It’s possible that 1 January 2020 will be the date financial advice and financial planning in Australia changed forever. Theoretically at least, the days of schemes and hard-sell of financial products are over; or at least they should be.
From January 1, 2020, all financial planners and financial advisers need to abide by a compulsory Code of Conduct making it harder than ever for a charlatan to masquerade as a financial planner. For a start not just anyone can use the term financial planner or financial adviser anymore. These are now regulated terms under the Corporations Act, and to use these terms an adviser must be listed on the ASIC financial adviser register.
So, for those advisers on the ASIC register, the new regulations require them to meet new minimum standards of education, abide by a new code of conduct, and complete an ethics examination. Gone are the days when a three-week course from a bank could turn out a fully qualified financial planner.
These education standards are long overdue. From last January a new financial planner can only gain registration if they have a degree qualification in financial planning and have completed a professional year supervised by a registered professional. This is the minimum standard professions like accountants, lawyers and engineers have been following for years.
As for existing financial planners the new education standards impact them too, as they will need to meet the new standard by January 2024.
The result of these new standards has been the exodus of thousands of existing financial planners from the sector with many retiring early, and others simply unwilling to rise to the new standard. This can only be good for consumers in the long-term.
The new code of conduct will create a clear division among existing advisers. For one group, those who have always acted in their clients’ best interests, it will largely be business as usual. These are the committed professional advisers who take great care to ensure their advice is thoroughly researched and implemented.
For the other group, product salespeople, life as an adviser just became very hard indeed. The federal government’s standards body FASEA, requires all advisers to abide by the values of trustworthiness, competence, honesty, fairness and diligence. In addition, they must meet the 12 standards set out in the FASEA Code.
For anyone outside the financial planning industry the new Code reads like common sense. It is based on the Fiduciary rule which dates to English law in the times of Charles I. It recognises that financial advisers accept a fiduciary duty on behalf of their clients, and in doing so are required to act first and foremost with the needs of their client in mind. As part of this rule, strict care needs to be taken to avoid any conflict of interest. The only conflict an adviser can legally have is that they need to be paid for their services, and so will need to clearly explain, document and gain agreement from the client each year for the fees to be paid.
There’s a lot to like about these new rules, and other than some of the detail, there’s very little to argue about.
I say bring it on. Let’s usher in a new era of professionalism and raise standards for consumers and for the financial planning profession.