With ASIC delaying its work on a financial planner training framework, progress on raising the bar on education seems to be stuck in limbo, writes Tim Stewart.
In the face of the industry’s preoccupation with the implementation of the Future of Financial Advice (FOFA) reforms on 1 July, efforts by the regulator to raise the bar on financial planner education appear to have taken a back seat.
The Australian Securities and Investments Commission (ASIC) closed submissions for Consultation Paper (CP) 153: ‘Licensing: Training and assessment framework for financial advisers’ on 1 June 2011, and since then the silence has been deafening.
CP153 proposed three main initiatives to raise the bar on financial planner education: a national adviser certification exam; a 12-month supervision period for new advisers; and a knowledge update review to be taken within a new adviser’s first two years and every three years thereafter.
Money Management understands that ASIC has chosen to delay its work on CP153 – and the national exam proposal in particular – while the FOFA reforms are being implemented.
The regulator also plans to consult on the enhancements to the training standards contained in Regulatory Guide (RG) 146, with a major consultation paper apparently near publication at ASIC.
The paper on RG146 was originally scheduled for December 2012, but it has been pushed back to late March and there was no sign of it as Money Management went to print.
According to Griffith University associate professor Mark Brimble, the paper is currently working its way through the internal process at ASIC.
“I believe the paper’s finished, but it hasn’t been ticked off by whomever approves these things internally,” says Brimble.
The current state of play
ASIC made one announcement in relation to CP153 in June 2012: it intends to set up a self-regulatory organisation (SRO) to develop and administer the national exam (which the regulator has proposed will commence in 2014).
Details of how the self-regulatory organisation would work and the way it would be funded have not been forthcoming.
Association of Financial Advisers (AFA) head of campus Nick Hakes says his organisation understands the regulator will soon conduct a series of roundtables with the industry on the subject, which the AFA “looks forward to participating in”.
For Hakes, the idea of a uniform national exam for new entrants makes “a whole lot of sense”.
“From a consumer perspective, it’s similar to a bar exam – so that’s logical,” he says.
But the proposed knowledge review updates are a bit more problematic, says Hakes.
AFA chief executive Brad Fox points out that financial advisers specialise in a number of different areas, so the knowledge update would have to cater for each sub-set of advice.
“You wouldn’t want an oncologist to do a physiotherapist update exam in order to keep their practicing certificate,” Fox says.
The ASIC announcement in June 2012 also made reference to cognitive task analysis research that was “due to be completed by the third quarter of 2012”.
The purpose behind the research was to “identify the relevant skills and knowledge to be assessed in the adviser certificate exam”, according to ASIC.
Money Management understands the research was outsourced to a two-man consulting firm. Despite repeated requests from a number of players in the industry, the details of the cognitive skills analysis have yet to be revealed.
The regulator also froze its list of registered training organisations (RTOs) that provide approved RG146 courses on 24 September 2012.
According to the ASIC website: “The register content will be maintained and valid up to 24 September 2012. After that date, you will need to contact individual training providers directly to get information about the courses they provide.”
According to general manager for professional education at the Financial Planning Association (FPA), Belinda Robinson, ASIC has turned the process for approving RTO courses on its head.
Prior to 24 September last year, RTOs were required to go to ASIC to have their course approved. But now it is up to the course providers themselves to determine whether or not their programs align with the requirements in RG146.
“We’ve gone from assessing courses to get them in, to ASIC having the right to deny them. It’s a total turnaround,” says Robinson.
As a result, people who have recently updated their qualification are at a disadvantage because they can’t compare their qualification against the register, she says.
“The onus is on the education provider to say they’re in. As long as the education provider says the course is in – and ASIC hasn’t said it’s out – then it’s in,” Robinson says.
Self-managed superannuation fund (SMSF) Professionals’ Association (SPAA) director of education and professional standards Graeme Colley says his organisation also has misgivings when it comes to the freezing of the RTO register.
Leaving the decision up to individual education providers creates an obvious conflict of interests, says Colley.
“It’s a bit like me providing a course and you coming to me and asking ‘Is this a good course to do and does it meet the requirements?’ I’m than more likely to say ‘yes’,” Colley says.
How did we get here?
The need to address the problem of declining education levels and “cowboy RTOs” who take a “tick and flick” approach to RG146 compliance has become apparent over the last decade, according to Australian and New Zealand Institute of Insurance and Finance (ANZIIF) chief executive Joan Fitzpatrick.
The RG146 system was rolled out as a consequence of the Financial Services Reform Act, and quickly saw a number of RTOs “crawling out of the woodwork” and delivering compliance education “in a really poor fashion”, she says.
While ANZIIF offers a diploma qualification that could take two years to complete, other education providers were offering identical education outcomes (although not the same content) by “having people in the classroom for six days”, Fitzpatrick says.
“There was a lot of poor practice because it was like a feeding frenzy, and there were lots of people who needed to be pushed through,” she says.
The end result is that there are lots of people “running around with their RG146 compliance tick” who aren’t appropriately trained or qualified, according to Fitzpatrick.
For ANZIIF, the solution has always been to fix the RTO problem, she says.
“Do not allow these cowboy types of RTOs to set themselves up and then deliver,” Fitzpatrick says.
“Audit and enforce the RTO standards and the proper regulation of the RTOs and you’ll remove 95 per cent of the problem.”
But ASIC’s response has always been ‘That’s not our department; that’s not our role’, says Fitzpatrick.
“And I say [to ASIC]: ‘Why isn’t there a inter-departmental conversation? Can’t you go and talk to the Department of Education?’”
Furthermore, if ASIC goes ahead with its plan to implement a national certification exam, it will be undermining the existing education providers that offer quality coursework, says Fitzpatrick.
“The [existing] education regime is definitely pivoting towards better control, better management, better auditing and better standards. So the problem may be being solved as we speak,” she says.
By turning the compliance education regime on its head, ASIC risks “stripping the roof of the building rather than patching the holes”, says Fitzpatrick.
An example of ‘patching holes’ would be to work with the industry to improve codes of conduct by making them more enforceable and standardised, she says.
A matter of degrees?
One thing most people agree on is that the Australian Qualifications Framework (AQF) level for RG146 courses is likely to change.
Currently, most RG146 courses sit around the AQF 5 level, which is the equivalent of a diploma.
It is likely that ASIC will increase the level to AQF 6 (advanced diploma) – and some commentators are speculating that the bar could even be raised to AQF 7 (bachelor degree).
While most people in the industry agree that the entry level for financial planners needs to be raised, there are risks involved in setting the barrier to entry too high.
UNSW Professor of Finance Chris Adam says putting the entry level qualification at AQF 7 is a “noble ambition” but it must be implemented carefully.
“In my lifetime the lawyers didn’t have to have a degree when they were starting out – they did various forms of solicitors’ certificates. The accounting profession progressed similarly,” he says.
But for those professions the move to a degree qualification happened gradually over 30 years, and if financial planning attempts to make the same move in one or two years the industry could find itself short of planners, Adam says.
Adam, who is also the Associate Dean of UNSW’s School of Business, says the Government’s stated aim to increase the number of Australians receiving advice can only be met it the number of planners also rises.
“If you put the pressure on the demand side, people will start finding ways around the system on the supply side. They may not be as satisfactory for the long run,” Adam says.
The FPA recently announced that its members will require a degree-level qualification from 1 July 2013.
According to Robinson, the requirement will only apply to new members.
“The degree requirement is for “all new members”. This is analogous to the Certified Financial Planner (CFP) designation, which has had a degree requirement in place since 2007. The requirement is not retrospective,” she says.
The new requirement sits alongside the FPA’s push to establish an accreditation framework for university courses in financial planning.
The Financial Planning Education Council (FPEC) announced in March that it had granted accreditation to Griffith University in line with the accreditation guidelines.
According to Robinson, the fact that Griffith was the first university to be accredited wasn’t a case of it being better or worse than other institutions – it was simply the first cab off the rank.
“We have a rolling accreditation of our courses. At the moment there are 17 universities on the list. Since the beginning of January we’ve had three new universities talking to us about getting their courses accredited,” says Robinson.
By completing an accredited course, financial planners will be able to enter the FPA’s CFP program, adds Robinson.
The alternative route
While the FPA is going down the path of degree qualifications, the AFA is focusing more on soft skills, experience and continuing professional development.
“We support all forms of higher education, not just specific financial planning degrees,” says Hakes.
“We see lots of examples of ‘career-changers’ becoming really successful financial advisers, and they don’t necessarily come with a specific financial planning degree,” he adds.
When it comes to financial planning, it is vital to get the balance between formal education and practical education right, Hakes says.
The AFA offers three professional designations for people who have completed their RG146 compliance: the Fellow Chartered Financial Practitioner (FchFP), the Chartered Life Practitioner (ChLP) and the Associate Chartered Financial Practitioner (AchFP).
The FchFP is “not really an academic course, it’s a business course”, says Hakes – and some of the advisers who have completed it refer to it as a ‘mini-MBA’.
Planners who attain the AFA designation end their course of study having “implemented four business projects that deliver a positive contribution to [their] business and ultimately to [their] clients”, says Hakes.
The ChLP is aimed at advisers who wish to specialise in risk, and the AchFP is a foundation course based around behaviours and attitudes with a core ethics component, says Hakes.
The AMP Horizons Academy also offers an alternative route for people looking to either change careers or further advance their RG146 qualifications.
AMP Horizons Director Amelia Constantinidis says her 12-month program is “an alternative to going to university”.
Constantinidis points out that AMP has a relationship with UNSW, and that Horizons graduates can go on to take the UNSW masters course in financial planning if they wish.
Some of the coursework in the Horizons professional year can be used as credit towards the UNSW masters program, she adds.