If More Education is the Straw that Breaks the Camel’s Back, What is the Point?
The Australian financial services industry is highly regulated, especially when it comes to the provision of financial advice. Even so, there is still concern about the inadequacy of education levels among advisers.
In recent years, this concern has been aggravated by the high-profile collapses of advisory firms Westpoint and Storm Financial, where poor financial advice resulted in significant losses for thousands of investors. This was then exacerbated by the global financial crisis. And, more recently, the Commonwealth Bank has been caught up in a financial planning scandal, involving allegations of misconduct and forgery.
In cases of poor advice, we need to ascertain the reason the advice was given in the first place. Was it due to basic ignorance about the correct advice process; or maybe it was driven by financial motives? Either way, the question needs to be asked: will placing provisions on the education requirements of financial advisers prevent these actions in the future, or act purely as a panacea?
Two major sources
Historically, financial advisers have been sourced from two major areas: first, from the accounting profession, where accountants wished to provide services beyond the scope of their traditional offering; and second, new off-the-street advisers, with no financial services background and minimal formal training. For the accountants, it was a case of extending their existing service offering; but for the others, it was about breaking into a new career. And these “others” often had no previous financial planning experience.
The industry has now matured and is growing as a profession. The financial services reform introduced in Australia in 2002 had a considerable impact on the industry and on other groups such as the accounting profession, regulators, educators and consumers.
Most advisers have gone beyond the stated entry level requirements in order to provide advice. They are ethical, hard-working and honest people, unfortunately tainted by some bad apples within the industry. And these bad apples have been at both the adviser level and, in some cases, the corporate level, where organisations have been fully aware of dubious strategies yet allowed them to continue.
Plethora of change
Winding the clock forward, we have gone through a plethora of ongoing regulatory change. We are now at the stage where various licensees are placing educational obligations on advisers, ranging from completion of full Certified Financial Planner (CFP) via the Financial Planning Association (FPA), or the Fellow Chartered Financial Practitioner (FChFP) with the Association of Financial Advisers (AFA), through to the ultimate MBA (Finance). There are specific timelines for completion, ranging from two to five years.
This raises a number of questions. What will happen to advisory practices if the relevant qualification is not attained by an adviser within the specified period? Is the practice still compliant? What happens to the licensee’s revenue source? What about vertically integrated practices such as an AMPFP – what will happen to client ownership within this structure? The doors may be opened to various legal tests if these issues are not thought through correctly.
Whilst education is obviously a requirement that should be supported by all advisers, we need to consider what cost the ongoing regulatory and educational change is having at the practice level. Most advisers agree that the changes are long overdue – and are necessary for a professional industry – but they also feel that we have been under undue scrutiny for far too long.
As a practice owner myself, I realise that the extra time now involved in interviewing clients, recommending products and strategies, and preparing and finalising advice also creates extra costs. Similarly, the education of advisers creates ongoing costs – both in time and money – that will ultimately add to the cost of providing ongoing advice to clients.