Consumers will have to wait up to seven years before the nation’s 24,900 financial advisers will be fully compliant with new mandatory training and professional standards.
Under legislation introduced by financial services minister Kelly O’Dwyer, registered financial advisers will not have to meet new accreditation rules aimed at cleaning up the industry until January 2024.
The generous deadline has upset some consumer advocates, who believe the life savings of another generation of Australians is likely to be exposed to inept and potentially unethical professional advice.
— Kelly O'Dwyer (@KellyODwyer) November 22, 2016
National retiree groups, including the Council on the Ageing (COTA), are particularly worried about the compliance timeframe.
“We welcome – at long last – the government’s decision to tighten entry requirements for the financial planning profession, but we are concerned that it has given the industry seven years to become compliant,” said COTA chief executive, Ian Yates.
“The original proposed timeframe was shorter, however the government has agreed to an extension after push-back from the financial planning industry.
“That means another generation of retirees are not going to have any guarantee about the qualifications of their financial planners.”
According to Ms O’Dwyer, the current requirements have allowed financial advisers with only four days of training to give advice to retail consumers.
Mr Yates said COTA would continue to lobby for a more stringent timeframe, especially for those advisers who only had a week or two of training.
“The transition arrangements do not address people who ought not be in the industry and will probably never comply with the new standards,” he said.
“But we will have to live with them for many more years.”
Snapshot of the reforms
The government’s reform program will begin operating from 1 January 2019.
From that date every new adviser entering the industry will be required to hold a professional degree.
Existing financial advisers will be given until January 2021 to pass a mandatory industry exam.
Also, they will have until January 2024 to complete a tertiary degree in financial planning.
All financial planners will also need to sign up to a new code of ethics that commits them to putting the interests of clients ahead of their own business motives.
The new regulatory framework will be administered by an independent standards body composed of three consumer representatives, three financial planning professionals, an ethicist and an education expert.
An independent director will chair the new body, which will develop the industry exam, the code of ethics and professional standards.
It will be funded by the financial planning industry, even though it will operate as an arm of the federal government.
In the last decade thousands of Australians have lost their life savings as a result of flawed, inept and deceptive advice from hundreds of financial planners.
The political push to overhaul accreditation standards across the profession intensified in recent years following a string of scandals that highlighted cultural and ethical failures at major banks.
Ms O’Dwyer said the reforms aimed to rebuild public trust in the financial advice industry.
“These reforms will deliver significant benefits to con
sumers by building trust and confidence in the financial advice industry, by ensuring that people have access to financial who put their interests first, and who are professionally competent and ethical,” she said.
CHOICE welcomes reforms
While consumer groups are worried about the generous deadline for financial advisers to bring their skills up to a professional standard, most also believe the government’s reforms will eventually improve the quality of advice given to Australians.
“Right now, people are able to call themselves a financial adviser even if they’ve only had a few weeks worth of training just to help them sell products,” said CHOICE’s head of campaigns and policy, Erin Turner
“Ultimately, financial advice needs to leave consumers in a better financial position – advisers must be properly trained to give strategic advice and held to high ethical standards.”
Mr Yates said consumers and the industry would be best served if providers moved to retrain their staff ahead of the statutory deadline.
“We would be prepared to discuss endorsing some financial planning providers if they moved swiftly to make their staff compliant,” he said.