New educational standards
Beginning in January 2019, new educational standards require anyone becoming a financial adviser in Australia to have an approved qualification in financial planning, at the level of a Bachelor’s degree, a Master’s, or a Graduate Diploma. Every course must be approved by the Financial Adviser Standards and Ethics Authority (FASEA), the federal government’s recently created regulatory body for the industry. Similar rules apply to existing advisers, who have until 2026 to make sure their qualifications meet this requirement.
These new standards are designed to ensure that every adviser has the knowledge and technical skills required to provide consistently high-quality financial advice. According to Capital Partners Private Wealth Advisers, founder and CEO David Andrew, the introduction of these standards is a valuable step towards raising the bar for financial planning as a profession.
“Historically, so much of the financial planning sector has been about product sales, and the barriers to entry have been very low,” he said. “As a result, the industry attracted a lot of salespeople, and unfortunately, that’s where a lot of the problems of the last few years originated. So the new education standards are very, very important in terms of resetting the whole advice sector.”
David says Capital Partners has been a long-standing advocate for professional standards, and that all the firm’s advisers already have the qualifications the new rules demand.
However, he emphasises that high-quality advice isn’t just about technical knowledge. It’s also about working closely with clients in a spirit of collaboration, empathy and support. That’s reflected in another new standard from FASEA that requires new advisers to complete a Professional Year working under the supervision of an experienced adviser.
David is a big fan of this approach. “It’s a bit like law or chartered accounting, where you work closely with an experienced partner to really learn the process of giving advice and working supportively with clients. I think the professional year is an excellent idea.”
A code of ethics
The industry’s other major reform is a new Code of Ethics, introduced in January 2020. The code sets out 12 core standards all financial advisers must follow, covering essential aspects like ethical behaviour, client care and process quality. David says the code is an important statement of the behaviour and standards financial advice clients have a right to expect from their advisers – one he believes is well overdue.
“A key thing the code confirms is that financial planners have a fiduciary duty to act in the best interest of clients, which is a pretty obvious statement,” David said. “A member of the public looking in from the outside might actually be a bit incredulous, and ask, ‘Hasn’t that always been the case?’ And for us at Capital Partners it always has been. But unfortunately there have been some advisers in this industry who have not behaved that way.”
For the Capital Partners team, complying with the new code is largely business as usual, with an added focus on potential ethical issues that could arise from complex advice situations.
“We are establishing an ethics committee, with regular get-togethers where we have a round table discussion of an ethical issue that we need to deal with,” David said. “So, it’s certainly increased the focus on ethical considerations. We’re far more aware of our conflict responsibilities when people are getting divorced, for example.”
What does it mean for you?
Already there are signs that the new standards have accelerated a changing of the guard across the industry. According to Adviser Ratings, 16% of advisers in Australia left the industry in 2019, with more tipped to follow.
David says it’s a welcome opportunity to attract new, highly qualified people to the sector and lift the overall standard of advice.
“I’m hoping that the improved standards and the improved quality of advice will attract people who might otherwise have gone into law or accounting, and it will become recognised as a true profession,” he said.
“For some firms that’s still a long way off. There are people who have always been very professional and then there are others who you know aren’t. And the sooner those people leave, the better.”
According to David, the changes mean one important thing for clients: “Clients will get better financial advice – that’s the bottom line.”
He believes there will be fewer conflicts of interest, especially from advisers in vertically integrated institutions selling their own products, which he says has been a significant problem in the past. There will also be a greater focus on ethical issues across the industry.
Most importantly, the new ethical standards recognise that financial advisers have a fiduciary duty towards their clients, which means they must act first and foremost with their client’s needs at heart.
“At Capital Partners, we’ve always regarded ourselves as fiduciaries,” said David. “So it’s good to see the rest of the industry catching up.”
Recognised as the FPA Professional Practice of the Year 2019 and 2017, Capital Partners is committed to upholding the highest fiduciary standards. This ensures that people who team up with us will live richer, happier lives.