Over the past two years, regulation of the financial planning and advice industry has been at the forefront of the political agenda. In response to various reviews regarding how to better regulate financial adviser training, the Australian Securities and Investments Commission (ASIC) has released Consultation Paper 153 (CP 153).
In summary, CP 153 seeks to introduce:
- a national certification exam for all financial advisers;
- a period of 12 months monitoring and supervision for all new advisers by an experienced adviser;
- a compulsory online knowledge update review for all advisers within two years of passing the adviser certification exam, and then every three years thereafter; and
- a centralised database for the recording of all certification and knowledge update review results.
A similar process is apparently used in other countries including the United States.
Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146) sets out the current minimum training standards that must be met by financial advisers. These standards vary depending on whether the adviser provides advice on Tier 1 or Tier 2 products and whether that advice is general or personal.
The results of several consultations and reviews have been influential in ASIC deciding to propose a new framework. These include:
- the Parliamentary Joint Committee on Corporations and Financial Services Inquiry into financial products and services in Australia in noting that there is a need to raise the minimum training and qualifications for advisers; and
- ASIC's reviews of RG 146 in 2009 and 2010, where it found that:
- concerns exist for the consistency and quality of training and assessment that is currently being provided to financial advisers;
- training, assessment, and professional development requirements in RG 146 should be increased;
- there exists a disparity in the standards of training between different training organisations with "fast-tracked" courses being particularly problematic as they do not cover topics comprehensively enough in a short period of time;
- assessment of knowledge should be by way of an examination based model and exams should be closed book;
- students should be tested on how to construct and present a Statement of Advice (SOA); and
- there exists a need for supervision of and more guidance for new entrants into the industry.
Proposed three tier framework
In response to the above concerns, ASIC is proposing to introduce a three-stage assessment and professional development framework to apply to all financial advisers who advise on Tier 1 products. The requirements of this framework would be in addition to the current continuing professional development regime (CPD) in RG 146.
ASIC proposes to introduce a national certification exam for all financial advisers which must be passed before providing personal or general advice on Tier 1 products to retail clients. This is intended to be a mechanism for providing a benchmark for training organisations. All advisers, whether new or existing, would be required to pass the exam.
The proposed exam would use a module based approach with both compulsory and specialised modules targeted towards the adviser's areas of expertise. Core modules would include the economic and regulatory environment and ethics. Advisers would not be permitted to provide financial product advice until they have passed every necessary module.
ASIC proposes that the exam be developed and administered by external exam committees which may be comprised of education and competence experts, industry representatives, exam experts, education providers and members of the Federal Government's Advisory Panel on Standards and Ethics.
The costs of taking the exam would be assumed by individual advisers, authorised representatives and/or the Australian Financial Services (AFS) licensee.
Monitoring and supervision
After passing the adviser certification exam, a new financial adviser must undertake 12 months full-time or equivalent monitoring and supervision by a supervisor who has at least five years relevant experience.
Existing advisers would not be required to undertake any monitoring and supervision period.
During the 12 month supervision period, the adviser would be authorised to provide financial services; however, all written advice would need to be vetted and signed off by the supervisor before the advice is given to the client.
Advice that is provided by means other than in writing, including oral advice, may be post-vetted retrospectively within a 48-hour period of the advice being given. Detailed notes of all time-critical or oral advice should be kept and discussed/signed off by the supervisor shortly after the advice is given.
In accordance with their statutory duties, licensees would be responsible for enforcing the monitoring and supervision requirement as part of their obligation to ensure that their representatives are adequately trained and competent to provide financial services.
After the transition period from 2015, only advisers who have completed the adviser certification would be qualified to supervise.
Knowledge update review
Under the proposed CP 153, a financial adviser would be required to undertake an online, computer based, knowledge update review within two years of passing the adviser certification exam, and then every three years thereafter. This review is in addition to CPD requirements.
The review would focus on changes to the regulatory environment and the market, and include a component on ethics. The same committees that prepare questions for the adviser certification exam would also prepare this review.
Consequences would exist for advisers who fail to complete the review within the requisite period of time and could be as severe as being suspended from providing financial services until the requirement is satisfied.
The costs of the review would be left to the discretion of individual advisers, authorised representatives and/or the licensee.
Centralised record of adviser certification
ASIC proposes to record all adviser certification and knowledge update review results in Australia. It is proposed that the adviser certification exam provider would collate these results and forward them to ASIC.
A centralised record for each adviser of Tier 1 products would then be created and kept by either the administering body or ASIC.
All certification and knowledge update review results would be accessible to AFS licensees to check the certifications status of advisers; however, it has not yet been determined how this information could be collated and released.
ASIC has called for comments on all of the above proposed initiatives and also on:
- whether a three year transition period should be introduced for all existing advisers and a shorter phase-in period for new advisers, with a view to minimising disruption to industry;
- the likely compliance costs;
- the likely effect on competition; and
- other impacts, costs and benefits.
Although the proposed requirements in CP 153 are a positive step forward to the financial industry, we believe ASIC still needs to consider:
- How would a standardised national exam cover all levels of advisers?
- Would a supervisor have to vet every piece of advice the trainee has given, including general advice?
- What would be the likely effect on competition? and
- The framework doesn't distinguish between personal and general advice and therefore, is the SOA preparation module required if only giving general advice?
Comments can be submitted to ASIC by 1 June 2011