Financial planner exodus could stem Hayne's 'profession' vision
Educators hopeful planners will see benefits of learning
By Alex Sampson
Universities expect a rise in demand for courses needed to reach new minimum education standards for financial planners and advisors by 2024 will largely be filled by cheaper non-university providers.
They also expect many advisors to leave the industry to avoid the higher educational standards altogether.
Advisors have expressed resentment that they will have to complete further study despite career experience and existing academic credentials, with a Money Management survey revealing of those looking to leave the industry, 80% were doing so because of the increased Financial Adviser Standards and Ethics Authority (FASEA) education standards.
Deakin University Associate Professor and course director of financial planning programs Adrian Raftery said there were 28,000 registered financial advisers in Australia in December, and Deakin expected up to 10,000 to leave the industry before the new education standards came into effect.
“Of the remaining 18,000 that stay on, all of them will need to do at least one ethics subject and others may need to do seven or eight subjects depending on their prior education, so it’s really hard to understand what the total marketplace will be,” Raftery said.
“We expect Kaplan will be the leading provider, based on price, because they’re significantly cheaper than the traditional universities, and a lot of the advisors are going to make their decision based solely on price.
“I imagine the students who do not go to Kaplan will be spread between Deakin, Griffith University, Western Sydney University and Charles Sturt University – so at best we’re looking at 5% of the total market, so it’s not a huge increase.”
Raftery said the new education standards would provide benefits to the wider community, and public trust would rise, provided regulators held up their end of the deal to ramp up monitoring and disciplinary procedures.
“If they continue to give plenty of rope, advisors are going to continue to take advantage of that,” Raftery said.
“Education is just one small piece of this puzzle. We hope that the professionalisation of the financial planning industry will not be a waste of time and we’re going to be facing another royal commission in 10 years’ time asking what went wrong.”
A new era for the previously uneducated
Western Sydney University School of Business associate professor Sharon Taylor said some existing advisors had no prior education and classes would need to be offered with that in mind to help attract and retain those who were retraining.
“We’ve been offering courses like this for 25 years and are not surprised by any of these recommendations. Education is the keystone of any profession,” Taylor said.
“But some of these advisors who are starting from scratch are terrified of education and we need to help them, rather than make them feel like this education is here to punish them, and we’re tailoring our courses around that, including offering online courses.”
The changes
The changes, announced by the federal government in 2017 under a new FASEA regime, were reiterated in Commissioner Kenneth Hayne’s final banking royal commission report last week which concluded that "that prevention of poor advice begins with education and training". Hayne said the “proposed changes to lift the professional, education and ethical standards of financial advisers represent a further important step towards making financial advice a profession”.
The new FASEA education and ethical standards will require new and existing advisers giving financial advice on Tier 1 financial products – which include insurance broking, life insurance, superannuation, financial planning, managed investments, derivatives, securities and general insurance – to retail clients to meet new benchmarks. This includes compulsory education for both new advisors (which came into effect January 1, 2019) and existing advisers (due by January 1, 2024), as well as an exam (due to be sat by January 1, 2021).
From January 1, 2019, the maximum requirement for a new entrant is an approved bachelor’s degree comprising 24 subjects, with the minimum requirement being an approved graduate diploma of eight subjects. Existing advisers will need at least one bridging course – the FASEA Code of Ethics and Code Monitoring Bodies, by 2024.
Hayne's interim report identified that of the about 25,000 financial advisers registered in Australia, only 8,704 had told corporate regulator ASIC that they had completed a degree at bachelor level or above, representing just 35% of all advisers with formal education.
This was not the first time the problem of under-education of financial advisors had been flagged as a potential cause of bad advice and poor ethical standards in the industry. This problem was also raised in the 2014 Murray Financial System Inquiry, and yet accreditation standards have not risen appreciably since then.
Swinburne University, Macquarie University and University of Technology Sydney were all expecting an increase in demand for financial courses, but could not quantify the expected size. They are each offering new postgraduate courses to meet expected increased demand. However, the University of Sydney said it was “very early days” for the banking royal commission final report and it was “premature to speculate what impact it might have on demand for higher education financial courses”.
Hayne noted in his final report that “once these changes have taken effect, it may be possible to ask again whether the financial advice industry has truly changed from an industry dedicated to the sale of financial products to a profession concerned with the provision of financial advice".