Introduction

The Treasury has released draft legislation for industry consultation in respect of its measures to raise the education, training, and ethical standards for all persons who are financial services licensees, authorised representatives, and employees of financial services licensees or authorised representatives, who provide personal advice to retail clients in relation to relevant financial products (financial advisers).

The proposed legislation includes:

  1. new educational requirements for financial advisers;
  2. a new independent, industry-established 'standards body';
  3. transition requirements for existing financial advisers;
  4. a requirement for all financial advisers to commit to continuing professional development (CPD) and become a party to the code of ethics; and
  5. an effective date of 1 July 2017, with the code of ethics requirements coming into force from 1 July 2019.

Each of the above changes is discussed in more detail under the relevant heading below.

The new changes and the implications for financial advisers

New educational requirements:

Under section 921B, in order to become a new financial adviser a person must complete the following three educational preconditions:

  1. a bachelor degree, or equivalent qualification, approved by the standards body;
  2. a year of either work or training, or work and training, that meets the requirements set by the standards body; and
  3. the passing of a professional exam approved by the standards body.

Industry 'standards body':

Division 8C of the proposed legislation provides for the creation of an independent, industry- established 'standards body' to:

  1. approve bachelor degrees and equivalent qualifications;
  2. set the requirements for the work and/or training year;
  3. approve a professional exam to be administered;
  4. set CPD requirements; and
  5. create an industry-wide code of ethics.

The standards body must be operational from 1 July 2016, and section 921L(3) allows the standards body to charge fees for the performance of its functions.

Transition requirements for existing financial advisers:

Under section 1546B, by 1 July 2019 all existing financial advisers are required to have:

  1. passed the professional exam approved by the standards body; and
  2. completed an appropriate bridging course or courses, to raise their educational qualifications to a bachelor degree level or equivalent, as approved by the standards body,

or they will cease to be a financial adviser and will be shown on the Register of Relevant Providers as non-compliant.

Existing financial advisers are therefore not required to undertake a professional year of either work or training, or work and training, as it is considered that such persons have already accrued sufficient practical experience working in the financial services industry.

In addition, ASIC has a power under section 926A of the Corporations Act to exempt a person who is an existing financial adviser from meeting the transitional education and training standards by 1 July 2019 in particular circumstances. The exemption may be issued subject to specified conditions.

Continuing Professional Development (CPD) and the code of ethics:

In addition to having fulfilled the requisite educational and training standards set by the standards body, whether by precondition or transition, financial advisers must continue to meet the requirements for continuing professional development (CPD) set by the standards body from time to time.

Furthermore, from 1 July 2019, all financial advisers will be required to be a party to the binding code of ethics (as approved by the standards body) and must be covered by an ASIC-approved monitoring and enforcement 'compliance scheme' developed by their licensee or professional association to ensure their fulfilment of the code of ethics.

Applications to register a compliance scheme by licensees or professional associations will need be lodged with ASIC for approval and must set out the following details of the compliance scheme:

  1. arrangements for monitoring compliance with the code of ethics by financial advisers covered by the compliance scheme;
  2. sanctions for breaches of the code of ethics by covered financial advisers;
  3. arrangements for resolving disputes between the monitoring body for the compliance scheme and covered financial advisers;
  4. for a compliance scheme of a financial services licensee - the name of the monitoring body for the compliance scheme.

Conclusion and next steps

We are assisting many of our clients with their submissions to Treasury in relation to the draft legislation.

If you are uncertain about the draft legislation, or would otherwise like to make a submission to Treasury in relation to the draft legislation, please do not hesitate to get in touch with a member of our team.

Supplementary information

Click here to view the draft legislation.