The push has begun for a higher standard of financial planner, writes John Collett.
Financial planners are advising clients on their life savings having studied as little as five hours a week over a year - not much more than many hospitality courses at TAFE.
Though most planners do have higher levels of education and more ongoing professional development than the bare legal minimum, it leaves consumers exposed to planners who struggle to understand the complex advice many need.
The differences in educational attainment among financial planners make it hard for consumers to assess whether the person they are dealing with has the competence to offer a professional service.
The government, regulator, consumer groups and professional associations representing planners agree the minimum education required to give financial advice is far too low.
Just because someone is called a "financial planner" does not guarantee professional standards that consumers expect from doctors, lawyers or pharmacists.
However, the wheels are in motion to ensure planners have higher minimum levels of education - but they are turning slowly.
Bare minimum
The Financial Planning Association (FPA) is leading the way on raising the levels of education for financial advisers. It has about 8500 financial planners as members, only about half of the estimated number of financial planners in Australia.
The bare minimum of education needed to give financial advice is four subjects (including a foundation course) that typically require about 60 hours of study each or the equivalent of about three months of full-time study. That will meet the requirements of Regulatory Guide 146, which governs minimum training standards for planners.
Further, the minimally qualified planner would have to work for a licence holder or be a representative of a licence holder, but it is little wonder the fledgling profession has had its fair share of bad apples.
The Australian Securities and Investments Commission (ASIC) maintains a register of approved training courses. But there have long been concerns that some organisations, which provide training to meet Regulatory Guide 146 and offer diploma courses, are more interested in chasing the revenue that comes from the fees charged for the courses than in lifting the educational attainment of participants.
Higher training standards are on the way but progress is slow.
Last year, the regulator said it wanted planners to pass a national exam to ensure they have the skills to perform their role.
Under the regulator's proposals, financial advisers would undertake a "knowledge update review" every three years and new financial advisers would have to be supervised for a year by a planner with at least five years' experience.
The new adviser would be able to give advice during that time but the advice would have to be vetted by the supervisor. The regulator is still consulting with the planning industry over its proposals and it intends to commence national testing from the middle of next year.
Higher education
Meanwhile, the FPA is lifting its members' educational standards.
From July 1 next year, new members will have to have an undergraduate degree. Existing members without an undergraduate degree will remain members. "There is no recognised profession in the world that does not have an undergraduate degree as its entry point, plus additional studies and experience requirements," the chief executive of the FPA, Mark Rantall, says.
The FPA promotes its Certified Financial Planner (CFP) certification as the "gold standard" of financial planning. The CFP designation now requires an undergraduate degree and professional experience, among other things.
The FPA has about 5600 CFPs out of its total membership of more than 11,000 members. "We are interested in ensuring that we have the highest standards and the best-educated planners in the marketplace," Rantall says.
The Association of Financial Advisers (AFA), the other major association representing planners, has about 2500 members. The chief executive of the AFA, Richard Klipin, says the association does not have plans to make an undergraduate degree the minimum qualification for membership.
"We are not mandating membership with minimum degree qualifications," he says.
"We will encourage learning and foster learning and we have a range of programs on offer and professional development requirement of 30 hours per annum. We have taken a philosophical view that to encourage and motivate is the better option, but the issue is in play."
Most employers do require higher education and training levels than the bare legal minimum. Most require at least a diploma-level qualification such as a diploma of financial planning or financial services, which typically requires between six and 10 courses to be completed at up to 600 hours of study, usually completed part-time over two years.
Consumer reforms
Several aspects of the government's reforms to financial planning will help lift professional standards, including educational levels. Under the government's reforms planners will effectively be forced to join a professional association.
Under the reforms, as long as the associations have their codes of conduct approved by ASIC, their members will be exempt from opt-in. The opt-in rule requires advisers to get consent from clients, who pay asset-based percentage fees, every two years to establish if they wish to continue.
That will be a powerful incentive for planners to join an approved association and abide by the association's professional standards.
Another reform is for the term "financial planner" or "financial adviser " to be recognised in law.
The government has said that it will table legislation in parliament by the middle of next year to enshrine the term in law. It will likely mean no one will be able to call themselves a planner or adviser without being a member of a recognised professional association.
The other big change - pending the final passage of legislation through parliament - is that planners will be put under a legal obligation to act in the best interests of their clients and to place the best interests of their clients before their own when providing advice.
The professional hierarchy
Make sure you get the highest expertise.
The Financial Planning Association has its Certified Financial Planner designation,
which now requires an undergraduate degree, professional experience and
ongoing professional development. From the middle of next year all new members of
the Financial Planning Association will have to have a relevant undergraduate degree.
The diploma of financial planning or financial services is the defacto minimum industry standard qualification required by most employers of financial planners. It goes beyond the Regulatory Guide 146 minimum.
The Regulatory Guide 146 is the bare legal minimum, which can be as little four courses completed online for a planner who advises on issues such as life insurance, superannuation and managed funds.
Frequently Asked Questions about this Article…
What are the current minimum education requirements for a financial planner in Australia?
The bare legal minimum under Regulatory Guide 146 is four subjects (including a foundation course) that typically involve about 60 hours of study each — roughly the equivalent of three months of full‑time study. A minimally qualified planner would also usually work for, or be a representative of, an authorised licence holder.
Why are financial planner qualifications in Australia being overhauled?
Regulators, consumer groups and industry associations agree the current minimum training is too low and leaves consumers exposed. Wide differences in educational attainment make it hard for investors to judge competence, so reforms are underway to lift minimum education and professional standards for financial advisers.
What national testing and supervision changes is ASIC proposing for financial advisers?
ASIC has proposed national testing (a single exam) to start from the middle of next year. It also wants advisers to complete a 'knowledge update review' every three years and for new advisers to be supervised for a year by a planner with at least five years’ experience. New advisers could give advice during supervision but that advice would need to be vetted by the supervisor.
How is the Financial Planning Association (FPA) raising education standards for planners?
The FPA is lifting entry requirements: from July 1 next year new FPA members will need an undergraduate degree. The FPA promotes the Certified Financial Planner (CFP) designation as the 'gold standard' — the CFP now requires an undergraduate degree, professional experience and ongoing professional development. The FPA has around 11,000 members, including roughly 5,600 CFPs.
Do I have to use a planner with an undergraduate degree to get financial advice?
Not yet across the board. The FPA will require a degree for new members, but other associations such as the AFA are not mandating an undergraduate degree for membership. Many employers do require higher qualifications — the diploma of financial planning is the de facto industry minimum for most firms — and degree requirements are becoming more common.
What’s the difference between the Regulatory Guide 146 minimum, a diploma and a degree for financial planners?
Regulatory Guide 146 is the bare minimum (four online courses ~60 hours each). A diploma of financial planning or financial services typically involves 6–10 courses totalling up to about 600 hours of study, often completed part‑time over two years, and is the industry standard many employers expect. An undergraduate degree is a higher standard being required by some professional bodies and for CFP certification.
How will recent government reforms help protect everyday investors?
Planned reforms include requiring planners to join approved professional associations (if those associations’ codes are ASIC‑approved), recognising the terms 'financial planner' and 'financial adviser' in law, and imposing a legal duty to act in clients’ best interests. Being in an ASIC‑approved association can also exempt advisers from the opt‑in rule, which otherwise forces asset‑based fees to be re‑consented every two years.
What should I ask or check to judge a planner’s competence and qualifications?
Ask whether the planner has an undergraduate degree, a diploma of financial planning, or CFP certification, how much professional experience they have, whether they belong to a recognised association (such as the FPA or AFA) and whether their training is from ASIC‑approved courses. Also ask about ongoing professional development and, for newer advisers, how supervision and vetting of advice is handled.
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