FASEA - Time to show Brave leadership

An estimated 16,000 current financial advisers don’t hold a relevant degree under the draft FASEA guidelines released for consultation in March 2018. That is 2 out of every 3 advisers currently listed on ASIC’s Financial Adviser Register. Futures are in the balance – and not just of advisers, but of the millions of Australians that rely on their current financial adviser for guidance, peace of mind, security, and financial well-being.

Under legislation, by 1 January 2024 all existing financial advisers need to meet the new minimum education requirements of holding a degree or attain degree-equivalent status. Degree-equivalent is an undefined term in academic circles, and it is FASEA (Financial Adviser Standards and Ethics Authority) that gets to decide what degree-equivalent is.   When the legislation was passed in 2017, it sounded like there would be 8 years for existing advisers to attain this equivalent status – but in reality, it is half that.

1 January 2024 is really 31 December 2023 – there goes one year off the headline period between 2018 and 2024.

Knock another year off because the final decision by FASEA on what academic and practical experience will qualify as degree equivalent won’t be made until late this year, which is as good as January 2019.

Then the education providers (which will be big financial winners from all of this) will want to build and market bridging courses and have them FASEA approved – and that will take well into 2019 if not the start of 2020 to have those available. Many education providers are in the process of updating their Graduate Diplomas to have them approved first by FPEC, and then hopefully endorsed by FASEA. On June 22 FASEA released a guidance note that says there are no Graduate Diplomas currently approved to meet the guidelines under section 921B(2)(a) of the Corporations Act.

So, what sounded like an eight-year period to meet the new minimum standards is more like 4 years – from the start of 2020 to the end of 2023.

960 Hours of Study

For many advisers without a FASEA approved related-degree, the pathway as it stands is that an 8-subject Graduate Diploma specific to financial advice will need to be completed. One Grad Dip subject usually requires at least 120 hours of study according to Kaplan, thus making a full Grad Dip around 960 hours of hitting the books. If we break that down over 4 years it represents 240 hours a year or 30 work-days (6 full working weeks per year!) – there goes all of an adviser’s holidays with their family and some weekends – and for four consecutive years!

Another way to consider this is it represents about 5 hours a week, every week of the year, for four years. Maybe that sounds more manageable but then again that’s more time than most people find to exercise in a week, or read to their kids before bed, or train their son or daughter at football practice.

Now, this all assumes an adviser starts studying as early as possible in 2020 when the courses become widely available. Any delay in starting to earn their Grad Dip beyond January 2020 and, like compound interest, things escalate. A one-year delay now needs 6 to 7 hours a week, and a two-year delay means an entire work day, plus a long evening, is needed every week to get the qualification done on time – And all of that is assuming that there are no fails and repeats needed along the way.

And this doesn’t begin to consider the cost of study, and the opportunity cost of less time spent advising. We’re talking thousands of dollars.

FASEA Decision will Decide Others’ Fate

FASEA is considering submissions before they make a final decision on what they will decree as degree-equivalency for existing financial advisers. A lot is at stake. And the clock is ticking down.

Their decision is going to be the most significant trigger in deciding the fate of the more than 16,000 financial advisers that are estimated to NOT hold a related degree under the draft guidelines FASEA released in March.

FASEA has a well-balanced Board comprising a highly credentialed independent chair, three consumer representatives, three financial services representatives, an ethicist, and an academic. They are faced with what could be considered mutually exclusive goals:

1)    Send a strong message to consumers (voters) horrified by the evidence coming from the Royal Commission and be seen to crack down hard on existing advisers; or

2)    Ensure a sufficient supply of competent advisers remains available to provide important financial certainty to around 5 million Australians that currently receive financial advice, plus an estimated 80,000 more Australians that will retire between now and 2024 that will seek financial advice for their retirement.

The FASEA Board need the Wisdom of Solomon to make the decision right, and they will need the Patience of a Saint to endure the criticisms that will come their way. Everyone would do well to remember that the legislation specifically allows for degree-equivalency - and that was negotiated in a professional standards industry and consumer representatives working group that promoted it to the Minister. This was so that a fair transition framework would be available for existing advisers.

So, what should FASEA decide?

Firstly, they need to be brave, and brave in this instance is to ensure their decision does not strip Australians of an adequate supply of experienced, competent financial advisers.

Experience comes from time at the coal face of financial advice, not from Uni courses, books, webinars, and lectures.

Industry-wide competency will be established by each adviser needing to pass the Competency Exam before 1 January 2021, regardless of their academic qualifications. That exam will be set at degree-standard.

Brave is also admitting that the aspirational (and theoretically perfect) outcome of all advisers holding a related financial planning degree before 2024 will not work as the exodus of good advisers will leave too many Australians without an adviser – that is until a more ready-supply of bright and shiny university graduates attain enough life experience and maturity to adequately fulfil the role of financial adviser. It’s not a role that you can simply leave Uni at about 22 years of age and jump into (I’m sure there will be exceptions, but that won’t be the rule).

We could be talking an acute skills gap in our profession of more than 10 years which coincidentally was the period of time identified in the AFA whitepaper A New Financial Advice Competency Framework for attaining mastery.

Trade-off Needed

A trade-off is needed; a trade-off that will work in practice and in principle. That trade-off is for FASEA to expand what they have indicated that they will accept as degree-equivalent for existing advisers. My view is that they should accept:

·       An existing adviser with any degree, AND that holds either the AFA’s professional designation FChFP, or the FPA’s CFP – providing neither were granted under grandfathered terms and the course work was completed.

What About Existing Advisers Without a Degree?

An existing adviser that has significant experience as a practising adviser, AND that holds the Advanced Diploma in Financial Services, will be able to apply for subject exemptions from the course providers (Uni’s, Kaplan etc.) on a case-by-case basis. It needs to be recognised that most of the subjects proposed by FASEA to be completed within the Grad Dip are the same subjects that have been completed as part of the Advanced Diploma of Financial Planning. Experience as an adviser can also be considered by the course provider in deciding an adviser’s exemptions. Competition will drive fair and reasonable consideration by these institutions.

It appears very likely that advisers will be successful in getting exemptions where they also hold either the FChFP or CFP – providing they did the course-work for these designations (not grandfathered), and particularly if the study was undertaken recently.

The above won’t satisfy everyone, but industry evolution never does. It will however satisfy many that have demonstrated a continued commitment to learning. I feel for those that have years of CPD as their proof of ongoing learning, but unfortunately relying on CPD in unlikely to be enough. Most industry participants know the rigour around CPD was too light until very recently, and we all remember the Penske file shemozzle at one of the large institutions from a couple of years ago.

The Watermark is Rising

In accepting the above, the minimum education watermark is rising from Diploma to Degree which is a good thing, however if the water rises too fast without a strong bridge that helps connect where our industry has come from, to where our profession needs to emerge to, we will lose too many good advisers along the way.

My fear is that FASEA may decide to play Safe with their decision making.

Safe is for FASEA to make a decision that will appease the critics of financial advice in the short term.

To play safe today is to ignore the medium and long-term consequences of their decision.

A safe decision for FASEA of retaining their suggested standard will mean that thousands of existing advisers without a related degree have to trade-in their 5 to 10 hours a week of family or client time for four years to complete subjects within a Grad Dip – that’s if they want to keep advising

According to industry surveys an estimated 8,000 financial advisers will bring forward retirement or make a career change if that is what FASEA decides. By the end of 2023, it will then become an industry problem to find advice solutions for the millions of Australians whose financial adviser has decided to leave the profession.  (Now I like Fintech, but it won’t be robo-advice that saves the day – people want to trust a real person when they are deciding trade-offs about their lifestyle and future financial security.)

So, FASEA, don’t play safe.

FASEA need to lift their vision further into the future of financial advice, and the future advice needs of Australians.

The impending Adviser Competency Exam, the increasing costs of compliance and professional indemnity insurance, public scrutiny, the Code of Ethics scheme membership, ongoing education requirements, TPB code compliance, Life Insurance Reforms, and Best Interests Duty are already driving marginal advisers, and licensees, out of the market place. 7,000 have already left since 2015 according to Adviser Ratings’ research.

So, I hope FASEA plays Brave, and not Safe.

With wisdom and courage, FASEA can arrive at a decision that gets the balance right. The new minimum education standard for existing advisers are only one part of a much wider set of reforms that will take financial advice into the noble profession it ought to be. FASEA don’t need to swing the reform pendulum so hard that it becomes a wrecking ball.

Let’s not lose good advisers especially when they have already invested in themselves to expand their knowledge and professional mastery through further industry-specific designations and qualifications.

This is a true leadership opportunity for the FASEA Board.

It’s time for FASEA to be Brave.