There has been significant public concern regarding the conduct of financial advisers. This has led to important developments to the law this year, with a focus on raising current professional standards for financial advisers, as well as preserving and building Australia’s financial services industry.
With the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 and the subsequent Act in 2017 has come the introduction of the Financial Adviser Standards and Ethics Authority Limited (FASEA). In the second reading speech of the Bill, the Minister for Revenue and Financial Services made the following comments to illustrate the significance of the changes:
“Appropriate financial advice can significantly improve people’s financial wellbeing. That is why we simply must improve trust in the industry so that consumers can have confidence in the advice they are seeking — so that they can have recourse to the kind of strategic advice, expertise and knowledge that most everyday people do not normally hold.
Equally important is the sustainable future of the financial advice industry, which is integral to our economy… It is clear that the current framework lacks the incentives to encourage industry to go above and beyond the minimum.
There is now widespread support among industry, consumer groups, the government and parliament to raise education, training and ethical standards of financial advisers… The establishment of the standards body will be the first important step on the road to professionalism.”
The FASEA has been named the so-called standards body under the Corporations Act 2001 (Cth). It is, as described above, a Commonwealth entity aimed at improving the existing benchmark on the education, training and ethical standards of financial advisers. These changes are important as they provide further protections for you as a client receiving financial advice. As per section 921U of that Act, the functions of the FASEA body are:
– To make the legislative instruments, including those relating to approving bachelor or higher degrees, approving and administering exams, setting requirements for work and training setting requirements for professional development, and making a Code of Ethics;
– To review those instruments regularly;
– To approve, or refuse to approve foreign qualification applications; and
– To undertake any other function prescribed by the Act.
This regime will take effect in the beginning of 2019, following which new financial advisers will be required to hold the relevant degree to hopefully improve professional standards for financial advisers. Financial advisers already working in the industry will transition into the scheme over the next few years. These advisers will be required to pass the relevant industry exam by the beginning of 2021 and meet the education requirements by the beginning of 2024. The Code of Ethics will take effect from the 1st of January 2020. This means advisers will be required to meet much higher educational and training requirements, ensuring that every measure is taken to promote the provision of high quality advice to clients. Notably, however, these changes do not apply to all financial advisers. For instance, it does not apply to advisers whose authority is limited to providing general advice or personal advice on financial products of a less complex nature.
Evidently, these new laws could have a significant and positive impact on the financial services industry by improving professional standards for financial advisers. They should work to ensure the very best advice is provided to local and foreign investors, working to build the financial sector and the economy of the nation.
This article was authorised by Warwick Heeson.