Date posted: 07/06/2018 6 min read

Financial advice standards: the next hurdle

Proposed new educational standards for financial advisers risk forcing some older advisers out of the industry.

In Brief

  • FASEA’s consultation period on the new education requirements for financial advisers closes on June 29.
  • CAs may be required to complete a bridging course to offer licensed financial advice.
  • Contribute to our submission to have your qualifications and experience recognised.

The bar is being raised on education standards for Australia’s financial advisers, but it’s not clear where the bar will come to rest. The Financial Adviser Standards and Ethics Authority (FASEA) – the body that sets the standards for licensed advisers in Australia – has opened a period of consultation on its proposed new education standards. With the window for submissions due to close on 29 June 2018, many chartered accountants have a great deal at stake.

As of 20 March 2018, FASEA’s planned new standards will require advisers with a bachelor’s degree in a “related” field of study to complete a bridging course of three subjects. Existing advisers with a “related degree” and a “related postgraduate qualification” will only be required to complete a bridging course of one subject.

Existing advisers must complete their bridging course by 1 January 2024 and will also need to comply with new CPD requirements by 1 January 2019, operate under a new Code of Ethics by 1 January 2020, and pass an exam by 2021. 

Chartered accountants offering financial advice may already be fatigued by the reform process, which kicked off in 2013 as part of the broader Future of Financial Advice (FoFA) initiatives. Understandably, many also question the need for chartered accountants to undertake further education. 

Related: FASEA's new education standards

FASEA's proposed guidance on education pathways for all financial advisers.

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The potential for overlap

AccountantsIQ founding director and certified financial planner Bronny Speed CA says chartered accountants already have a “related degree,” do continuing professional development (CPD) and adhere to Chartered Accountants ANZ’s Code of Ethics. “Many CAs who provide personal financial advice have also completed an approved financial planning course, further CPD in the areas of financial advice for which they are authorised, and have significant years of relevant experience,” she says. Like the many hundreds of members who have already provided feedback, Speed would like to see this recognised in FASEA’s new standards.

Adrian Raftery FCA, associate professor in the Faculty of Business and Law at Deakin University, says chartered accountants have a distinct advantage over other financial advisers. “We know that over 75% of advisers don’t have a degree and they will have to complete a graduate diploma, which is eight subjects.” 

Raftery says he is “really looking forward to FASEA’s consultation period to ask whether it’s really necessary for someone who has a relevant degree and additional qualifications to complete a bridging course, and to understand if there is any overlap.”

He notes that chartered accountants already have extensive knowledge of corporate law, which is one of the bridging course subjects, and they already abide by a strict code of ethics. To this extent, Raftery sees “extensive overlap”.

However, when asked for clarity on whether any of the qualifications chartered accountants have gained would count towards exemptions from the bridging courses, former FASEA Chief Executive Deen Sanders was non-committal. Sanders was CEO at the time of this interview but resigned on 12 April 2018. He said: “At this early stage of the consultation process, we want to encourage an open raising of feedback and questions, ensuring an opportunity to hear from all stakeholders, before drawing conclusions.” Dr Mark Brimble, head of the finance and financial planning division at Griffith University and a FASEA board member, is the acting managing director while FASEA searches for a new permanent CEO.

Meanwhile, the clock is ticking towards 1 January 2019, the date by which all new advisers will need to pass FASEA’s exam. Existing advisers are not required to pass the exam until 1 January 2021. While the nature and content of the exam is yet to be determined, Raftery expects it could be compliance-based, focusing on Chapter 7 of the Corporations Act, which covers financial services as well as the Code of Ethics.

Thousands of CAs may be affected

A significant number of chartered accountants may be affected by the changing educational requirements. Sarah Davidson, leader of government affairs and financial advisory services at Chartered Accountants ANZ, says more than 7000 members in public practice in Australia hold or operate under a full or limited Australian Financial Services Licence. Moreover, about 350 chartered accountants have also completed additional study to become designated CA Financial Planning Specialists. 

Davidson believes the proposed reforms will affect all of these members. She also acknowledges it is still uncertain as to whether members with a “related degree” will be exempt from any of the additional education requirements. 

"We will be advocating strongly with FASEA and education providers for recognition for CAs who have further qualifications, the CA designation, CPD and experience in addition to their related degree," says Davidson. “There is a good argument that these members should only need to complete a bridging course of one subject, not three subjects. We would support a single, composite subject that incorporates all bridging course requirements and adequately prepares advisers for FASEA’s exam.” 

Davidson is quick to point out that Chartered Accountants ANZ supports the underlying aim of the government’s legislation: to raise the standards of financial advisers in Australia, saying: “It will help build consumer trust, confidence and engagement in the financial advice industry. We believe it is vital that more Australians are able to obtain ethical and professional financial advice.” Nonetheless, she is concerned that the time and cost associated with additional study and an exam may drive some members out of the advice industry. “It’s particularly a risk for sole practitioners, small and medium-sized practices, those in rural and regional areas, and advisers who may be close to retirement age.”

Financial advisory compliance

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Raftery, who is Director of Deakin University’s financial planning course, says each bridging course subject costs A$3500 to complete at Deakin. As the requirements currently sit, a chartered accountant needing to undertake all three subjects may face a bill of A$10,500.  

“We could also lose a lot of advisers because they simply don’t have the time to devote to extra study,” observes Raftery. “An adviser aged in their 40s or 50s is under significant work pressure. They are more likely to have a family, and it can be hard to find the extra 10-20 hours per week for study.”

Supporters of the new standards

Raftery says Deakin University surveyed 1500 financial planners across all industry bodies, including those who are non-aligned. The survey suggests that advisers aged over 55 are unlikely to stay in the industry as a result of having to comply with the proposed requirements. “Out of Australia’s 24,000 advisers, between 5000 and 8000 are likely to leave,” says Raftery.

“For a chartered accountant who is only completing a handful of statements of advice each year, it may not be worth keeping up with the latest changes.” Annual costs will include extra professional indemnity cover and extra continuous professional development each year, he believes, and dealer group charges are also likely to rise.

However, it seems not everyone is at odds with the prospect of having to undertake further study to provide financial advice. Peter Quinn is a director and principal of Quinn Consultants, a Sydney-based multi-office practice offering accounting, financial planning services and legal services. He has made a significant investment in his skill set, and is a chartered accountant, certified financial planner and a self-managed superannuation specialist adviser. Quinn acknowledges that FASEA’s proposed new education standards for financial advisers will raise the cost for some, but he is happy to see higher barriers to entry. “The financial planning industry is unlikely to get anywhere unless the standards are raised,” he argues.

Quinn’s philosophy is straightforward: “I already have the skills, so in my case completing any courses shouldn’t be hard. Knowledge is critical. If you don’t have knowledge, your advice standards will be poor.”

Have your say

The consultation period on FASEA’s proposed education standards closes on 29 June 2018. Chartered Accountants ANZ is calling on members to participate actively in the consultation process by providing them with feedback for consideration in preparing its submission to FASEA.

While Raftery is confident that FASEA will listen to the professional community, he cautions: “Don’t be one-sided in your submission. The key is to deliver constructive criticism and come up with genuine alternatives that are more likely to be considered.” 

We encourage members to provide us with their feedback on the consultation questions as early as possible before the closing date for submissions on 29 June 2018. Contact us at [email protected].

Photograph: Jason Edwards / Newspix