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Free-kick for cowboys a kick in the teeth for consumers

Apr 29, 2016

Yesterday the Assistant Treasurer, Kelly O’Dwyer, released a statement on “progressing professional standards reforms”. Well, it’s progress of a sort – if progress can be defined as delaying something by several years.

A revised draft of professional standards legislation and an accompanying explanatory memorandum are going to “targeted consultation” and won’t be released publicly. A suite of materials has been sent to about a dozen, largely industry-based, groups, and responses are expected within three weeks.

(A guidance note issued by the Department of the Prime Minister and Cabinet in 2014 says targeted consultation is appropriate when “an affected group of stakeholders is in a small or well-defined geographical area or business sector”; or “when consultation should be contained so that effort is not wasted in involving unaffected parties”.)

Essentially the Assistant Treasurer’s statement sets out a new timetable for changes that are already known about.

It says proposed new educational requirements for planners, including the much-debated exam, will start on January 1, 2019 – two years later than originally proposed. In turn, existing advisers will have until January 1, 2021 – two years – to pass the exam, and until January 1, 2024 – five years – to attain a degree or degree-equivalent qualification.

The extended timetable has left some observers gobsmacked.

“It’s disgraceful,” says Dr Adrian Raftery, a senior lecturer in financial planning and superannuation and an associate director of the Centre of Banking and Superannuation at Deakin University.

The changes outlined by O’Dwyer apply to existing advisers only and new entrants to the financial planning profession will still need to be degree-qualified, so demand for financial planning graduates will remain intense – as explained in the cover story in the May edition of Professional Planner.

Alternative pathways remain

It has never been the case that existing advisers would need a degree in order to remain in the industry, and the statement yesterday reinforces that. A “degree equivalent” that takes into account years of experience, skills and other qualifications has always been one of the alternative “pathways” open to existing advisers to meet the new standards.

O’Dwyer’s statement says the aim of the reforms is to “raise minimum standards in the financial advice industry and improve public confidence in the sector, whilst acknowledging the skills and expertise of existing advisers”. That’s fine, but apparently the government believes it’s OK push all of that back by years.

Disappointingly, the Assistant Treasurer’s statement does not advance understanding of the mysterious standards body, described in earlier draft legislation and ministerial missives, which will be responsible for setting education and ethical standards across the industry.

The statement clarifies that the body will initially be set up as a Commonwealth company – simply, a company established under the Corporations Act 2001that the Commonwealth controls – but that doesn’t really advance understanding of how it will work or how it will carry out its role. Getting the standards body right is absolutely critical to the integrity and effectiveness of any ethical and educational standards that follow. It must be unimpeachable in both its structure and its appointees.

Can’t afford only lip service

As industry commentator and long-time proponent of professionalism in financial planning, Robert MC Brown, has previously written, “if we choose to pay lip service to these reforms by seeking to control or improperly influence the appointments to the standards board, the industry’s status quo will remain substantially unaltered, its flawed culture will continue and these expensive reforms will achieve very little, other than imposing an estimated $165 million of additional compliance costs on the industry and its clients”.

O’Dwyer’s statement says the government will “seek views on whether the standards body should have the power to exempt, on a case-by-case basis, existing advisers from the requirement to pass the exam”.

“This exemption is intended to be reserved for highly experienced advisers with exceptional skills and qualifications,” it says.

No one yet knows who will chair the body, nor who its directors will be, how it will be funded and resourced, how it will be structured and what rights of appeal a financial planner might have if they are not exempted from the exam requirements.

At a loss to understand 2024

But at least now we have quite a lot more time to find out. Deakin University’s Raftery says he is at a loss to understand why the government has opted for the 2024 date.

“I do not know of any submission that went into the consultation that indicated the need for anything near 2024; 2024 is beyond me,” he says.

“The reality is that they do not want to legislate it at all, so they are just pushing it back. I don’t know why, whether it’s the RTOs [registered training organisations], but they wouldn’t have the influence; you’d think that the big six dealer groups that are responsible for 50 per cent of the advisers are the ones who have the influence, but I do not know how many of them would have been as aggressive as to suggest 2024.”

Raftery points out that by the time this period has passed it will be 16 years on from the global financial crisis, and a full decade after the height of the financial planning scandals that led to the Future of Financial Advice(FoFA) legislative reforms.

“All the cowboys out there, they’ll be going to the bar tonight and popping the champagne corks,” Raftery says.

Raftery says that if he were a crooked financial planner he’d be heaving a sigh of relief.

“[The government] had an opportunity to make a change to the industry and they have basically just delayed it again,” he says. “If I were an adviser, I wouldn’t be doing anything to raise my education standards now.”

How the industry reacted

Original article published in here Professional Planner on 29 April 2016.

 

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