Prepared by Nicholas Cardone
What are the new requirements?
From 1 January 2019, advisers are required to comply with new professional standards. ‘Existing’ advisers (i.e. those who were on ASIC’s Financial Adviser Register at any time between 1 January 2016 and 1 January 2019) have more time to comply. In summary, all advisers must:
- hold a relevant bachelor or higher degree, or equivalent qualification, from 1 January 2019 (‘existing’ advisers have until 1 January 2024 to satisfy this);
- complete a standardised industry exam from 1 January 2019 (‘existing’ advisers have until 1 January 2021 to complete this);
- comply with new CPD requirements set by FASEA from 1 January 2019;
- comply with the new Code of Ethics and become a member of an ASIC-approved compliance scheme (which monitors compliance with the Code of Ethics) from 1 January 2020; and
- complete a professional year under the direct supervision of another adviser (this requirement does not apply to ‘existing’ advisers).
This regime has effectively replaced ASIC RG146 and imposes additional requirements for financial advisers to consider. FASEA is responsible for implementing and overseeing this regime. FASEA will approve qualifications, set the standardised industry exam and CPD requirements and draft the Code of Ethics.
Will I need to go back to university to comply with these new requirements?
This depends on your existing qualifications. Based on FASEA’s requirements (see here), you will generally fall into one of five education pathways. Please refer to the “FASEA Qualifications Roadmap” link below.
So, you’re saying that my existing Diploma in Financial Planning qualification is now useless?
Unfortunately, your existing Diploma will not be recognised by FASEA. A bachelor degree is now the minimum standard for financial advisers.
The only qualifications that FASEA will recognise that are below the bachelor degree standard are an Advanced Diploma of Financial Services/Planning or a CFP designation with the FPA. However, only 2 credits will be awarded for these qualifications – this means that a bridging course or Graduate Diploma (where applicable) still need to be completed. CAANZ are currently in talks with FASEA to have the CA Program recognised – if effected by FASEA CAs would only need to complete one bridging course on FASEA’s Code of Ethics.
An exam?! Will it be hard?
The exam will contain at least 70 questions with a mix of multiple choice and written response questions on a range of subjects relevant to the provision of financial advice (including ethics). It will attract a fee of $540 excluding GST per student to complete.
The exam will be 3.5 hours long (plus 15 minutes reading time), and will need to be completed at a physical location (i.e. not completed online). All advisers will need to achieve a scaled passing score of 65%. Thankfully, it will be open-book for statutory materials.
How much CPD will I need to complete?
A 40-hour CPD requirement has been implemented by FASEA. CPD training must be distributed across the following areas:
- Technical competence (at least 5 CPD hours);
- Client care and practice (at least 5 CPD hours);
- Regulatory compliance and consumer protection (at least 5 CPD hours);
- Professionalism and Ethics (at least 9 CPD hours); and
- General CPD (the balance of CPD hours) – this CPD does not fit in the above categories but is relevant to an adviser’s professional capabilities, knowledge and skills.
70% of the CPD completed must be approved by the relevant AFS licensee. No more than 4 hours of professional or technical reading can be counted.
Each adviser must develop a ‘Professional Development Plan’ that complies with FASEA’s requirements and outlines the CPD courses that will be completed for the year (based on the Licensee’s approved courses). The AFS licensee must also have a ‘CPD Policy’ that sets out the Licensee’s approach to CPD. The CPD Policy must be uploaded and made available on the Licensee’s website.
The Professional Development Plan and CPD Policy must be finalised and implemented before 31 March 2019. We will help you implement this.
Will the other CPD I complete for my professional memberships count towards these new CPD requirements?
There will likely be significant overlap between FASEA’s CPD regime and the FPA’s CPD regime – the only difference would be the need to complete specific CPD on FASEA’s Code of Ethics. We consider that accounting CPD could potentially be used towards the General CPD category, but any CPD completed here should have a clear link to financial services to be counted towards FASEA’s CPD requirements. AFS licensees should keep this overlap in CPD regimes in mind when approving courses for FASEA’s CPD regime.
What happens if I breach the CPD requirements?
Any breach of the CPD requirements must be reflected on ASIC’s Financial Adviser Register. This creates a huge reputational risk in the event of a breach.
Another Code of Ethics? How will this interact with my professional association’s existing Code of Ethics?
The FASEA Code of Ethics is completely different to any other Code of Ethics that you currently comply with as part of your professional memberships. The FASEA Code of Ethics only applies to the financial services you will perform, but will have a huge impact on your business and will require a complete reshuffle of your existing processes to ensure compliance.
But normally a Code of Ethics is a toothless tiger. Will this really impact my business?
Yes – there are a variety of mandatory principles that codify existing best practice within the industry. For example, to ensure compliance with the Code of Ethics, you will need to ensure that:
- The broader effects of the advice you provide to a client are considered (Standard 6). This could require you to consider the implications of the advice you are giving on the other family members of your client, or recommending ‘ethical’ investments to a client. This is significantly broader than the existing the best interests duty.
- The fees you charge your client, and the commissions you receive, are ‘fair and reasonable’ (Standard 7). Unhelpfully, no guidance is given on what constitutes ‘fair and reasonable’. This could have a significant impact on remuneration arrangements underpinning trail commissions and ongoing fee arrangements.
- You act only upon the client’s ‘free, prior and informed consent’ (Standards 4 and 7). This could require a review of your existing procedures relating to client engagement and the implementation of advice on behalf of a client.
- All advice provided to a client is not based on information that is neither misleading or deceptive (Standard 9). Practically, you may need to only use reputable providers for information and ensure that your advice specifies when you rely on this information.
For clients on Rescue, we will help you in implementing these requirements.
What happens if I don’t comply with the Code of Ethics?
You will need to become a member of a compliance scheme who monitors your compliance with the Code of Ethics. If the compliance scheme determines you have breached the Code of Ethics, several sanctions can be imposed by the compliance scheme (including orders to refund the client). The compliance scheme even has the power to exclude you from coverage under the compliance scheme, which will result in a technical breach of the Corporations Act.
ASIC can also terminate or suspend an AFSL for breaches of the Code of Ethics. In addition, breaches of the Code of Ethics will appear on ASIC’s Financial Adviser Register.