A new pathway allows financial advice without qualifications

In brief:

• Treasury Laws Amendment (2023 Measures No. 3) Bill 2023 passed both Houses of Parliament on 6 September, enabling an ‘experience pathway’ into financial advice without qualifications.
• While the provision of quality financial advice has been hampered by a shortage of qualified advisers, the IPA does not believe that removing education requirements is a suitable solution.
• The IPA advocated for a solution that would maintain education requirements, and continues to advocate for measures that prioritise the provision of quality financial advice.

Six years ago, reforms by the Turnbull government increased educational and other expectations on financial advisers.

These changes included the requirement to hold a relevant degree for new and existing advisers, a code of ethics agreed by advisers, supervision requirements, ongoing CPD and an exam that “will represent a common benchmark across the industry”, a Treasury report said.

Intended to help professionalise the sector, these changes were positive. They increased competence levels, quality of advice and ethical reasoning and behaviours.

The Final Report following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry also highlighted the need for higher education standards. It pointed out that “prevention of poor advice begins with education and training”.

Since then, the regulatory burden on advisers has been identified as constraining the provision of quality advice.

The Treasury Laws Amendment Bill that passed both Houses of Parliament this month enables an ‘experience pathway’ into financial advice without qualifications.

The changes come after 18 months of consultation with stakeholders including consumer advocacy groups, universities including Deakin University, and industry bodies including the Law Council of Australia and the IPA – the IPA opposed the experience pathway. The sector has been affected by regulatory change since well before these past 18 months.

A pathway to grow the advice sector

The IPA is disappointed with the introduction of the experience pathway, which enables those with 10 years of experience or more to offer financial advice without requiring a relevant degree. 

There is a real risk that quality of advice could suffer as a result.

The overly complex regulatory framework in which Australia’s 16,000 financial advisers operate constrains them. Michelle Levy’s Quality of Advice review pointed out that it prevents the public from receiving relevant, timely or simple advice.

Strict education requirements were one part of that regulatory burden.

Levy’s report also made it clear that there are not enough advisers.

Rather than the vital sector growing to keep up with demand from an ageing population, the industry is currently shrinking.

In FY22/23, almost 600 advisers exited the industry, Money Management reported. That reduction of 3.7%, from 16,283 advisers to 15,584, followed the loss of more than 2,000 advisers the year before.

Greater flexibility has been required, then, to bring young people into the sector and to convince others who have left to return. The experience pathway could help achieve that growth mission.

The legislation now provides greater flexibility in acknowledging that advisers may come from different backgrounds, countries, or sectors. The positive: this should bring more advisers into the sector.

Where to from here?

In a Submission to Treasury on the education standards for experienced financial advisers in May 2023, the IPA advocated for a different pathway – one in which experience is just one component. This would achieve the same growth goal without the risk of lowering the quality of advice.

The pathway would include:

• Compulsory and ongoing CPD
• Requirements around ethics and professional standards
• Education in technical skills, professional management and interpersonal skills

Now the experience pathway has been introduced, the IPA believes and will continue to advocate for certain parameters must be included to ensure the greater professionalisation of the sector. That includes 10 years of relevant experience, which the new Amendment Bill outlines.

We also believe a ‘fit and proper person’ test, as the IPA applies to its members, could inform the clean record requirement.

The IPA sees great value in compulsory membership of a relevant non-profit or professional organisation that ensures:

• The application of a code of ethics
• Ongoing CPD requirements
• Complaints and disciplinary mechanisms
• Quality review processes

We’re also interested in proof of having met all of these requirements in the form of a statutory declaration.

Finally, the IPA argues for a sunset clause dated December 2032. This will provide sufficient time for experienced advisers to stay or return to the sector. Many will exit again or retire by then.

At the same time, such a clause will help achieve the policy objective of professionalising the industry by introducing, or re-introducing, carefully curated education and other requirements.

The IPA will continue to advocate for constant improvement of quality and knowledge in the financial adviser community.