Professionalising the financial planning industry - AIST · Deakin University CRICOS Provider Code:...

Deakin University CRICOS Provider Code: 00113B

Professionalising the financial planning industry

Dr Adrian Raftery (Deakin University) Australian Institute of Superannuation Trustees 15 July 2015


OUTLINE

• Financial Planning today

• The response

• Costs, benefits & trade-offs of professionalism

• Consumer protection – good & bad

• Q & A session


AN INDUSTRY IN DISTRESS …


Would you trust this man to look after your financial affairs?


MOST TRUSTED PROFESSIONS IN AUSTRALIA - 2014

1. Paramedics 2. Firefighters 3. Rescue volunteers 4. Nurses 5. Doctors 5. Pilots 7. Pharmacists 8. Air traffic controllers 8. Farmers 8. Veterinarians 11. Police 12. Armed forces personnel 12. Scientists 14. Teachers 14. Dentists 16. Childcare workers 17. Bus/train/tram drivers

18. Flight attendants 19. Locksmiths 20. Hairdressers 21. Postal workers 22. Computer technicians 22. Waiters 22. Plumbers 25. Accountants 25. Cleaners 27. Security guards 27. Builders 27. Mechanics 30. Shop assistants 30. Truck drivers 32. Professional sportspeople 33. Alternative health practitioners 34. Bankers

35. Financial planners 36. Tow-truck drivers 36. Charity collectors 36. Lawyers 36. Clergy (all religions) 40. Airport baggage handlers 41. Taxi drivers 42. Journalists 43. CEOs 43. Radio talkback hosts 45. Real estate agents 45. Call centre staff 47. Sex workers 47. Insurance salespeople 49. Politicians 50. Door-to-door salespeople

Source: 2014 Reader's Digest Most Trusted People Poll


BUYING PROPERTY WITHIN AN SMSF

Source: Roy Morgan Image of Professions Survey 2014


A PROFESSION OR AN INDUSTRY?

• Accounting profession • Law profession • Medical profession • The ‘oldest’ profession • Financial planning profession industry • Service profession industry • Media profession industry • Real estate profession industry • Building profession industry


WHAT MAKES A PROFESSION?

• Specialised body of knowledge

• Education/training

• Professional bodies – Professional standards

– Code of ethics

– Disciplinary measures/self-regulation

– Ongoing education or continuing professional development (CPD)

• Public trust


AUSTRALIAN QUALIFICATIONS FRAMEWORK


MINIMUM EDUCATION LEVEL FOR FINANCIAL PLANNERS

ASIC Regulatory Guide (RG) 146 • Diploma equivalent (AQF 5)

ASIC Consultation Papers • CP212 Bachelor equivalent (AQF 7) • CP153 National competency exam


ARE CURRENT EDUCATION LEVELS ADEQUATE?


CURRENT/PROPOSED GOVERNMENT REVIEWS AND INQUIRIES


Retirement Income

Discussion

FoFA

Forestry MIS

Inquiry

TASA

FSI

Budget

Regulatory Landscape Senate Inquiry

into Financial Advice

PJC Report

ASIC Insurance

advice report

Financial Literacy

Adviser Register

AFA/FSC LIAWG

Tax White Paper


FINANCIAL SYSTEMS INQUIRY

Raise the competency of financial advice providers and introduce an enhanced register of advisers. Government should continue the current process to raise the minimum competency standards for financial advisers. In the Inquiry’s view, the minimum standards for those advising on Tier 1 products should include: • A relevant tertiary degree. • Competence in specialised areas, such as superannuation, where relevant. • Ongoing professional development — including technical skills,

relationship skills, compliance and ethical requirements — to complement the increased focus on standards of conduct and professionalism

Recommendation 25, FSI Final Report (2014)


FINANCIAL SYSTEMS INQUIRY (CONT’D)

Rename ‘general advice’ and require advisers and mortgage brokers to disclose ownership structures. The current regulatory framework makes an important distinction between personal and general advice: • Personal advice takes account of a person’s needs, objectives or personal

circumstances, whereas general advice does not. • General advice includes guidance, advertising, and promotional and sales

material highlighting the potential benefits of financial products. It comes with a disclaimer stating that it does not take a consumer’s personal circumstances into account.

However, consumers may misinterpret or excessively rely on guidance, advertising, and promotional and sales material when it is described as ‘general advice’.

Recommendation 40, FSI Final Report (2014)


FSI REPORT & RECOMMENDATIONS

Ban borrowings by super funds (including SMSFs)

Upfront life insurance commissions cannot be greater than ongoing

Require trustees to offer members income stream products with longevity risk protection

Strengthen product issuer and distributor accountability and the introduction of product intervention powers for ASIC.

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PARLIAMENTARY JOINT COMMITTEE

• Looked into the professional, ethical and education standards in the financial services industry – issued recommendations in December 2014

• Treasury released Consultation Paper

• Recommendations include: • Co-regulatory model • “Relevant” bachelors degree (AQF 7) • Grandfathering of existing financial planners • Professional Year • Registration exam • Mandatory professional membership • Code of ethics • Creation of FPEC



Professional Standards Council (PSC)

Finance Professionals’ Education Council (FPEC) Approve

professional bodies & Code of Conduct Academics

Consumer advocates An Ethicist

Professional Bodies



New Financial Planners From Jan 2017

1. Complete Approved Course at AQF7

2. Complete a Professional Year

3. Pass a Registration Exam

4. Member of an Approved Professional Association

Current Financial Planners By 1 Jan 2019

1. Satisfy Recognised Prior Learning (RPL)

2. Complete a Professional Year

3. Pass a Registration Exam

4. Member of an Approved Professional Association


PJC TIMELINE


PJC CONSULTATION TIMELINE

Dec 2014: PJC Report

25 March 2015:

Discussion Paper

May/June 2015:

Submissions & Consultation

July 2015: Government to confirm policy


COSTS OF PROFESSIONALISING FINANCIAL PLANNING

• Extra costs of running a practice – Initial upgrade of education levels

– Annual professional membership fees

– Ongoing CPD requirements

– Who will pay? Dealer group or firm?

– Will the costs be passed on?

– Advice less likely to be affordable & accessible? Only for the wealthy?

• Loss of experienced financial planners who may not have a degree but have been to the ‘University of Life’


BENEFITS OF PROFESSIONALISING FINANCIAL PLANNING

• More quality advice – Only 1 in 5 Australians seek financial advice currently … will more be attracted if there is

a quality service being provided?

• Elimination of cowboys by raising the bar

• Lower PI claims which will lead to lower PI costs – will savings be passed onto clients?


TRADE-OFFS OF PROFESSIONALISING FINANCIAL PLANNING

• Earlier retirement for some financial planners

• Advisers elect to do the minimum rather than best practice

• What is the optimal level?


CONSUMER PROTECTION – THE GOOD

• Advice from AFSL holder or authorised representative – Financial requirements

– Enforceable legal obligations

– ‘Adequate’ PI insurance

– ‘Adequate’ compensation & dispute resolution procedures

• New obligations under FoFA reforms – Take any other step … in best interest of clients

– Provision of appropriate advice

– Warnings if advice is based on incomplete/inaccurate information

– Prioritising client’s interests


FOFA – BEST INTEREST DUTY – S961B CORP LAW

Provider must act in the best interests of the client (1) The provider must act in the best interests of the client in relation to the advice (2) The provider satisfies the duty in subsection (1), if the provider proves that the provider has done each of the following:

(a) identified the objectives, financial situation and needs of the client that were disclosed to the provider by the client through instructions; (b) identified:

(i) the subject matter of the advice that has been sought by the client (whether explicitly or implicitly); and (ii) the objectives, financial situation and needs of the client that would reasonably be considered as relevant to advice sought on that subject matter (the client’s relevant circumstances);



(c) where it was reasonably apparent that information relating to the client’s relevant circumstances was incomplete or inaccurate, made reasonable inquiries to obtain complete and accurate information; (d) assessed whether the provider has the expertise required to provide the client advice on the subject matter sought and, if not, declined to provide the advice; (e) if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product:

(i) conducted a reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered as relevant to advice on that subject matter; and (ii) assessed the information gathered in the investigation;



(f) based all judgements in advising the client on the client’s relevant circumstances; (g) taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances


CONSUMER PROTECTION – THE GOOD (CONT’D)

• Well-resourced regulators (ASIC & APRA) • Membership of an external dispute resolution scheme • Whistleblowers • Professional & ethical codes • Court system • Schemes of last resort

– National Guarantee Fund

– Financial Claims Scheme

– Part 23 of SIS Act 1993


CONSUMER PROTECTION – THE BAD

• Advice from those that don’t hold an AFSL or not an authorised representative

– Property developers

– Real estate

• Advice that is beyond scope of AFSL • Low minimum education standards • Optional professional membership • Limited or no compensation schemes in place • Collapse of financial services provider

– Rights only as an unsecured creditor


CONSUMER PROTECTION – THE BAD (CONT’D)

• Defence costs substantially drawn down out of PI cover • Protection of whistleblowers

– Breaches of confidentiality

– Fear of subsequent litigation

– Victimisation

• Accountability of other gatekeepers in value chain – Product providers, directors & auditors

• Limitations of EDR schemes – Can only deal with disputes up to $500,000

– Award compensation up to $280,000


CONSUMER PROTECTION – THE BAD (CONT’D)

• SMSFs not protected under Part 23 of SIS Act 1993 • Regulators ‘reactive’ rather than ‘proactive’


REMUNERATION

• Ban on conflicted remuneration under FoFA reforms – Doesn’t apply for insurance/risk advice

– Grandfathering of commissions pre 1 July 2013

• Annual fee disclosure statement (FDS)

• Opt-in for ongoing advice fees every 2 years

– Excludes those advisers that are members of professional body with code of conduct

– For advice after 1 July 2013

• Be wary of asset-based fees!!


FIGURE 1: SUPERANNUATION INDUSTRY IN AUSTRALIA 1996-2013 BY TOTAL ASSETS ($ BILLION)


THE DEAKIN OFFERING

Diploma in Financial Planning via DeakinPrime (AQF 5) Bachelor of Commerce (majoring in Financial Planning) (AQF 7) Graduate Certificate in Financial Planning Graduate Diploma in Financial Planning (AQF 8) Masters in Financial Planning (AQF 9) Certified Financial Planner Program (FPA) via DeakinPrime


BACHELOR OF COMMERCE

- 24 units (3 years) - assessed as an approved Degree by the Financial Planning Education

Council. Graduates are eligible for entry into the CERTIFIED FINANCIAL PLANNER® Certification Program which is offered by the Financial Planning Association of Australia.


MASTERS IN FINANCIAL PLANNING

- 16 units (2 years) - assessed as an approved Degree by the Financial Planning Education

Council. Graduates are eligible for entry into the CERTIFIED FINANCIAL PLANNER® Certification Program which is offered by the Financial Planning Association of Australia.

- Successful completion of the Master of Financial Planning also provides advanced standing for three of the five CFP® Certification subjects, namely CFP 2, CFP 3 and CFP 4.


MASTERS IN FINANCIAL PLANNING

Core units • Financial Markets • Investments and Portfolio Management • Superannuation & Retirement Planning • Managing Client Relationships • Estate Planning Strategies • Financial Planning and Analysis • Principles of Income Tax • Commercial and Corporations Law • Principles of Risk and Insurance • Financial Planning Development (capstone)

Plus 4 credit points from: • Treasury and Risk Management • Modelling Techniques for Finance • Investment Valuation • Accounting • Corporate Governance and Ethics • Economics for Managers • Marketing Management

Plus 2 credit points from other postgraduate units offered by the Faculty of Business and Law in the Master of Commerce and/or Master of International Finance


QUESTIONS


Contact details

Dr Adrian Raftery Senior Lecturer in Financial Planning & Superannuation Deakin University [email protected] (03) 9244 6643 @mistertaxman

mailto:[email protected]


GOOD LUCK!

Thank you

Professionalising the financial planning industry - AIST · Deakin University CRICOS Provider Code:...

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