raising standards. The government has responded and draft legislation has been released for effectively what is a very brief consultation period.

Background: The government has been concerned for a long time about the poor quality of financial advice being given to consumers. Corporate collapses during and following the global financial crisis have given way to numerous financial advice scandals, led by the banks and others. Consumer confidence is at rock bottom. The Future of Financial Advice (FOFA) reforms were just the beginning of addressing the structural problems; and now it is time to get serious about raising the standards.

Under the proposed legislation:

  • New financial advisers will require a minimum of a bachelor degree, undertaking a professional year and passing an exam. •  By 1 July 2019 existing providers will be required to have:
    • passed an exam approved by the body, and
    • completed an appropriate bridging course or courses to raise their qualifications to a bachelor degree level, or equivalent qualification, approved by the body.
  • Bridging courses to be available from 1 July 2017.
  • However, existing providers are not required to undertake a professional year as it is considered such people have already accrued practical experience working in the financial services industry.
  • The government will recognise an independent industry-established standard-setting body, operational from 1 July 2016, that will develop and set education standards, professional year requirements, continuing professional development (CPD) requirements and develop a comprehensive code of ethics for financial advisers. It is proposed this body be funded by industry.
  • All advisers both new and existing will be required to undertake CPD activities and be party to a code of ethics.
  • The Australian Securities and Investments Commission (ASIC) has a limited power under section 926A of the Corporations Act to exempt a person who is an existing provider from meeting the transitional education and training standards by 1 July 2019 in particular circumstances. Such an exemption may be subject to specified conditions.
  • There will be no mandatory requirement to be a member of a professional association. However, in its response to the FSI, the government stated it would require all advisers, both new and existing, from 1 July 2019 to subscribe to either a professional association or licensee code of ethics.

Date of effect: The amendments relating to the new education standards, which will apply to new advisers entering the industry, take effect from 1 July 2017. The provisions relating to the code take effect from 1 July 2019.

Who is affected: The proposed legislation affects anyone who provides financial advice to retail clients, including on SMSFs and who have been brought into the Corporations Act regime under FOFA. This includes accountants, limited and full licensees and authorised representatives (AR) of licensees.

Under the legislation, these people are referred to as ‘relevant providers’. They advise on ‘relevant financial products’, which are financial products other than a basic banking product, general insurance product, consumer credit insurance, or a combination of any of these products.

Monitoring and enforcement:

  • From 1 July 2019, all financial advisers will be required to comply with the code and must be covered by a monitoring and enforcement scheme developed by their licensee or professional association.
    • As such, all relevant providers providing advice on relevant products will be covered by and subject to the same code and ethical standards.
    • There will be two pathways for relevant providers to subscribe to a scheme:
  • Pathway 1: a professional association’s scheme approved by ASIC; or
  • Pathway 2: a licensee (or a group of licensees) scheme approved by ASIC.
  • Monitoring and enforcement is to be conducted by a monitoring body, which means either a professional association under pathway 1, or the third party under pathway 2.

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