New legislation requiring financial advisers to hold a relevant university degree is set to raise the professional, ethical and education standards of the financial planning industry.
Enacted in March 2017, the Professional Standards of Financial Advisers Act 2017 kicks off a series of new benchmarks that will eventually see all financial planners holding degree-level education, sitting an exam, undertaking continuing professional development and subscribing to a code of ethics.
Over the next 12 months, the Federal Government’s soon-to-be-established education standards body will roll out details of the new education framework.
Associate Professor Adrian Raftery, Deakin Business School’s (DBS) Financial Planning Course Director, says the university’s financial planning team is expected to play an active role influencing the new standards body.
‘With approximately 75% of Australia’s financial advisers not currently having a degree, we’re expecting a surge in our programs – particularly the Graduate Diploma of Financial Planning and the new Master of Professional Practice (Financial Planning). The DBS is committed to increase the professional standards in the financial planning industry and support advisers on the journey to higher education.’
Over the past decade, the nation’s financial planning industry has ballooned from 16,000 advisors to 23,000 and continues to climb. Fuelled by a growing, ageing population the industry has also been affected by legislative changes to pension eligibility, tax and superannuation.
‘From 1992 to today, superannuation has collectively grown ten-fold to a combined whopping $2 trillion, so the demand for financial advice has naturally increased,’ explains Dr Raftery.
However the increased demand for financial advice has also seen the rise of unscrupulous practitioners resulting in financial planning scandals where families have been swindled out of their life savings.
Dr Raftery says public scrutiny renewed concerns about the financial planning industry and led to the push for professional standards.
‘The inadequacy of the current RG146 training standard – essentially a Diploma AQF5 equivalent - was recognised in a number of recent regulatory and government reviews of the educational standards and quality of advice provided by financial advisers. This led to the new legislation to lift the professional, ethical and educational requirements.’
The changes are important, he adds, because as the Australian population continues to age there’s a greater need to shift retirees from dependency on the government’s aged pension to being self-funded.
‘As a result, we cannot afford having poor financial advice being provided to mums and dads that risks them losing their retirement funds.’
One of the key benefits from boosting the industry’s professional standards, he says, is raising the level of public perception and trust.
‘This will encourage more people to seek quality financial advice and help protect from future financial crises.’
Commencing on 1 January 2019, the new professional standards will be gradually phased in over the following five years.
While transitional arrangements will applying to existing advisers, Dr Raftery cautions that the reforms will also come at a cost with a number of older financial advisers electing to retire rather than study.
‘This will result in years of accumulated knowledge being lost. There is no doubt that there will be a shortfall in financial advisers in 2019 and again in 2023 (when a large number of advisers will retire). It is a bit of a paradox as this is the time when the demand for financial planning will actually rise as public perception of the quality of advice increases.’
To counter this, Dr Raftery says more school leavers need to be encouraged to study financial planning at university alongside industry offering internship and scholarship opportunities.
‘This will attract bright students from other disciplines such as law, finance and management. Accounting students should also strongly consider financial planning as a second major, particularly with the overlap of SMSFs and the July 2016 removal of the accountants’ exemption,’ he explains.
To ensure Deakin’s financial planning programs meet the highest professional standards, the DBS conducts annual course reviews which are also accredited every three years with the Financial Planning Education Council. These programs are approved as degrees for entry into the CERTIFIED FINANCIAL PLANNER ® Certification Program offered by the Financial Planning Association of Australia.
Offering advice for the majority of financial advisors who will need to do further study, Dr Raftery says that it’s important to first be strategic about education.
‘Select the right course to save you time. If you need to complete Australian taxation law and/or commercial law subjects for TPB registration, then make sure you complete them at a degree or graduate diploma level instead at advanced diploma level. This will ensure they can count towards your future education needs.’
He also warns about the cost of ‘doing nothing’ and says that while the new standards may not apply until 2023, financial planners should review their education status now.
‘Did you complete a relevant qualification in the last 10 years? Your time is valuable, get a credit for the education that you have already invested in the past and reduce the amount of time that you need to study in the future. Enrol into a course and apply for credit before it expires once it is more than 10 years old.’
Finally he advises that it’s wise to not underestimate the time commitment of juggling work, family and study commitments.
‘Realistically, an experienced adviser who runs his/her own practice and has family commitments could only expect to complete one subject/unit per semester. The eight subjects for a Graduate Diploma of Financial Planning – which we believe is the minimum equivalent to bachelor’s degree – would then take four years to complete, meaning a latest start date is March 2020. It’s also worth getting a qualification that recognises experience. For example our Master of Professional Practice (Financial Planning) allows students to reflect on their professional experience and identify the theories that have already been put into practice. This course will save time and money.’