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Lifting standards in the financial advisory industry

Lifting standards in the financial advisory industryEducation, training and ethical standards in the financial advice industry are about to be lifted, with the Australian Securities and Investments Commission (ASIC) releasing proposed updates to various competence requirements for financial advice licensees.

The framework ASIC currently uses to assess compliance with organisational competence has 5 options for demonstrating the knowledge and skills of their responsible managers, but the proposed update seeks to incorporate a 6th option which would reflect the higher levels of competence expected in the industry.

ASIC has released proposed updates to organisational competence requirements for financial advice licensees, in a bid to lift education, training, and ethical standards in the financial advice industry. The proposal is based on existing draft guidance published by the Financial Adviser Standards and Ethics Authority (FASEA).

The ASIC Commissioner said: “Our proposals are designed to strengthen the organisational competence of financial advice licensees by ensuring that advisers are supervised by at least one responsible manager who satisfies the new education and training standards”.

Broadly, the new education and training standards apply to all those who hold an AFS licence or authorised representatives/employees, and ensures that all relevant licence holders must:

  • have a relevant bachelor or higher degree, or equivalent qualification;
  • pass an exam;
  • meet continuing professional development (CPD) requirements each year;
  • complete a year of work and training (professional year);
  • comply with a code of ethics and be covered by a compliance scheme that monitors and enforces compliance with the code of ethics.

Under the Corporations Act, an Australian Financial Services (AFS) licensee must maintain competence to provide the services covered by its licence, which is known as “organisational competence obligation”. When ASIC assesses an AFS licensee’s ability to comply with the competence obligation, it looks at the knowledge and skills of the people who manage the financial services business, or “responsible managers”.

The framework ASIC currently uses to assess compliance with organisational competence has 5 options for demonstrating the knowledge and skills of their responsible managers:

  • meet widely-adopted or relevant industry standards or relevant standard set by APRA and have 3 years relevant experience over the past 5 years;
  • be individually assessed by an authorised assessor as having relevant knowledge equivalent to a diploma and having 5 years relevant experience over the past 8 years;
  • hold a university degree in a relevant discipline and complete a relevant short industry course as well as having 3 years relevant experience over the past 5 years;
  • hold a relevant industry-specific or product-specific qualification equivalent to a diploma (or higher) and have 3 years relevant experience over the past 5 years; or
  • a written submission that satisfies ASIC that the responsible manager has appropriate knowledge and skills for their role that also addresses all the information covered in the relevant regulatory standard.

The proposed update seeks to incorporate a 6th option which would reflect the higher levels of competence expected in the industry.

The new 6th option would require advice licensees to have at least one responsible manager who satisfies a knowledge component (ie financial adviser exam, degree requirement, and CPD requirement), and a skills component (3 years of relevant experience over the past 5 years). Both new and existing responsible managers who wish to satisfy the 6th option would have until 1 January 2021 to pass the exam, and until 1 January 2024 to satisfy the degree requirement, according to the proposal.

Want to find out more?

Improvements are coming to the financial services industry, albeit slowly. If you would like some simple financial product advice about SMSF and your existing holdings, or some class of product advice about simple managed investment schemes, super products, securities, general insurance, life risk insurance or basic deposit products, your accountant with a limited AFS licence may be able to help. Contact us today to find out how.