FASEA’s Professional Year requirement ‘unworkable’

9 March 2020

One of the requirements created by the Financial Adviser Standards and Ethics Authority’s (FASEA), the Professional Year, has turned out to be ‘completely unworkable’ and become one of the main roadblocks for young financial advisers attempting to get their foot into the industry, according to Wealth Today’s managing director Keith Cullen.

Speaking to Money Management Cullen said that the new requirement, which mandated all new industry entrants from 1  January , 2019 to undertake the Professional Year before they are qualified as a financial adviser, was created in an environment where there were still high numbers of advisers operating under institutional ownership which could provide corporate support to people in their professional years.

However, with a rapid change in business models’ and a growing number of one to seven employee firms which operate under larger licenses but as individual businesses, this requirement has become more of an obstacle for many young graduates.

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 “What is happening is that the disintegration of those institutional-owned advice models has pushed the industry back into where it was 10 years ago which is really what I would call politely the Australia’s biggest college industry,” he said.

“I think it’s like a massive blind spot for the industry too and we are not maybe seeing it today but we are certainly going to see it from a succession planning perspective.”

According to Cullen, the industry as a whole should pay a closer attention to where the ‘new blood’ was coming from in order to avoid further problems around the business succession planning.

“I think we’ve put up a brick wall for all these kids who are doing relevant degrees in the industry , in terms of their  ability to enter the industry and what we have left them with is a $25,000 HECS bill and no way of getting a start in the in the industry,” he added.

The FASEA’s Professional Year standard, which commenced on 1 January, 2019, is a requirement of the Corporations Act 2001 that all new industry entrants are required to undertake before they are qualified as a financial ddviser to provide personal financial advice to retail clients in respect of retail financial products.

Under the Professional Year’s requirement, every new entrant is required to undertake a Professional Year of one year full-time equivalent comprising 1,600 hours, of which at least 100 hours is to be structured training.

 

 

 

 

 




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The whole FASEA model is unworkable !
The legislation declaring previous grandfathered payments before 2013 now banned has managed to destroy a number of financial planning practices that purchased business on the prevailing multiple at that time based upon those grandfathered payments continuing.
The whole process is a farce and will not achieve professionalism.
There are plenty of older advisers with substantial education and experience who's contribution over the past 20- 30 years is no longer recognised under FASEA.

If anyone thinks that it's a viable practice to hire a graduate with the appropriate degree now required, to sit around for 12 months learning how to engage with clients but not actually doing so, learning to paraplan, ..... but can make coffees on $70K + super, well good luck with that !

Those grandfathered payments can still continue, just in a different form. Its called an ongoing service agreement where you actually service the client in return for the remuneration you are paid.

SD, not sure if you actually know what you are saying as technically, you seem a little out of your depth. If you are just making a "motherhood" statement, then please, say so.
In my world, "Ongoing Service Agreements" where for just that - but that no longer meets the Sole Purpose test so, any ongoing fees from Super or Pension can not include any element of "service". Therefore, the wonderful ASIC had a "look Back" to 2008 (well beyond 7 years required for record keeping as stated by ASIC in questioning at the RC) call "Fee for no Service" but as I explained, service is NOT included - no they tell us. The only thing that counts is Advice and "Advice" must be given to satisfy the "Fee for no Service" look-back audit.

So, when you say "Its called an ONGOING SERVICE AGREEMENT where you actually SERVICE the client in return for the remuneration you are paid" - what on earth are you talking about?

Is it Intra "Advice" Fees which provide seem to be used to provide "General Advice" to members, which is not actually "Advice" but a "service" to provide information to members about the fund - and the fee seems to be charged to all members and no, the service is not delivered to all members each year, nor does it it seem many members use the "service" at all.

No, I am referring to having an ongoing arrangement with a client, reviewed and resigned every 12 months, where you actually provide a service and ongoing advice to that client within each and every one of those 12 month periods. The only people complaining about grandfathering coming to an end are those who aren't servicing all of their clients right now, likely because they have so many on their books where they physically can not provide the services they are being paid to provide.

If they serviced them, they would just have them sign a 12 month agreement when they provide them advice. If the client is getting value back, they sign it.

SD, I'm guessing you are either not an adviser, or you are blessed with perfectly organised and responsive clients with lots of time on their hands. The big problem with annual agreements for those of us with busy clients, is they often struggle to keep appointments or sign forms within a rigid 12 month period. They travel, they have work commitments, they have kids to look after.

These clients are actively engaged and are quite happy to pay ongoing fees automatically from their product. But they want their service delivered at times convenient for them. Not at times dictated by compliance bureaucrats. Sometimes this will mean 15 months between appointments, sometimes it will be 9 months. These clients cannot understand this obsession with rigid 12 month timeframes and do not take it seriously. They dismiss it as silly bureaucracy which can be safely ignored. Unfortunately, many of them end up being forcibly cut off as clients as a result. This causes resentment, ill will, and a loss of trust in the financial advice process. But I guess that's exactly the outcome many of the architects of this senseless bureaucracy were hoping for.

Well said Anon.

Call me blessed then. I would however say its less 'blessed', and more not having an unsustainable amount of clients. All clients are engaged, because why wouldn't they be, they are paying for a service and they know exactly what they are paying and what it entitles them to.

There has been instances where a client hasn't been able to sign a 12 month agreement in time, in that instance, the fees get switched off until they do. Been operating this way for years and it works fine.

Can someone please point me in the general direction of someone willing to pay me $70K?! As someone who studied an appropriate degree and is yet to begin their Professional Year, I am earning nowhere near this in my current full-time role - all while having 18 months of relevant experience paraplanning & servicing clients under my belt!

There is no problem enforcing a professional year for new potential financial planner,s but it has been taken for granted that self employed financial planners, who have had their revenues hit through the banning of incomes from a number of sources and rising costs due to over regulation, should take on the financial burden and risk.
The Royal Commission has definitely affected our industry in a negative way beginning with banks overreacting in their lending criteria. Hayne, ASIC and both major parties, all searched for political kudos and now look at the mess we're in.. The standards of FASEA are unworkable and confusing. The exam was a waste of time and proved nothing, the Ethics and Professionalism bridging course was nothing but attempted social engineering. Ethics and humanity. Look at humanity with the panic of the toilet roll and pasta index. I know have gone into a bit of a tangent but have completed all education requirements and standards, I am able to look at things more objectively and the more I understand, the more senseless all appears to become.

The Royal Commission did affect the banking and financial services industry because the banking and financial services industry shot itself in the foot, head and body well before the Royal Commission was forced into being. put it down to a combination of greed, stupidity, incompetence and more. Financial advisers cant run around saying that it was the fault of the Royal Commission and they were blameless. Man up.

I agree with you that the exam is too easy as demonstrated by 90%plus pass rate.

There are ethical financial advisors and their ethical standing is a very worthy stance for the financial planning industry which has a lot to recovery work to do to establish itself as a professionally competent and expert body of people.

But if the financial advisory employers cant find in within themselves the capacity to offer internships to people wanting to enter the industry, then they have not learnt anything.

Hedware, you have not sat the exam, therefore you cant comment on it. Too easy my you know what, I studied a lot for that exam, its was not EASY. We are small businesses ( a lot of us that are left now that the banks have cut and run), we cant afford to take on a employee that will just be a cost centre for 12 months. Do you even know how much turnover a small financial planning firm with say 200 clients has? Do you know what profit margins we work on? Do you know our P and L on a annual basis? Wake up and get into the real world , seriously all your comments on here are always the same, your ivory tower dosen't give you any knowledge at all, and your comments prove a real lack of knowledge on what actually happens on the ground. Sure you know the big ticket headline stuff,and bring out these motherhood statements that are disguised as thinly veiled attacks. However that dosent translate into knowledge of day to day operations in as planning business. You know nothing of the way we work, the hurdles we have to get over. If you did understand that you would know that we advisers are also the employers, for one. The only financial planning managers in the real sense of the world left are working in your little industry funds! They are basically the only ones that can afford to take on new recruits as cost centres, as they can live off the membership fees and dont have to work for them, so they have money and time to take to train up new people. Most of the rest of us dont.

I didn't state that the FASEA exam was too easy, I stated that it is a waste of time and space and accomplishes nothing. In fact it proved that the majority of financial planners were up to speed in their skills and knowledge. WTF man up. ASIC freely admitted that that they held back documentation which would have demonstrated that the large majority of advisers were doing good. They extrapolated data to suit their needs to present to the Royal Commission. Therefor their was a heavy bias created against us. Let me then generalise then that you are not a self employed financial planner? Or am I wrong. I can assure you that the industry was running well prior to the Royal Commission. In my 39 years operating my own practice, I have never encountered such viciousness as displayed by Kenneth Hayne and the Royal Commission. The media frenzy and the finger pointing was absolutely disgusting. The lack of respect and humiliation of senior captains of the industry was unbearable. We are now paying for the errors of a minority and look at all the interested parties bleeding our revenue baying for more blood.. Who would want to take on the responsibility of a new graduate with the costs and risks associated if they screw up.?

The industry did not shoot itself in the foot. A small minority in the industry did the wrong thing, and the hate brigade used it as an opportunity for indiscriminate persecution. It is the same principle as blaming every African refugee for gang crime, or every Muslim for 9/11. Unethical hypocrites who use the wrongdoing of a minority as an excuse for broad based persecution should be ashamed of themselves.

Not sure of what industry you are talking about. The banking and finance industry shot itself in the foot and more. The upside for the advice profession is that the Royal Commission found so much muck in banks, AMP etc that it ran out of time to dig deeper into the financial advice sector. Of course the people who were dudded by the banks had a lot of cause to hate and cant be blamed for taking such a stance. It can't be called a persecution as it does not appear that any of the senior banking executives were persecuted out of their jobs.

By the same logic one could say no African refugees were persecuted, because African gang crime still exists.

Just because some senior banking executives who did something wrong went unpunished, that is no reason to make sweeping generalisations about the whole "industry". It is no reason to vilify the personal reputations of tens of thousands of ethical, honest, hardworking people within that industry. It is no reason to bring in draconian regulations that will directly impact the livelihood of those people and their families, without addressing the real problems.

The Royal Commission has been used an excuse by many in our community to unleash their base instincts of hate and vengefulness, against innocent targets that are deemed "fair game" by their sneering, self righteous, peer group.

I am the first to say that the reputation of many good and fine people working in financial advice was tarnished by the misdeeds of others and that many have suffered the collateral damage caused by the greed of the banks and financial services companies and by the lack of strong professional oversight by their representative bodies. Australians benefit through the role and value of professional financial advisors.

Comments here keep suggesting the Royal Commission was the cause of the angst fronting the industry. It was not the cause but the symptom - it exposed what was happening to ordinary people who did not have the power or position to get restitution or recovery - just read their stories made to the Royal Commission - you are a heel if you were not moved. The banks were not backward in taking their pound of flesh and so why wouldn't vengeance be meted out to them.

The financial advice industry should see itself as being separate to the banking and financial services industry, particularly as the banks have done yet more damage to themselves by their wage theft.

"The financial advice industry should see itself as being separate to the banking and financial services industry, particularly as the banks have done yet more damage to themselves by their wage theft."
I tend to agree with this. But, with the FPA supporting "Intra Fund Advice" which is charging all to provide a service, yet it is only delivered to a few, Fee for No service is still alive and well, Additionally, "General Advice" is not "Adviser delivered in the "Best Interests of the Client". And "Advisers" being paid by a product provider as they clearly seem to be at Industry Super is not fixing any advise conflict issues - those are still alive and doing well.
In my mind, the RC did little to cease these issue but instead perhaps galvanized these issues as best practice for product providers - a green light if you like for product providers to sell product directly.

So when will there be sufficient time to investigate Industry Super? If an investigation was conducted into Industry Super, what would you investigate? Some suggestions for your thoughts: -
- Constantly charging fees each year to provide a service but that service is not delivered to all each year if at all.
- Charging dead people - are Intra Fund Advice Fees charged to an Account after the date of death of the member?
- Asset Allocation - Growth assets are defensive - but the returns are as they keep advertising, the best of the best of the best for the longest period of time? Really?
- Any issues in the unlisted assets?
- Any issues with Sole purpose - I'm thinking QANTAS, but the list is long.
- Any "Personal Advice" be given under the don't look here "General Advice" I'm paid by the Trustee mate don't ask questions it's all good mate.
- When Personal Advice is given by a loyal employee of Industry Super or related entity, what % of recommendations is there to a related party?
Hedware, can you tell me if any of these issues have been investigated?
While we are at it, why ASIC refusing to disclose their gift register? 2018 - would love to known. Won't you?

Good points to start. I was disappointed that the Royal Commission didn't have more time to look at industry super. Still that was Morrison trying to restrict the scope and duration of the Royal Commission to protect his banking mates and their donations to his party.

Maybe the Productivity Commission could do so? ASIC? - not holding my breath.

Hedware. not sure why your wold make the following statement "But if the financial advisory employers cant find in within themselves the capacity to offer internships to people wanting to enter the industry, then they have not learnt anything." ? What the logic behind that statement is I really don't follow.
Very few privately owned Financial Planning practices will be employing new Advisers - why would they - we are too busy pushing clients out the door not in.
One of your loves, Australian Super, has I believe over 2.2Million members (all being charged a fee for Intra Fund Advice), yet they have relatively few "Financial Advisers" but are they do have call center staff - helping to sell product. And the "Financial Advisers they do have I would suggest mainly recommend the product who pays their salary. In fact, the Industry Super model has been so successful I doubt they will see any compelling reason to change this business model. They might put on a few more directly controlled "Financial Planners" but the real money is in selling product - and call center staff with BID or compliance is more cost effective for a product manufacturer.
Can't see why anyone would spend the money training a new Financial Planner but yes, Australian Super could easily afford another 20 without much trouble - plenty of money from all those Intra Fund Advice Fees rolling in year after year after year.... with no need to provide advice.

And, if you believe the exam is easy, have a go, then you can start the process of the remaining qualifications required to be a Financial Planner.

I think you have identified where most financial planning graduates will end up working. Union fund call centres. They can do so without completing a PY, as super fund employees are allowed to give product advice without being licensed thanks to the "general advice" loophole.

Any financial planning undergrad students reading this should switch course as fast as they can.

You have made good points and I admit I had similar concerns when i was writing that post. But I believe in the role and value of financial planners and that the industry needs to look ahead and encourage young people to join the profession. I am not across industry super as you are and so take your observation as you call it.

Financial planners and financial planning companies are not running a charity service for they are in business and need to make a profit to stay in business. There are people who think that buying a new toy is more important than buying good financial advice - that's their choice (even though it is at best a bad choice).

I heard at a conference recently there was a total of 3 Australia wide currently doing the PY.
I'm not sure how accurate that is - but given the exodus from advice of licensees and advisers it should be a massive concern. Over-regulation has brought this about.
I know a number of 30 -40 year olds with relevant degrees that have already exited the industry or exited the country to practice overseas. These people were seen as the industries future, instead they are lost permanently.

At what point is there a wake-up call? At what point do people consider that all of this change may not be for the better?
What is the goal? It should be affordable and accessible advice.
On what reasonable measure should the government and regulators be assessed?
I suppose you can define an industry as clean when there is no industry.

We are dealing with a totally brain-dead Coalition Federal Cabinet. Very concerning.

Quite frankly this is embarrassing this article. It's March 2020 and people in the industry are only speaking out now. I spoke to the FPA head, Mr Magoo on there idiotic stance on this position 2.5 years ago when they put forward a proposal calling for a Bachelor of Financial Planning for all. During that discussion I pointed out there were 180,000 Bachelor of Business Students and we just shut the door on them. We shut the door on these students entering. We Shut the door on them buying our businesses. We shut the door on 180,000 highly educated Commerce, Business and Accounting students providing advice to future Australians. YOU IDIOTS. I can't believe there are FPA members still out there. Don't get me wrong we need minimum entry standards but we've made it incredibly tough for highly educated people to enter.

I've tried talking to Dante and Ben at FPA - just end up walking away shaking my head asking myself, how much are they being paid by the Instos?
I've come to the conclusion that they see their future as having members all employed by Trustees.

I agree 100%. Get your FASEA qualifications then drop the CFP. It is worthless. Look at job ads. No-one wants CFP, they only want FASEA approved quals. If you need tax and law course to satisfy TPB, do a cheap course, then save your money for years to come. The FPA have done more harm than good. Those running the joint are failed financial planners who are using their job as a stepping stone into a cushy Government role or executive job with one of the major institutions. They have no interest in the advancement of our profession.

@ recent graduate,
Here's a newsflash, most good para-planners command somewhere between $70,000 - $100,000 p.a.
A financial planning business needs to be able to generate a multiple of twice the outlay to justify that kind of expenditure.
I can't see many smaller firms willing or being able to do so.
When you say you have 18 months para-planning & servicing clients under your belt, even as a graduate, that translates to about 5 minutes in real terms in the industry.
If you engage with clients then, my understanding is that you should be, until you've completed your professional year.
You're going to need a lot more to be a financial planner of any worth to a client than 18 months as a paraplanner even with an appropriate degree.!

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