Professional standards for financial advisers – reforms

The Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 commenced on 15 March 2017. It introduced several measures in the Corporations Act 2001 (Corporations Act) to raise the education, training and ethical standards of financial advisers providing personal advice to retail clients on more complex financial products.

Scope of the reforms

The reforms apply to 'relevant providers'. A relevant provider is an individual who is:

  • an Australian financial services (AFS) licensee, an authorised representative, employee or director of an AFS licensee, or an employee or director of a related body corporate of an AFS licensee, and
  • authorised to provide personal advice to retail clients, as the AFS licensee or on behalf of the AFS licensee, in relation to relevant financial products.

'Relevant financial products' means financial products other than:

  • basic banking products
  • general insurance products
  • consumer credit insurance
  • a combination of any of those products.

The definition of 'relevant financial products' is broadly similar to the concept of Tier 1 financial products in Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146), but the concepts differ slightly. Personal sickness and accident insurance products are not 'relevant financial products' (however, they are Tier 1 products).

The reforms do not apply to advisers who are not relevant providers. This means, for example, they do not affect advisers who only provide general advice or who only provide personal advice on products that are not relevant financial products, such as general insurance.

Obligations for relevant providers

Under the new requirements, all relevant providers 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 supervised work and training (professional year) – although this will not apply for individuals who are already relevant providers before 1 January 2019
  • comply with a code of ethics and be covered by a compliance scheme that monitors and enforces compliance with the code of ethics.

From 1 January 2019, only relevant providers who meet these standards can call themselves a 'financial adviser' or 'financial planner' or similar terms.

When do the reforms commence?

There will be a phased approach to commencement of these reforms. The commencement dates for the key requirements are set out below.

Start dates for key professional standard requirements for relevant providers

Requirement

Start date for new relevant providers

(authorised on or after 1 January 2019)

Start date for existing relevant providers

(authorised between 1 January 2016 and 1 January 2019)

Have a relevant bachelor or higher degree, or equivalent qualification

1 January 2019

1 January 2024

Pass the exam

1 January 2019

1 January 2021

Complete a professional year

1 January 2019

Not applicable

Comply with CPD requirements

1 January 2019

1 January 2019

Comply with the code of ethics

1 January 2020

1 January 2020

Be covered by a compliance scheme

1 January 2020

(Compliance scheme notifications to be received from 15 November 2019)

1 January 2020

(Compliance scheme notifications to be received from 15 November 2019)

Transitional arrangements for existing providers

Transitional arrangements apply to 'existing providers'. An existing provider is a person who is a relevant provider any time between 1 January 2016 and 1 January 2019, and is not banned, disqualified or suspended on 1 January 2019.

An existing provider can use the terms 'financial adviser' and 'financial planner' from 1 January 2019 provided they satisfy the relevant requirements that apply to them at any given time. This means that:

  • before 1 January 2021, an existing provider can call themselves a 'financial adviser' or 'financial planner'
  • between 1 January 2021 and 31 December 2023, an existing provider can call themselves a 'financial adviser' or 'financial planner' only if they have passed the exam. If an existing provider has not passed the exam by 1 January 2021, the person ceases to be a relevant provider and cannot use the terms 'financial adviser' or 'financial planner'
  • from 1 January 2024, an existing provider can call themselves a 'financial adviser' or 'financial planner' only if they have passed the exam and attained a relevant bachelor or higher degree, or equivalent qualification. Otherwise, the person ceases to be a relevant provider from this date and cannot use the terms 'financial adviser' or 'financial planner'.

See Section B of Regulatory Guide 175 Licensing: Financial product advisers – Conduct and disclosure (RG 175) for further detail.

Application of RG 146

RG 146 will continue to apply to existing providers until the new requirements apply. Existing providers must pass the exam by 1 January 2021 and attain the required educational qualifications by 1 January 2024, otherwise they will no longer be able to provide personal advice to retail clients on relevant financial products.

For new entrants to the industry seeking to become a relevant provider from 1 January 2019 onwards, RG 146 will not apply.

We will be updating our guidance on training for financial advisers who are not relevant providers (e.g. advisers who provide general advice or who provide advice about products other than relevant financial products). RG 146 will be reviewed and updated as part of this process.

The Financial Adviser Standards and Ethics Authority

An independent standards body, the Financial Adviser Standards and Ethics Authority (FASEA), will:

  • approve the relevant bachelor or higher degrees and equivalent qualifications that will satisfy the new requirement to have a relevant bachelor or higher degree, or equivalent qualification
  • approve the exam that every relevant provider must pass
  • set the CPD requirements
  • develop the code of ethics that all relevant providers must comply with
  • set the requirements for the year of supervised work and training for new relevant providers (professional year)
  • specify the words or expressions that can be used to refer to a 'provisional relevant provider' (i.e. those completing their year of supervised work and training).

From time to time, FASEA makes announcements about decisions they make or propose to make, such as qualification requirements for new and existing advisers.

Compliance schemes for the code of ethics

Monitoring bodies will operate compliance schemes to monitor and enforce relevant providers' compliance with the code of ethics. Monitoring bodies may be professional associations, but are not required to be. An AFS licensee, or an associate of an AFS licensee, cannot be a monitoring body.

A monitoring body for a compliance scheme applies to ASIC for approval of the compliance scheme. We will only approve a compliance scheme if we are satisfied that:

  • compliance with the code of ethics will be appropriately monitored and enforced, and
  • the monitoring body has sufficient resources or expertise to carry out that monitoring and enforcement. 

We have not yet determined our criteria for approving a compliance scheme. We will release a consultation paper in 2018 seeking feedback on our proposed approach.

Following this consultation and release of the code of ethics by FASEA, we will publish final guidance to explain the criteria and our process for approving a compliance scheme.

Updates to the financial advisers register

The financial advisers register will be updated to include the following additional information about relevant providers:

  • details of any failure by the relevant provider to comply with the code of ethics
  • the compliance scheme that covers the relevant provider
  • if relevant, a statement that the relevant provider has not met their CPD requirements
  • if they are a provisional relevant provider:
    • the fact that they are a provisional relevant provider
    • the day that they commence their professional year
  • the relevant provider's principal place of business
  • any other information that ASIC believes should be included in the financial advisers register that relates to the provision of financial services by the relevant provider.

AFS licensees will be required to give the additional information to ASIC.

Timeframe for key additional information to be displayed on the financial advisers register

Information to be displayed

Timeframe

(new and existing relevant providers)

Details of any failure(s) to meet the CPD requirements

1 January 2019

Details of any failures(s) to comply with the code of ethics

1 January 2020

Details of the code of ethics compliance scheme covering the relevant provider

1 January 2020

Details of the relevant provider's principal place of business

1 January 2020

Related links

  • RG 146 Licensing: Training of financial product advisers
  • RG 175 Licensing: Financial product advisers – Conduct and disclosure
  • FASEA website

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Last updated: 13/02/2018 04:33