By Kelly O'Dwyer.

Photography by Andrew Meares.

Few Australians would know that currently it is possible for someone to hang up their shingle as a qualified financial adviser after only four days of professional training.

Is it any wonder that only one in five Australians seek financial advice?

A good financial plan is like a road map. It shows us where we are today, and the route we need to follow to get to where we want to be. It’s a source of comfort for many, removing some of the worry that comes from navigating a tricky part of life.  

The Turnbull Government wants more Australians to have the confidence to seek financial advice. That means making sure that people have access to financial advisers who are professionally competent and ethical.

Bad reputation

While most advisers do the right thing – and do their job well – there are some who have been a drag on the industry’s reputation in the past few years. So how do we improve the consumer experience and change consumers’ perceptions of financial advisers? One way is by raising the professional, educational and ethical standards of financial advisers, and this is what the government’s professional standards reforms will achieve.

It is important that an exam is introduced to establish a common benchmark standard across the industry.

These reforms include the establishment of a standards body that will set the professional, educative and ethical requirements for the industry. Under the new framework, financial advisers entering the industry for the first time will require a degree, while existing advisers will have to meet a standard equivalent to a degree. Existing advisers may be able to reach degree-equivalent status by undertaking bridging courses. In addition, all advisers will be required to undertake ongoing professional development.

The reforms will apply to new advisers from 1 January 2019. Existing financial advisers will have access to transitional arrangements, allowing them until 1 January 2024 to meet the education requirements. The transition period recognises that existing advisers may need to complete the education requirements on a part-time basis.  

The professional standards reforms will also require advisers, both new and existing, to pass an exam. It is important that an exam is introduced to establish a common benchmark standard across the industry. The exam, which will be set by the new standards body, will test the practical and ethical knowledge of advisers.

New education requirements

The education requirements will commence on 1 January 2019. New advisers will need to pass the exam before they can progress from a provisional adviser to a fully qualified adviser. Existing advisers will have two years from the commencement date, until 1 January 2021, to successfully complete the exam.

Critically, a single, uniform code of ethics will set the principles that advisers will operate under. Professional associations and other independent third-party monitoring bodies will develop compliance schemes to monitor and enforce advisers’ adherence to the code. These compliance schemes will be approved by ASIC. This will ensure that financial advisers are held to a high standard of ethics, with non-compliant advisers subject to disciplinary action and sanctions by the monitoring bodies.

Finally, a key feature of the reforms for new advisers will be the requirement to complete a professional year under the supervision of an experienced adviser. Through this direct mentoring relationship, new advisors will be able to develop their technical knowledge and the “soft skills” critical to a client-facing role.

Financial advice has the power to add incredible value to the lives of everyday Australians. This is why the government has committed to its own road map for reform – one that will give consumers confidence and the financial advice industry the best opportunity to thrive.

Kelly O’Dwyer MP is Australia’s Minister of Revenue and Financial Services.

This article was first published in the Feb/Mar 2017 issue of Acuity magazine.

Read a response to this column by Robert Brown FCA outlining the challenges surrounding these professional standards reforms.