The scrapping of the Financial Adviser Standards and Ethics Authority (FASEA) made shockwaves in the industry late last year and although it was a welcomed change, there were still several issues waiting to be addressed when it came to education requirements.
A lot happened in 2020: in June, the deadline was extended so that advisers had until 1 January, 2022, to complete the exam; advisers also had until 1 January, 2026, to complete the education standard.
In July, FASEA formalised the legislative instrument that provided three-month continuing professional development (CPD) relief for advisers, as advisers had been granted an additional three months to meet the 40-hour CPD requirement.
As with everything else, the exam was affected by the COVID-19 pandemic which meant the introduction of remote proctoring.
And finally, Santa Claus arrived early for many advisers as the Government announced FASEA would be rolled into Treasury and the Australian Securities and Investments Commission (ASIC).
The ending of FASEA did little to change education requirements, but given how difficult FASEA had been to work with and the anxiety in the industry, there was optimism it might help usher in other changes to make the education requirements more workable to retain more advisers.
By its end, FASEA was virtually universally despised, but although there was support for increased standards in the industry, which included support for an education standard, how did it go so wrong?
Phil Anderson, Association of Financial Advisers (AFA) general manager, policy and professionalism, said it was unfortunate that there were too many objections and obstacles with FASEA.
“They were trying to push the standards that did not adequately reflect the expectations of the advice profession, the FASEA code of ethics has unfortunately been mired in controversy,” Anderson said.
“They pushed too hard for standards and outcomes that have caused concern and pushback, and it could have been different if there had been better consultation and better agreement as to what we were trying to achieve.”
Anderson said that didn’t mean significantly lower standards, but instead having a better industry consensus.
“In some ways it’s an unfortunate wasted opportunity, and as we can see with the code of ethics, if we had something that the industry had agreed to back in February 2019 when it was released, I think we’d be in a very different situation now,” Anderson said.
Dante De Gori, Financial Planning Association (FPA) chief executive, said the FPA and financial planners were supportive of FASEA, conceptually and principally, in terms of the intent.
“Once FASEA was created, the structure of the board of FASEA was legislated, i.e. it had to be an independent chair – fair enough,” De Gori said.
“But there had to be three representatives of industry – whatever that means, three representatives for consumers – whatever that means, an ethicist – whatever that means, and then an education expert.
“It was defined in terms of roles, so when people complained about why is so and so on there, it was because the type of person was a legislative requirement.
“Some people asked why is there a university academic on the board? It’s because the law required an education expert was on there.”
De Gori said what followed set the trend for the next couple of years, where some ‘red flags’ started being spotted.
“The FPA is on public record for a long time for being disappointed in terms of the role the board decided to play, and the complete lack of consultation and engagement with the profession to try and work together in creating the standards,” De Gori said.
“The way they interpreted the standards – and the process they went about to create those standards and implement them – was fundamentally the core failure of FASEA which led to where we are today.
“The announcement by the Government last year didn’t come out of the blue, it was a result of a number of years of constant failure of the role in creating and consulting on those standards.”
De Gori said the FPA had tried to work with FASEA on each standard and there was a time where FASEA did not plan to recognise any existing qualifications.
“This all started under [former Minister for Revenue and Financial Services] Kelly O’Dwyer – there’s a lot of question marks about her role here,” De Gori said.
“I’m not going to put words in the mouth of the Government today, but I think the Government will be hard not to admit there were failings from that starting point.
“We’ve had a number of ministers, and to be fair, when Senators Stuart Robert and Jane Hume came in they have been nothing but genuine in wanting to understand and balance what the role of FASEA should be.”
De Gori said much of the issue was with chair, Catherine Walter, who, according to De Gori, failed to engage with the industry about FASEA.
“[FASEA chief executive] Stephen [Glenfield] has been great and very engaging, but it just shows the operation model of FASEA that the board of directors have not once engaged with anyone in the industry and that has been its downfall,” he said.
“I’m afraid I might come across too harsh – FASEA started off with the right intentions, high expectations and a welcoming embrace by the profession, but disappointingly let itself down.
“Disappointment. The one word I’d use to explain the FASEA story.”
Glenfield defended the legacy of the authority and said in the short period that it had been in operation, it had developed and implemented a balanced workable framework through the implementation of the seven statutory standards required under the Corporations Act.
“In February 2017, Parliament passed the Corporations Amendment (Professional Standards of Financial Advisers) Act to amend the Corporations Act to raise the education, training and ethical standards of licensed financial advisers in Australia,” Glenfield said.
“These amendments reflected key findings of the Financial System and PJC [Parliamentary Joint Committee] Inquiries which highlighted that low minimum competency standards and cases of inappropriate advice had a negative impact on consumers’ confidence and acted as a barrier to consumers’ seeking financial advice.”
Glenfield said FASEA was formed to set seven standards that addressed issues identified by Parliament and which would, over time, professionalise the industry of financial advice and restore consumer confidence.
“The adoption of these standards by industry has set a foundation from which a profession may grow over the years ahead,” Glenfield said.
“The lift in professionalism across financial advice is seen in the commitment to raising standards of existing and potential advisers in the two-year period the standards have been in place.”
Glenfield pointed to the 11,000 advisers that had passed the exam, 300 new advisers commencing their professional year, close to 1,200 new advisers enrolled in degrees, and all advisers completing 40 hours of CPD each year as proof of the success FASEA had brought to the industry.
“FASEA’s legacy is two-fold; both the setting of a framework to help raise the education, training and ethical standards of financial advisers and helping to lay the foundations for enhanced professionalism of financial advisers and the restoration of trust in the sector, as consumers will take comfort that when they seek financial advice it will be from an adviser they can trust who is ethical, qualified and appropriately skilled,” Glenfield said.
The Minister for Superannuation, Financial Services and the Digital Economy, Senator Jane Hume, said it was “important to understand” that FASEA was technically not being scrapped.
“The valuable work it has done will continue, but will be incorporated into the single disciplinary body, as recommended by the Hayne Royal Commission,” Hume said.
“This is to avoid unnecessary and costly duplication, streamlining regulation and avoiding red tape.”
However, Hume said any impact on cost recovery – which was how FASEA was funded – was yet to be determined by ASIC.
Hume said FASEA provided the foundation for a consistent educational standard for financial advisers and had been a key part of ongoing efforts to professionalise Australia’s financial advice industry.
“The development of standards by FASEA has been an important step in restoring trust in the sector and ensuring that Australian consumers always receive world-class advice on their finances,” Hume said.
“FASEA has undertaken significant work over the last three years in establishing a code of ethics, approving qualifications for both new and existing advisers, and orchestrating the exam.
“So far we’ve seen nearly 12,000 financial planners, stockbrokers, and insurance advisers sit and pass the exam.”
The deadline to complete the exam was now 1 January, 2022, and since the end of 2020, 11,241 advisers had passed the exam.
Joel Ronchi, myIntegrity in Practice principal consultant, said although there had been earlier resistance to the education requirements, advisers had started to accept it.
“There’s been a greater acceptance that the FASEA standards are here to stay and the exam needs to be passed,” Ronchi said.
“In terms of the exam itself and the programs I’ve been running, the feedback has been consistent: ambiguity of questions, the lack of feedback and issues with remote proctoring.
“I know there’s a group of advisers that have postponed doing the exam because of remote proctoring and are waiting to go back into the exam centres.”
His firm runs a FASEA exam masterclass and he said advisers would often contact them after they had attempted the exam themselves.
“I’m hearing from people who have failed it two or three times and they’re very frustrated and worried because their careers are on the line,” Ronchi said.
“There’s a sense of worry, having said that, there’s the realisation that they’ve got three cracks this year.
“People are focused on the fact that there isn’t going to be another extension and that this is it.”
The AFA and FPA had lobbied for the extension of the deadlines and De Gori said it took over a year to complete.
Anderson said as well as advocating for the extension of the education deadlines, the AFA had also advocated for better feedback for advisers who failed the exam.
“We are very concerned about the pass rate for people who sit the exam after first failing and we’ve been talking to FASEA about that,” Anderson said.
“We’ve also been talking to FASEA about what we perceived was a problem with the timeframe between being allowed to sit exams, because of the rule that you can’t register until three months after the last exam sitting.”
Anderson conceded, however, that because of the timeframe when results were received – which was generally six to eight weeks after sitting – registering for every exam was unnecessary.
“If you don’t find out until six weeks after you sat, then you only have two weeks to prepare, so the ability to do it every second round is probably the right outcome,” Anderson said.
CHANGES STILL TO BE PUSHED
Eugene Ardino, Lifespan chief executive, said the study requirements were still excessive for experienced advisers and their industry experience needed to be better recognised.
“I don’t see the value, particularly in an environment where costs are going up across the board, I’m hoping that is reviewed,” Ardino said.
“If you look at the number of new entrants coming into the industry… we don’t have a flood of people coming in.
“The entry education requirements were too low, and I think most people would agree with that, but perhaps where we’ve moved is too high.
“If we want to create a profession that only the very wealthy can access then what we’re doing is great.”
Anderson agreed about credit for older advisers and said the association had considered it a priority.
“We’ve suggested three subjects credit for anyone with more than 15 years’ experience, two subjects credit for someone with between 10 to 15 years’ experience and one subject for someone with more than five years’ experience,” Anderson said.
“For someone who is older, faced with the need to do a full eight-subject graduate diploma, it’s a very easy decision to say ‘that’s just not practical for me and there’s no business case in it for me’.
“If we at least reduce it so the education requirements are more manageable then we stand a much greater chance these experienced advisers will say ‘I will have a go at the education, I will stay a professional, I will continue to be there to my support my clients’.”
De Gori said from a long-term perspective Standard 3 of the code of ethics, which dealt with conflicts of interest or duty, still created anxiety and confusion for advisers.
“The exam will be a non-issue at the end of the year, but the code is here forever, with or without FASEA,” De Gori said.
“It’s important that everyone feels comfortable that they actually understand the code and that’s an area that we will be focusing on primarily so that our members are comfortable with the code of ethics.
Don Trapnell, Synchron director, said the education requirements were still insufficient for the needs of specialised adviser roles.
“I’m seeing more and more [life/risk] advisers forecast to us, with the concentration of the education being on holistic advice, they’re seeing very little point in pursuing the education tranche and they’re looking at moving out of the industry,” Trapnell said.
“It’s absolutely terrible, it’s not good for our industry, it’s not good for the consumer either.
“I do understand that one university is considering putting together a relevant degree which concentrates on life insurance and superannuation… but that is yet to be put together.
“If it does happen and it gets FASEA/Government approval that would be a huge step forward, but at this stage there is no separation in education requirements in relation to financial planners and risk advisers, and they are two very different sets of skills.”
Trapnell said the feedback he received was more that life/risk advisers had issues with the education standards as opposed to the exams.
“The exam is centred around ethics and procedures, as opposed to specific disciplines, so I had no issue with the style of the FASEA exams,” Trapnell said.
“But you lump that on top of doing a relevant degree that is not specifically in the discipline in which you choose to make your living.
“If a university came up with a relevant degree that concentrated on risk insurance and how it relates to superannuation, risk advisers would go for it in droves.
“That would be a strong way of stemming the bleeding we have from our industry right now.”
When asked whether specialisations would be better differentiated, Hume said FASEA had accredited a “wide range” of degrees and courses.
“The majority of existing advisers will only need to complete four units of study by the end of 2025 – less than one unit per year,” Hume said.
“There are no changes to exams, with five exams still to take place between now and the end of the year.
“The pass rate has been very high pass rate at approximately 90%. We encourage anyone who has not yet sat the exam to do so as soon as possible, as time is running out.”
No one is certain if FASEA being rolled into Treasury and ASIC will be an appropriate long-term solution, but whoever governs over education standards in the future will have to address these challenges or the financial advice landscape in Australia will become completely insufficient.