Financial advice: supporting competency and transparency

Recommendations made in relation to the competency of financial advisers and the enhanced public register will need to be addressed not in isolation but with due regard to the existing regulatory framework.

A number of the key recommendations in the FSI Final Report are directed at promoting the fair treatment of consumers as well as improving and building confidence in the financial system. In the financial advice context, these recommendations include lifting minimum competency standards for advisers as well as providing greater transparency for consumers, through support for an enhanced public register of advisers. In examining these recommendations, the Government will need to consider how they may be implemented as a whole, in order to achieve the stated policy objectives. The potential benefits as well as the costs and manner of implementing the recommendations will need to be considered carefully not only in isolation, but also in the context of the existing and future financial advice regulatory framework.

New competency standards

The recommendations within the Report for increasing standards and professionalism for financial advisers in Australia include imposing minimum standards for those advising on Tier 1 financial products. In the FSI’s view, those standards should include a requirement for financial advisers to have a relevant tertiary degree, to have competence in specialised areas and to meet ongoing professional development obligations. Transitional requirements are suggested by the Report to allow time for advisers to upskill and include recognition of professional experience. The overall objective is to ensure that through enhanced standards the quality of advice is underpinned and initiatives in other jurisdictions are referred to in the Report as a benchmark. The Report recognises that the costs involved for certain individuals and advice firms to undertake further and ongoing education would be significant. However, it is proposed that this be managed by way of a reasonable transition period.

It is worth noting in the context of the increased competency recommendation, the separate initiative around introducing a national examination for financial advisers. The idea of increased competency standards being complemented by a national exam is gaining traction with increasing levels of support, including with the Parliamentary Joint Committee on Corporations and Financial Services (PJC). The report delivered by the PJC’s “Inquiry into proposals to lift the professional, ethical and education standards in the financial services industry” (PJC Inquiry) recommended that an exam should be the final threshold test prior to registration as a financial advisor. While the FSI’s Report did not recommend a national exam for advisors, it suggested that an exam could be considered if issues of adviser competency persist.

If a national exam is to be developed alongside enhanced competency requirements, it will be important to ensure that the two initiatives are harmonised in a way which supports the broader policy objectives. In this regard we note that the PJC Report recommends that an independent body should be charged with establishing and maintaining the professional pathway for financial advisers, including setting curriculum standards and a standardised framework for the graduate professional year. The PJC Report recommends that this body would be controlled and funded by professional associations and be comprised of  representatives from each professional association, a prescribed number of academics, at least one consumer advocate and an ethicist.

The enhanced public register

The FSI’s Report also endorses the Government’s initiative for ASIC to establish and maintain an enhanced public register of financial advisers, which would include those who are employees of financial advice dealer groups. The Inquiry considered that the register should include licence status, work history, education, qualifications and credentials, areas of advice, employer, business structure and years of experience. From a policy perspective, the register is directed at facilitating consumers’ access to information about advisers’ experience and qualifications and increasing transparency and competition. The register could, in the Inquiry’s view, also potentially be extended to cover other fields such as determinations by FOS. Further recommendations around the content of the register were also made by the PJC Inquiry, including that the register should include a unique identifier that follows every individual adviser throughout their career.

At the time of writing, ASIC is on track for the enhanced register of advisers to be launched by 31 March 2015. While the register is to be accessible via ASIC’s MoneySmart website from the end of March, the initial form of the register will not include all of the anticipated information from the outset. In particular, to provide licensees with additional time to gather the requisite information, the initial release of the register will not include an adviser’s qualifications, training courses and professional bodies memberships. Instead, ASIC has communicated that this information will be added to the register between 23 and 30 May 2015. There is without doubt a lot of potential to increase consumer confidence and to improve the standards within the financial advice industry by implementing or adapting the recommendations around adviser competence and the national register. However, the public and private sector will need to continue to work together to ensure that various related initiatives are introduced in, as coordinated a fashion as possible.

Jon Ireland

I constantly strive for technical excellence and commercial outcomes that add real value for my clients.

Jon Ireland Partner

Jon has extensive experience in corporate and financial services law, specialising in complex transactions, funds management and investment distribution. Jon also advises on regulatory issues relating to the use of technology in financial services.

Jon provides advice to leading Australian and international financial services clients on the full range of corporate, commercial and regulatory issues facing these businesses. He has considerable experience advising them on establishing, buying into, selling and restructuring their businesses.

Jon regularly advises on funds management issues including fund structuring, disclosure, investment management and outsourcing arrangements. He has particular expertise in the area of investment distribution and has advised on key projects for platform operators and advice providers.

Recently, Jon has advised on the establishment of a fully digital investment platform, the negotiation of a material outsourcing arrangement for a global investment bank and a scheme modernisation project for a leading Australian fund manager. Jon has also recently advised on the establishment of the Australian operations of a global diversified financial services business, including regulatory and corporate issues related to its expansion.

Jon's clients value his advice on recent law reforms, including around product disclosure statements and the digital provision of financial services. Jon is consulting to the Committee for Sydney and is a regular participant on Financial Services Council working groups.

see my profile