Financial planners: new training requirements and code of conduct
New rules follow concerns over poor advice and multi-million dollar compensation payouts.
Financial planners will be forced to update their skills under new legislation which will require all financial planners to have a relevant degree. All financial planners will also have to pass a common central exam before they can offer advice.
The changes, introduced into Federal Parliament yesterday, were foreshadowed earlier this year. They follow concerns that some financial advisers were taking training courses as short as four days before offering advice. Bad advice has led to major compensation payments
The new rules will apply from 1 January 2019. Existing advisers will have until 1 January 2021 to pass that exam and until 1 January 2024 to ensure they have met the education requirements. New financial planners after that date must complete a relevant degree first. The process will be overseen by an independent standards body to be set up by the Commonwealth.
Yesterday, the Australian Securities and Investment Commission (ASIC) also approved a new code of conduct for financial planners which lets them change the length of contracts they have with clients.
As part of the Future of Financial Advice (FoFA) reforms introduced in 2012, all financial planners who charge ongoing fees must send a written renewal notice to their clients every two years, and clients must explicitly opt in to continue receiving advice. That change to an "opt-in requirement" was designed to ensure that customers weren't paying fees without actually being offered meaningful advice.
ASIC has now approved the FPA Professional Ongoing Fees Code, a code of conduct developer by the Financial Planning Association of Australia (FPA). Planners who sign up to that code don't have to meet the specific two-year requirement, but can negotiate a flexible period for renewal notices with clients. That period is not allowed to be longer than three years, however.
"ASIC approved the FPA Code on the basis it will achieve the same policy outcomes that the opt-in requirement is intended to achieve – that is, to protect disengaged clients from paying ongoing financial advice fee where they are receiving little or no service," the announcement of the change noted.