Do most advisers need to go back to school?

“School’s. Out. For. Ever!” Following the revelations from the Royal Commission and the implementation of the Financial Adviser Standards and Ethics Authority (FASEA) regime, will Australian financial planners be able to ever again share the sentiment expressed in the immortal words of Mr Alice Cooper?

Estimates from Skliful Analytics put the number of Australian financial advisers who will need to undertake further education once the FASEA regime kicks in at around 70 per cent.

This follows the Federal Government’s decision to make a degree-level qualification equivalency mandatory for new financial advisers from January 2019.

The authority resolved that the degree requirement pathway for new entrants, from January 2019, would be: a bachelor’s degree made up of 24 courses, covering fields that include ethics, professional attitudes and behaviours, financial planning and advice process, and technical requirements.

For those career changers, FASEA would require further pathways, at the postgraduate level, covering the same fields. 

It is the personal belief of Ben Travers, a manager, senior advisor and representative at Pitcher Partners Wealth Management, that the FASEA regime is long overdue, given existing advisers’ requirement to satisfy the RG146 qualification can be achieved at a diploma level or below.

Travers said it was interesting that the current Royal Commission Misconduct in the Banking, Superannuation and Financial Services Industry stated that only 8,704 out of approximately 25,000 registered advisers had completed a degree at a bachelor level or more – without specifying if it was a “relevant” degree or a degree in financial planning, implying that the 70 per cent of advisers who require further study may be higher.

“I struggle to understand how a ‘relevant’ degree in, say, law, allows someone to specialise in superannuation, investments or retirement planning. In my opinion, a relevant degree should be just that – relevant,” Travers says.

“An accountant can only practice upon completion of a professional year. A lawyer can only practice upon completion of the bar. Why is an adviser allowed to advise after completion of a non-relevant degree and no professional year?

“FASEA must raise the bar. All advisers that meet the education requirements, must then demonstrate both education in ethics, and a willingness to accept a code on ongoing education.

“For those not willing to accept this, they need to find another occupation.”

But while he strongly supports the move towards a more professional industry, Travers argues that educational requirements or the acceptance of a code of ethics will not, on its own, lead to greater confidence and trust in advisers.

“It’s all about the industry attracting the people via education standards, then understanding what quality of advice looks like, including the fact relationships are more than just selling products,” he says.

Travers says while the new adviser requirements will increase barriers to entry in the coming years, and that the number of advisers will fall as a result, when you increase professionalism, you attract professionals, and hence the quality of the adviser you get therefore rises.  

Travers also says the FASEA regime runs the risk of forcing existing advisers into retirement, as it seeks to raise education standards.

“There is definitely a sense of succession planning over the coming years. I struggle to understand why some advisers lack the confidence of undertaking what is likely to be a handful of exams, especially in areas advisers say they specialise in – it should be easy,” he says.

“Further, some are placing a greater emphasis on FASEA, as opposed to their own career or business. It’s a fantastic opportunity for those advisers willing to adapt, given the potential oversupply of client books that will be up for sale over the coming years.”

Keep raising that bar

Associate Professor Adrian Raftery of the Deakin University Faculty of Business and Law, also believes there will be value in advisers doing further study “to raise the bar somewhat”.

“Without a doubt there is going to be a bit of a natural culling process. There are going to be advisers who elect not to study, so our expectation is there’s going to be between 5,000 to 8,000 advisers who will leave the industry - they won’t study,” he says.

“So, naturally there’s going to be, in terms of demand and supply, a lot less advisers out there to service the needs of the population. And rather ironically, when everyone has a bit more comfort in terms of the qualifications of advisers - and this is just one step in the whole process of becoming a profession - there will be more people seeking advice as well.

“So, the demand for advisers is going to be a lot higher than what it currently is, at a time when supply is going to be at an all-time low.”

However, Raftery points out that over time this gap will obviously be filled, noting that a similar situation played out when the RG 146 qualification was introduced. This saw the number of advisers culled from 24,000 to 16,000, but this slowly built back up towards 24,000 again.

Raftery says his faculty is also looking to recruit students from overseas to help fill the gap that he expects to form over the next few years.

But sadly, with the gap that is set to be left by those advisers who opt to leave the industry rather than go back to study, Raftery does believe there will undoubtedly be a wealth of knowledge that will be lost.

“You can’t replace grey hairs,” Raftery quips. “Unfortunately, there’s going to be that line in the sand that needs to be made and hopefully a lot of the ‘grey hairs’ will remain involved in the industry either as advisers, because they complete studies, or they will act as mentors in some capacity within the industry in the future.”

“We’re looking for a generational change here. We’re looking for something that’s going to change the industry into a profession over the next 20 or 30 years. Unfortunately, a line in the sand has to be drawn at some stage.”

Who’s got the right stuff?

Julie Berry, the principal of Berry Financial Services in Port Macquarie and a former Financial Planning Association (FPA) chairperson, believes a degree is something the industry needs if it is to attract people to financial planning as a career choice.

“I think the reason that we haven’t seen a lot of young people considering it as a career is because it hasn’t been a degree option, so they’ll look at law and accounting and all those kinds of things, but it’s not probably been on anyone’s radar before,” she says.

However, Berry believes the cost of advice is likely to rise under the FASEA regime and reduce the accessibility to a planner as a result of people deciding to leave the profession.

“You’re going to see a lot of the people who are 55, 56 now, who in six years when this degree qualification is mandatory, will be 60 plus, who might decide, ‘Well, because I’ll be 60 plus, I’m not going to go down this path, I’m going to leave.’ That then means you’re going to have less planners to service clients, because it takes a bit of a while to get a degree and we’ve got no clarification around what a professional year looks like,” she says.

“So, just to put that in perspective, can you do your professional year while you’re doing your degree? Can you do it as the last year with your degree? Or do you have to do your four, five years of your degree and then a professional year, which means it’s five or six years before you can sit in front of a client as a financial planner?”

At any rate, Berry points out that given there will be about six years to complete whatever the FASEA requirements may turn out to be, the units that will need to be completed for those planners with no degree and yet plenty of experience are not that onerous to take on – “it just sounds bad when you say it aloud in one sentence”.

If the ref didn’t see it … did it happen?

But frankly, Berry says, a degree is not something that is going to make people more ethical or force people to do the right thing.

“In all fairness, you’ve got a lot of professions out there with people who are degree-qualified now, that still have people in them doing the wrong thing. So, I don’t know necessarily if that’s the answer that the government thinks it will be – it certainly gives a more professional look to being a financial planner … but you’ve got some very, very good financial planners who have been doing the job for a very long time, and with the education that was presented to them at the time,” she says.

“But what I think might be an issue is that if the degrees don’t cater for the soft skills that are required to be a financial planner. So, you would have all these people qualified on super advice, tax advice and investment advice … and that doesn’t necessarily mean that you can talk to people about it.

“So, you might have all these people who are degree-qualified, who maybe won’t have those relationship skills that some of the more longer-standing financial planners have developed. So, we really need them to stay around and do that mentoring and address that ability to liaise with people and talk to people and impart that knowledge to people.”

And while Berry believes the code of ethics will be one of the most important facets of the FASEA regime, she says it will be important for the authority to be careful that they don’t impose additional requirements that are already within documents such as the FPA’s and Tax Practitioner Board’s codes of ethics.

“If you look at the Tax Practitioner Board, for example, you’ve got something like 18,000 financial planners who are beholden to that code, that is already legislated,” she says. “And then you’ve got the FPA code, where you’ve got 13,000 or 14,000 members signed up to that code as well.”

“So, I think the codes need to be very carefully thought of, and thought through, and be practical. And if there is to be an exam and the exam is to look at the code of ethics … that exam, again, has to look beyond just ticking boxes. It has to maybe look at ethical behaviour, case studies, that kind of thing.

“And I don’t actually think an exam will actually make people ethical – because ethical is what you are when no-one is looking. So, you can say all the right things and tick all the right boxes. But it’s what you do when no-one sees you that makes you ethical, isn’t it?

“And I do believe that the majority of financial planners most definitely are ethical people who are trying to do the right thing by their client.”

Raftery agrees with Berry, reiterating her point that a paper qualification isn’t necessarily going to make a person do the right thing: “A degree is not the be all and end all, as people have committed sins with degrees. Let’s not shy away from that.”

“But I guess it’s a bit of a filtering process. If you filter out as many bad eggs as you can, then there won’t be as much damage, hopefully, down the track. And then it makes it easier for the corporate watchdog to adequately monitor and regulate.”

Burning at the stake is not the solution

According to Peter Townsend, principal of Townsends Business & Corporate Lawyers and a solicitor who has worked alongside financial planners for over 30 years, some things have gone missing amid what he describes as the “witch hunt” that has been the current Royal Commission.

“The view that the majority of financial planners are money-hungry spivs is completely wrong. The many that I’ve dealt with have been honest, hard-working professionals who would do just about anything to ensure their clients are well looked after,” Townsend says in a recent column.

“They are bombarded with change constantly in the areas they need to understand – securities and investments, superannuation, taxation, social security, estate planning … the list goes on.

“Most of them do much, much more professional development than your average solicitor. They need to in order to keep up with that constant change.”

However, Townsend points out that this is not to say that the issues raised before the commission are not serious, pervasive, distressing and regrettable.

“They need to be fixed. But the fix does not have to come by smearing all financial planners with the brush of deceit and dishonesty reserved for the dishonest, self-interested or negligent few,” he says.

The solution, Townsend says, lies with public education.

Clients need to understand the difference between real financial planning and simply product advice - in the way they understand the difference between asking a chemist for a recommendation of a product to fix their ailment versus seeking advice from their GP, he says.

“That confusion about that difference has been rampant among our legislators and regulators in all my time helping the industry, and amazingly it continues. The educational requirements of FASEA and the refusal to acknowledge substantial experience of long-term financial planners yet again misses the point,” Townsend says.

“The problems the Royal Commission has highlighted have nothing to do with the lack of education of financial planners. They are much more to do with greed or with demands by employers that their product sellers, masquerading as financial planners, put the employer’s interests ahead of the clients.”

For Townsend, financial planning should be a profession which means: a substantial education, a formal entry requirement, a clear understanding of the practice requirements, a strong enforceable code of ethics, and substantial penalties for those who misrepresent that they are part of the profession when they are not.

Commenting on the revelations from the Royal Commission, Berry says one of the things that has been brought to light is how an organisation’s culture can actually affect the type of advice that its financial advisers provide and the relationship it has with its clients.

“You really need a culture within the business that does put the client first and I think, by and large, we do have that,” she says.

“But I think it (the Commission) did highlight that in some cases there have been some institutions where the culture has been more about the business and less about the client.”