Uncertainty the only certainty for financial planners

Rarely in the past half-decade have Australian financial planners closed out a year facing more policy uncertainty.

As planners close out 2018 and prepare themselves for 2019, they are facing uncertainties engendered by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the slowly-evolving Financial Adviser Standards and Ethics Authority (FASEA) regime, an ongoing Productivity Commission process and the reality of a Federal Election within the first five months.

Given that the Royal Commissioner, Kenneth Hayne is scheduled to present his final findings and recommendations to the Parliament in February and the timing of the PC’s final report is expected to be similar, the most pressing issue for planners appears to be the landscape which will ultimately be laid out by FASEA.

WHAT DOES FASEA HAVE IN STORE?

At the time of going to print, it seemed likely that FASEA would look to deliver the industry a clearer picture of its intentions before the Christmas/New Year shutdown – effectively 20 months after its formation and the naming of its board in April, 2017.

The issue most on the minds of financial planners is the need for hard confirmation from FASEA of what previously-acquired degrees will be fully recognised, what previously-acquired degrees (both foreign and domestic) will be partially recognised and, consequently, the bridging courses, if any, they will need to pursue.

The patience of planners has been tested because of the time taken by FASEA to complete its consultative processes and the level of speculation which has arisen in this environment, not least because some academic institutions appeared to move ahead of the game by listing particular courses as being FASEA approved.

This prompted FASEA to in September issue a “guidance note” in which it stated that, “following a number of queries from market participants, FASEA has obtained confirmation from several education providers that they recently released materials that incorrectly indicated they had FASEA approved courses and programs. This documentation has been recalled and those in direct receipt of this information have been advised that this was in breach of our previous advice on the matter”.

“The March 2018 guidance proposed a graduate diploma pathway for existing advisers. This proposal currently remains the subject of consultation. The standard will be finalised later in 2018,” the FASEA statement said.

“FASEA reaffirms there are currently no approved AQF 8 graduate diplomas available for the purposes of 921B(2)(a) of the Corporations Act. Submissions are invited from stakeholders regarding the education pathways guidance.”

Nearly three months’ later, what planners know with certainty is what FASEA released in March as part of its consultative process which was, essentially, an acknowledgement of existing approved degrees at AQF 7 (bachelor) and AQF 9 (masters) levels.

However, this fell well short of the clarity being sought by planners and their representative bodies – the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA).

Indeed, the distance between what FASEA was proposing and what the industry was wanting was made clear in a submission filed by the FPA in response to the Authority’s draft guidance.

The FPA said it was proposing one category for existing financial advisers who hold a degree which is not in financial planning/advice and that under this category the existing adviser must have completed a Bachelor Degree plus either:

• A Graduate Diploma in Financial Planning/Advice; 
• A Certified Financial Planner Program; or
• An Advanced Diploma in Financial Planning or 8 unit Diploma in Financial Planning.

It said that, in addition, all existing advisers must complete an approved course that covers both the FASEA Code of Ethics and the legal obligations for financial advice, at an AQF7 level.

The FPA submission said that, importantly, its proposal required a combination of:

• The key learning outcomes of a Bachelor Degree education (AQF7); plus
• Formal education specific to the provision of financial advice to retail clients.

The FPA submission argued that recognition of education with learning outcomes specific to the provision of financial advice, aligned with the legislative permission for FASEA to consider recognised prior learning (RPL) and the key principle of providing consumers with confidence that all financial advisers have the appropriate and specific skills and knowledge needed to provide quality financial advice.

For the AFA there has been a focus on ensuring the ultimate FASEA regime does not translate into an exodus of older planners. Thus, the organisation has echoed many of the concerns stated by the FPA but has also pointed to the need for RPL.

The AFA outlined its key policy objectives as being:

• A broader and clearer definition of a related degree. We would also support access to RPL for the behavioural finance bridging course;
• An alternative solution for existing advisers with an unrelated degree. We consider that if an adviser has the ADFP (or DFP 1-8) and has completed a relevant professional designation program, then they should have access to the three subject bridging course, along with possible RPL for the behavioural finance bridging course;
• An improved option for older experienced advisers that encourages them to stay in the profession rather than seek early retirement;
• Access to Graduate Diploma programs that better align with the needs of specialists, including risk specialists and formally recognise their specialist expertise. This will also better enable courses that will provide access to greater credits for FChFP graduates;
• Greater recognition of professional designations, in terms of the treatment of unrelated degrees, options for advisers with no degree and through RPL; and
• Access to cost-effective education solutions, in terms of course fees and obtaining exemptions.

While, at the time of writing, the FASEA had not issued its final guidelines, the body had been left in no doubt by the new Assistant Treasurer, Stuart Robert, that the Government was looking for a pragmatic and workable approach.

ROYAL COMMISSION HASTENS BANK EXITS

Financial planners started 2018 knowing that at least one of the major banks was exiting its wealth business with the sale of ANZ’s Onepath Pensions and Investments business and Aligned Dealer Groups to IOOF.

As the year comes to a close, planners now know that National Australia Bank has placed its MLC business on the block under former Perpetual boss, Geoff Lloyd and that the Commonwealth Bank has not only sold its Colonial First State Global Asset Management Business but that it is wealth assets – Colonial First State, Count Financial, Financial Wisdom and Aussie Home Loans will be gone by late next year.

At the same time, there is an expectation that AMP Limited will substantially remodel its wealth management business having disposed of its insurance interests, while Westpac has also signalled a change in approach.

In a very real sense, the decisions by ANZ, NAB and the Commonwealth Bank have placed them ahead of the curve in terms of needing to react to the expected final findings and recommendations of Commissioner, Kenneth Hayne.

Indeed, Hayne’s interim findings released in early October clearly pointed to the manner in which the banks’ aggressive approach to vertical integration had, in many respects, given rise to the cultural and other problems the Royal Commission had found itself dealing with.

The issues raised by Hayne and impinging on the banks’ continued involvement in wealth management included:

How does a financial adviser’s employer encourage provision of sound advice (including, where appropriate, telling the client to do nothing)?

How do advice licensees encourage advisers aligned with the licensee to provide sound advice (including, where appropriate, telling the client to do nothing)?

Can conflicts of interest and duty be managed?

How far can, and how far should, there be separation between providing financial advice and manufacture or sale of financial products?

Should financial product manufacturers be permitted to provide financial advice? – At all? – To retail clients?

Should financial product sellers be permitted to provide financial advice? – At all? – To retail clients?

With IOOF still digesting its acquisition of the ANZ wealth assets, it remains to be seen which companies will have the appetite to acquire NAB’s MLC businesses and the Commonwealth Bank’s Colonial First State business, minus CFSGAM.

While it is easy to envisage Count Financial being acquired by one of the larger wealth/accounting groups and Aussie Home Loans being picked up by a major mortgage aggregator, it is harder to identify a buyer for either MLC or Colonial First State.

The reality for both the Commonwealth Bank and National Australia Bank is that the ultimate sales value of MLC and Colonial First State may well be determined by the tenor of Commissioner Hayne’s final report and accompanying recommendations.

It is also worth reflecting on the fact that the two most recent transactions in the Australian financial services arena saw sales to foreign entities with CFSGAM ending up with Japan’s Mitsubishi UFJ Trust and Banking Corporation, while AMP’s insurance business went to the UK-based Resolution Life.

PUTTING GRANDFATHERING TO BED

The major Royal Commission-related policy issue for financial advisers is the future of grandfathered commissions, with Commissioner Kenneth Hayne putting the issue squarely in play.

Hayne’s preliminary report asked:

• Should the grandfathered exceptions to the conflicted remuneration provisions now be changed? – How far should they be changed? – If they should be changed, when should the change or changes take effect?
• Should the life risk exceptions to the conflicted remuneration provisions now be changed? – How far should they be changed? – If they should be changed, when should the change or changes take effect?
• But while the Royal Commission has challenged whether commission-based remuneration remains appropriate for life/risk advisers, they may well find themselves protected by the legislative processes and the fact that the Life Insurance Framework (LIF) has not yet been fully implemented and tested.

There is an expectation that Hayne, more than five years after the implementation of the Future of Financial Advice (FoFA) changes, may call an end to grandfathered commissions but he is expected to remain substantially mute with respect to life/risk commissions.

Why? Because of the reality that the Government’s approach to the LIF calls for transitional implementation followed by a review, neither of which has been completed.

Life/risk commissions are likely to continue for the foreseeable future and at least until the LIF regime has been subjected to the scheduled review. 

On grandfathering, however, the submissions of the Financial Planning Association and, indeed, AMP Limited pointed to an acceptance that grandfathering must be phased out.