When the SMSF Professionals’ Association of Australia (SPAA) was formed more than a decade ago, our primary goal was to improve professional standards in the SMSF sector.
We wanted to nurture a professional elite to give trustees the quality advice they require to feel confident to handle their own retirement income strategies. Today, by any objective criteria, the level of professional standards bears no comparison with what existed back then. Quite simply, standards are much higher.
Does this mean our task is done? That we already have an SMSF profession that is constantly – and voluntarily – raising the professional bar?
The answer has to be an unequivocal no. Certainly it’s a key point SPAA made in its 21-page submission to the Parliamentary Joint Committee on Corporations and Financial
Services Inquiry into lifting professional, ethical and education standards in the financial services industry.
We seized the opportunity to argue the current education and training requirements have failed the industry, specifically that “Regulatory Guide (RG) 146: Licensing: Training of financial product advisors” is simply not capable of delivering the optimum outcomes this industry demands and deserves.
As we said in our submission, “as part of moving the industry to the status of a profession, it is vital to review the existing competency and training regime”.
“The current approach of the Australian Securities and Investments Commission (ASIC) setting a minimum standard of education and competencies required for financial advisers through RG 146 has not been successful in ensuring that advisers have the competencies required to provide high-quality financial advice to consumers,” the submission said.
Financial advice is much more than merely RG 146, which provides a mere introduction to financial planning.
But I don’t want to dwell on why SPAA believes RG 146 has not cut the mustard in terms of providing the right framework for ensuring professional standards in the financial advice industry are on an upward trajectory.
Rather, I think it’s more appropriate to outline the regulatory approach SPAA favours to achieve the best outcome for the industry. In a nutshell, we believe the industry needs to move to a co-regulatory approach for training and determining competencies instead of an environment where a regulator, currently ASIC, sets a regulated mandated minimum.
The major drawback with the current approach is that it offers little incentive or need for financial advisers and their licensees to achieve higher competencies than the minimum ASIC requirements.
This can lead to lacklustre advice being provided to clients because of poor or inadequate knowledge and/or understanding, particularly when it comes to more complex issues.
Under our model, professional associations approved by the appropriate regulator would be responsible for determining the competency, training and education requirements for financial advice professionals.
Such a model would promote professionalism and ethics, accountability of advice, raise professional standards, be contemporary with industry developments and increase competencies within the financial services sector.
Our model for professionalism will lead to less regulation in the industry, but a higher standard of advice and behaviour. Where an association introduces appropriate standards for governing a profession, the need for direct government regulation is consequently reduced.
This is because the associations responsible for that profession set the standards and requirements that must be met. This ultimately leads to a more robust and efficient system where the association, which is best equipped to deal with the intricacies and management of the profession as a whole, is held responsible.
Therefore, the financial services industry should strive to rely less upon government regulation and more on its own standards. This will lead to a more co-regulatory mechanism for governing the profession. A co-regulatory system is one where regulations are specified, administered and enforced by both the government and the profession itself. This will require a direct acknowledgment, by way of legislative and/or regulatory amendments, that a professional association will be responsible for those professionals within it.
It is worth noting businesses use co-regulation to decrease risks to consumers, increase public trust and combat negative public perceptions. Not only do consumers benefit from co-regulation, but also the industry participants (the businesses, employers and employees), the government and the economy.
For consumers, co-regulation minimises over-regulation by a government body. For businesses, co-regulation can reduce costs that may be incurred because of unnecessary or inefficient regulations and these cost savings can be passed on to consumers.
From SPAA’s perspective that has to be a win-win situation.
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