The Recent changes, that received bipartisan support, mean financial advisers registered prior to January last year can now complete the Financial Adviser Standards and Ethics Authority (FASEA) exam by January 2022 and have until 2026 to meet substantially higher qualification requirements.
Advisers haven’t been sitting around and the additional time will be put to good use. By August it is expected 50% of advisers registered on the Financial Advisers Register (FAR) will have sat the exam – around 30% have already sat it. The average pass rate for exams has been tracking at 86%, but this rate dropped to 79% in the April sitting, most likely because advisers had to sit the exam remotely during the COVID-19 pandemic. This demonstrates exactly why an extension was necessary.
Original timelines for sitting the exam would have required compliance in just six months, a deadline that would have ultimately resulted in more advice professionals leaving an already fragile industry. Nearly 1,500 advisers have left the industry since January, due almost certainly to the impact of COVID-19 and the restructuring of advice businesses underway prior to that.
This reform will have considerable influence on the long-term calibre and capacity of the advice profession. It goes to the heart of what we ask of financial advisers to do to be admitted to the profession by way of skills, expertise and standards.
The Financial Services Council (FSC) believes a long-term, holistic approach to how advice professionalises and manifests as a new industry in coming years is still needed. The ongoing practicality of FASEA’s Guidance on the Code of Ethics and the establishment of the disciplinary body in the course of the next year will come into focus.
Critical to this is the shaping of continuing professional development (CPD) requirements for advisers. What will we require advisers to specialise in? How do we align the qualifications and specialisation of planners and standards of products with the needs of consumers? Will it mean more of an emphasis on training in retirement planning as the population ages? Or more sophisticated training in investment advice for changes in personal wealth? It is an imperfect balance that we must get right to attract tomorrow’s financial advice professionals. Just 53 new entrants have reportedly joined the industry so far this year, an optimistic surge given 54 in total joined in 2019.
A key test of harmonising the levers of adviser competency will be ensuring consistency and quality regulation of the industry.
Part of the complexity is that compliance systems buckle under the weight of a vast web of regulatory guidance, legislative instruments, guidance, codes of ethics, statutes, licensing and rules. Outside of incoming Royal Commission legislation, financial advice is governed by a range of legislation that includes:
- Corporations Act (2001);
- Financial Services Reform Act (2002);
- Future of Financial Advice reforms (2013);
- Stronger Super reforms (2013); and
- Financial Adviser Standards and Ethics Authority (FASEA) (2017).
In financial advice, regulators provide guidance on the law, and standard-setters like FASEA will set standards above the law. The results can be inconsistent when organisations – large or small – seek to apply two sets of expectations to one system of compliance. It is ambitious to build consistent industry practice in an environment where public scrutiny and pressure on each and every licensee, and each and every adviser has never been greater.
To do their job properly, to deliver financial advice professionally and in line with strong consumer expectations, not only should a clear set of rules be developed, but the very objectives of what these are meant to achieve, clarified. Clear expectations codified in simple, straightforward rules must be the aspiration and outcome of the post-COVID-19 legislative-compliance net that governs financial advice.
As our economy reopens, ensuring advisers are incentivised to readily upskill, and that consumers are equipped and protected and have the choice of affordable and world-leading financial advice and products, should be the mandate of the regulatory system.
Zach Castles is policy manager - advice for the FSC.