Why financial planners must learn to love learning

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The regulatory framework around financial planner education is changing, which means many will have to pull their socks up and hit the books. Chris Kennedy reports.

Education standards relating to financial practitioners were just one of many facets of the industry caught up in a sweeping range of reforms following the collapse of companies such as Storm Financial and Opes Prime around 2008-09.

And much like other Government initiatives such as the Future of Financial Advice and Stronger Super reforms, the industry is still patiently awaiting further clarity on what action it will be required to take. 

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But that hasn’t stopped many sectors of the financial advice industry – including representative bodies, training organisations and licensees – from taking their own measures to try and ensure those practising financial advice are beyond reproach when it comes to their training and education.

The industry has in general been proactive in pushing towards attaining its status as a profession rather than a trade, and education standards are a key component of that.

The bare minimum requirements from a compliance point of view are seen as less than the minimum by many licensees, and the industry is moving increasingly – if slowly – to a point where degree qualified financial planners are the rule rather than the exception. 

Raising the bar

There is virtual unanimity across the industry that the minimum standards outlined in the current compliance hurdle, Regulatory Guide 146 (RG146) ‘Licensing: Training of financial product advisers’, falls well short of what should be required to give full holistic advice.

This is a view that has at various stages been communicated by representatives from industry associations, including the Financial Planning Association (FPA) and Association of Financial Advisers (AFA), key registered training organisations (RTOs) including Kaplan and Pinnacle, larger financial planning licensees including AMP and MLC, and by the Australian Securities and Investments Commission (ASIC) itself.

This is the main concern ASIC is looking to address with CP153, formally known as Consultation Paper 153, or ‘Licensing: Assessment and professional development framework for financial advisers’.

The most concrete short-term changes impacting the educational standards of financial planners in Australia will be those arising from CP153, although it is not yet clear exactly what shape those changes will take: the paper was released for consultation in April 2011 and closed for submissions in June 2011, but further clarity beyond the initial proposals has not yet been forthcoming.

The industry staple qualification for RG146 compliance is the Diploma of Financial Services, and the implications of CP153 are potentially greatest for organisations such as Kaplan Professional – one of the major educators when it comes to the Diploma of Financial Services.

Kaplan vice president Marilyn Hill says many of the CP153 submissions indicated the industry felt it was too easy to gain those initial qualifications and the technical rigour was lacking in some cases, which is something every RTO needs to take note of.

However, she says Kaplan – which also offers the Advanced Diploma of Financial Services and a variety of specialist courses – aims to make sure its students are more than prepared for both the current and updated requirements, and would offer programs to help their previous candidates master the knowledge and skills required for certification.

Testing times 

One of the key proposals contained in CP153 is that of an external assessment for those looking to become financial advisers. According to the paper, a national exam would be the “most objective and efficient method of ensuring all advisers have the requisite competence to perform their duties to a reasonable minimum standard”.

And perhaps more significantly: “A uniform exam would also provide a benchmark for training organisations to ensure that the individuals they train have the necessary skills, knowledge and competence to pass the exam.”

This directly addresses the concerns raised by the industry over the standards required under RG146, as well as the inconsistency in how assessments are conducted by RTOs.

If prospective financial planners are assessed solely under the auspices of the RTO performing the training, there is no guarantee RTOs will apply the same stringent standards to internal applicants as they would if those applicants had to pass an external exam.

The director of AMP’s Horizons Academy, Tim Steele, says having the educator assessing the students creates a conflict of interest.

By separating the organisation responsible for delivering the training and the organisation responsible for assessment, you remove the question of whether the training is being delivered in a responsible fashion.

“Because of the inconsistent application of standards by RTOs, we require all Horizons’ applicants to complete a technical assessment,” he says.

While ASIC originally proposed a 1 July 2012 kick-off for the external exam regime, the regulator recently indicated a revised start date of 1 July 2013.

According to independent sources, ASIC is also currently assessing tenders for companies to conduct the exam, and is in the process of recruiting an education committee from within the industry to assist in instructional design of the exam and help formulate exam questions.

Both of these were flagged in the initial CP153 release, although ASIC is refusing to comment further on the matter.

FPA chief professional officer Deen Sanders says there is a need for entry level education requirements to be externally validated.

“Whilst we recognise the education system bringing people into the industry is trying to do its best, it’s not doing it in a way that consumers, regulators or [the FPA] have confidence in the educational capability of [entry level] participants,” he says.

Steele believes the standard of the test will be critical and says in AMP’s engagement with the various regulatory bodies it has strongly encouraged a central assessment for aspiring financial planners.

He points to the US market where such a model is already in place, which, while not perfect, makes sense from a regulatory point of view.

Another key CP153 component is a proposed requirement for all financial advisers to complete a knowledge update review every three years to stay on top of rule changes, market issues and new products.

It is not clear yet how this will fit with financial advisers’ continuing professional development (CPD) requirements or if it could even replace CPD requirements, but Sanders anticipates that if it is implemented it will complement those ongoing aspects of adviser education.

“We don’t expect [the knowledge update review] to be as problematic as what was originally proposed. We expect it to be more fluid, to change with the times based on the issues in the market place and we expect it to link to CPD,” Sanders says.

There is currently no prescribed minimum CPD requirement under RG146, but it seems this will change with CP153.

The AFA’s CP153 submission proposed a minimum 30 hours of CPD be required per year, the FPA already places a minimum CPD requirement on its members, the Financial Services Council recommended a strengthening of CPD requirements and the Financial Ombudsman Service submission suggested Australia adopt something similar to the UK system, which requires a minimum 35 hours per year.

Holding pattern

But the fact remains that although things are beginning to take shape, there is still no certainty around what changes the industry will be required to make, which is a particular issue for educators such as Kaplan.

Hill says she has not so far been made aware that new CP153 requirements will be in any way mutually exclusive with existing RG146 requirements, and she also expects the link between the diploma and advanced diploma to remain.

There will be two prongs for Kaplan to address, depending on what the outcome from ASIC is – making sure new candidates meet the requirements to sit and pass an external exam, and providing the capacity for past students to come back and update their knowledge, Hill says.

However, a lack of clarity from the regulator hasn’t stopped Kaplan taking steps to ensure it stays current when changes are announced.

“We’ve adopted some expectations that clients have communicated through market research about academic performance and assessment rigour.

"In our new qualifications, we’ve made strong stands on academic performance. We’ve gone to closed book examinations and constructed assessment activities so students get repeated practice in key adviser tasks such as preparing statements of advice or plans,” Hill says.

“We’ve taken a strong stand on a number of things in relation to the qualification that we think will stand students in good stead for an external exam.”

Higher learning

The universities are also in something of a holding pattern.

Dr Mark Brimble, Associate Professor (Finance) at Griffith University Business School, helped the FPA formulate a new curriculum aimed at unifying the FPA’s Certified Financial Planner (CFP) requirements with university programs through his role as a member of the Financial Planning Academics Forum.

But in his role as an educator, he says universities such as Griffith offering CFP-aligned courses need that feedback to formally filter through before they can officially update their curricula.

That clarity should arrive shortly, with the FPA due to launch a public consultation on the Australian curriculum for financial planning for the university community in March, according to Sanders.

There are now more than 500 students studying towards CFP-aligned degrees in  the university community, representing both enormous growth and a great opportunity, Sanders says. He expects that to grow substantially and be a primary source of recruitment for the professional community in the future.

Sanders expects that most universities that want to be involved in financial planning will be on board by the end of this year, which could well be the vast majority of the 38 universities in the country.

At the moment that figure is 17, after two more universities have come on board with CFP-aligned programs in past few months.

Brimble says despite a lot of talk from other universities about initiating financial planning courses of study, creating proposals or working on things behind the scenes, he is yet to see a huge increase in courses offered.

Despite the increased alignment with the industry, Brimble says enrolments across both financial planning and other business courses seem to have stalled recently nationwide.

He is not anticipating a huge increase in commencing students in the new semester, but says there has been consistent flow through from first year to financial planning majors and second year study.

The slowdown in enrolments could be caused by a combination of the negative coverage of the financial planning industry in the media, the state of the global economy creating uncertainty over employment prospects and uncertainty over regulatory changes such as Future of Financial Advice (FOFA) reforms.

The flow-on effect could be creating reluctance from universities to create new programs, he adds.

Further evidence that university degrees are becoming increasingly integrated into the Australian financial planning landscape is provided by the AMP-aligned university challenge, which returns for a second year in 2012.

Steele hopes the initiative will be bigger and better this year, after an overwhelming response in its first year, with plans to further align the challenge with university curricula so that students gain credit for their work, which includes an in-depth case study.

There has been no suggestion of moving towards a requirement for all practising financial planners to be degree qualified, although it has been mooted that a degree will one day be required to enter the industry.

The FPA now requires all new CFP applicants to be degree qualified and from 2013 the same will apply to the Associate Financial Planner designation.

AFA vice president and chairperson for education Adam Smith believes that through the natural evolution of the profession, the majority of financial planners will have a degree within the next 10 years or so.

“Most of the new entrants coming in are degree qualified – it’s a given that this will happen,” he said.

Kaplan has no intention of being left behind, and Hill says the educator is giving serious consideration to offering undergraduate degrees if that’s the way the industry is headed.

“We would put that in place as a natural pathway because we’re a higher education provider as well as a vocational education provider,” she says.

“Our Masters of Applied Finance provides a CFP entry point for people that want to do the CFP,” she adds.

Hill doesn’t believe Kaplan is in any danger of being superseded if recent enrolment numbers are anything to go by, and adds the organisation has the flexibility to move quickly to adapt its industry offerings because it is a dual sector provider.

Let’s get professional

Regardless of how the regulatory piece pans out, that is still a conversation about the bottom rung – about the entry gate into the industry, Sanders says. “We insist that’s never enough, that’s only the front door.”

Once financial advisers enter the industry they then need to determine what sort of professional they want to be, and there are then a range of hurdles based on the role you might perform in the industry, he says.

The FPA’s decision to require all new CFP applicants to be degree qualified is a key step in this process of evolving into a profession, according to Sanders.

The AFA recently announced that from 1 July this year it would require all new financial planner members to attain the AFA’s Associate Chartered Financial Planner (AChFP) designation, which for those with a Diploma of Financial Services would involve only doing an extra ethics unit.

Kaplan offers a new subject in its Advanced Diploma called ‘The Professional Adviser’, which looks at interpersonal aspects of giving financial advice such as emotional intelligence.

It allows the students to do an online diagnostic test and identifies areas where the financial adviser may want to undertake professional development activities to build their skills.

MLC’s head of adviser education Zane Brown says around 85 per cent of MLC’s salaried advisers and advisers in aligned channels are either enrolled in an Advanced Diploma of Financial Planning, or have completed the advanced diploma or a higher qualification such as a masters degree or CFP.

“The entry point is RG146; we’ve taken the Diploma of Financial Services as the entry level with a commitment [advisers] progress on to complete the advanced diploma within 18 months of joining,” he says.

Brown also points to other new or recent initiatives within the group aimed at improving the standards of advisers such as the NAB mobile adviser program which aims to bring career-changers on board and help upskill them to be financial planners, the MLC Business School which aims to provide advisers with the skills to run a successful financial planning business and the soon-to-be-launched accountants advice academy.

Prospective financial advisers joining AMP’s Horizons must complete a full professional year once they pass AMP’s assessment process and then complete an intensive 10-week training period. Here they are able to learn on the job and focus on adding client engagement skills to their technical knowledge, Steele says.

“One of the expectations we set for anyone considering a career change to become a financial planner is they need to make a career-long commitment to education and learning given the profession they’re operating in,” he says.

Financial planning is at a stage as a profession where it needs to be considering how to raise entry standards, but Steele is conflicted on whether an undergraduate degree should eventually be installed as a minimum requirement due to the number of outstanding planners in the industry who have never completed a degree.

However, to have a majority of universities offering financial planning degrees to provide a clear entry point is an appealing end state for the profession, he says.

Hill also notes that Kaplan has seen a 20 per cent increase in enrolments in the advanced diploma course as more and more licensees look to upskill their financial advisers with further qualifications.

The new breed

There is no doubt that the younger generation of financial planners are increasingly viewing university degrees as an entry point into the profession, and a prototype of this new breed of planner is Finn Kelly, the chief executive of Synchron-aligned practice Wealth Enhancers.

At just 27, Kelly has a Bachelor of Science in maths and physics, a post-graduate degree in education and four diplomas, including a Diploma of Financial Services in financial planning.

Currently on the lookout for financial planners to join the firm’s Sydney and Melbourne offices, Kelly says he likes to see applicants with an undergraduate degree because it shows they’ve committed to study for a length of time, and shows that level of commitment and focus.

The AFA’s Smith says that almost through default now new entrants are more qualified. The AFA’s GenXt program has been up and running for several years and provides an avenue for younger planners to gain a foothold in the industry and a resource for graduates of the program, such as Kelly, to learn from others in the industry and share their knowledge.

Brimble believes there is a trend of the “emerging planner” that is more highly educated and more aware of the complexities of financial products and services compared to the financial planner entering the industry several decades ago.

“A higher degree of education both as an entry point and as a continuing education requirement will be significant components to being a successful adviser in the future purely by virtue of the complexities of products that are out there,” he says.

“That plays out with everything going on in the market with Government policy changes and the increasing standards of professional bodies. One would sense those overtures are attracting a higher educated, more aware financial planner than what has occurred in the past at the entry level.”

Finding your niche

With this increasing complexity comes an increasing trend for financial planners to specialise in a particular part of the market such as tax, wills and estates, investments or insurance.

Brimble says the “jack of all trades” style financial planner role is becoming increasingly difficult to fulfil due to those increasing complexities in legislation and product.

As a result, we’re seeing two styles of financial planner emerge: the holistic planner that engages specialists in relevant areas to provide more detailed financial advice in those areas, and the specialist model where you have a range of specialists under one roof.

That is flowing through to students who are becoming more interested in specialising, and degrees are starting to cater to that, Brimble says.

However, it shows there is still a gap in the education market in terms of a real postgraduate program of financial planning designed for people who already have a financial planning degree and some work experience – a question often raised by planners who want to expand their knowledge, he says.

Hill says Kaplan is seeing increasing momentum in several specialist strands, and particularly the self-managed super fund course.

The tier one foreign exchange course is seeing more interest, possibly due to recent currency fluctuations, and there has also been increased interest from those looking to upgrade the Certificate IV in mortgage broking to the diploma.

“Some licensees are making extraordinary efforts to improve the expertise of their adviser workforce, and in many cases looking to provide career development pathways, which sometimes leads to more specialised areas,” she says.