Raising the bar for financial planners

This is Financial Planning Week. Normally such efforts at self-promotion would go unmentioned in this column, but let's make an exception. With the Financial Planning Association (FPA) stepping up its efforts to have the term "financial planner" enshrined in legislation, it seems opportune to look at what a financial planner is and should be.

This is Financial Planning Week. Normally such efforts at self-promotion would go unmentioned in this column, but let's make an exception. With the Financial Planning Association (FPA) stepping up its efforts to have the term "financial planner" enshrined in legislation, it seems opportune to look at what a financial planner is and should be.

The association is busting its boiler to be recognised as a profession up there with doctors, lawyers and accountants.

To many consumers, that might seem like a big ask but there's no doubt we could all use professional financial advice - particularly with an ageing population and a hefty retirement savings gap. It is a national disgrace that the majority of Australians do not feel confident to seek advice when they need it.

But while there are good doctors and bad doctors, good lawyers and bad lawyers, these professions at least have high minimum standards. To call yourself a financial planner you can currently undertake a course lasting just a couple of days or you can go the full hog and become a certified financial planner (CFP), which means you need a relevant undergraduate degree, an advanced diploma of financial planning if your degree was not a financial planning course, five units of post-university study at master's level (one unit of which is ethics), three years' supervised experience and to have signed up for ongoing education - just as a starting point.

Doesn't seem fair, does it?

The Australian Securities and Investments Commission is working on a new training and assessment regime for financial advisers, given criticisms its current standard, RG 146, which sets minimum training standards for providing financial product advice to retail clients, is too low. All advisers are expected to be required to complete a national exam by 2016 and sit ongoing tests. New advisers will need one year's supervised experience. But is this enough?

The FPA argues that if we're going to have legislation restricting who can call themselves a financial planner, the bar should be higher.

It has already introduced a requirement that its members be degree-qualified from next year.

Ideally, says the chief executive, Mark Rantall, all advisers should be aiming for CFP status but that's probably a bridge too far in terms of the proposed legislation and a compromise will need to be found somewhere between that and ASIC's bare minimum.

But as Rantall knows, education isn't necessarily a guarantee of good advice. He told the Herald this week of his own bad experience with financial advice.

About 14 years ago he sought advice from the financial planning arm of a major accounting firm.

"The advice was totally tax-driven and about their interests and what they could make rather than what was appropriate for me," he says. "They didn't take into account my risk profile. I took their advice and it cost me a lot of money."

Being fairly sophisticated financially, Rantall was embarrassed by the experience. But it has given him a first-hand insight into the need for advisers not only to be competent but to be open and transparent and to put clients' interests first.

The FPA has introduced a code of practice setting out how advisers should operate and requiring that they put their clients' interests first.

But Rantall says even if the association bans a member, they can still operate and call themselves a financial planner.

As part of its financial advice reforms, the government agreed to waive its contentious opt-in requirement (where your adviser will need to ask every two years if you still want to pay them for their services) for planners who signed up to a code of practice that "obviated" the need for it.

ASIC has to certify these codes and is expected to release guidelines on what they should include next month. While this is separate to the push to restrict who can call themselves a financial planner, signing up to an approved code would seem a logical requirement.

Of course, associations such as the FPA have an obvious interest in having the term "financial planner" legislated - just as the government faces a real danger in being seen to have "approved" bad planners if it sets the bar too low.

But for consumers to have trust in financial advice, issues such as whether an adviser is competent and ethical are vital. It is still way too easy to hang up a financial planning shingle.

Twitter: @sampsonsmh

The FPA has launched an advice website at fpadifference.com.au for consumers.

Flipping flicked

Consumers will be less likely to be automatically transferred into more expensive super products when they change jobs after an amendment to the government's MySuper Core Provisions Bill was passed in Parliament this week.

The amendment, moved by Greens MP Adam Bandt, bans "flipping" a dodgy practice in which employees changing jobs are transferred without their informed consent into higher-cost funds, often with inferior insurance. While they remain with the same fund provider, they find they have been shifted into the more expensive retail version of the fund rather than the wholesale version for which they first signed up.

Funds will now have to inform members of any changes and obtain their written consent to the transfer.

Research by SuperRatings (commissioned by the Industry Super Network) found flipping is a common practice in the retail industry and, of the funds it surveyed, the average fee increase was 28 per cent a year.

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