If you’re in the business of giving out financial advice, you may have heard about the reforms introduced by the Professional Standards Act from 1 January 2019. Here’s how the new standards and educational requirements may affect you and your business.
What are the new professional standards?
As of 1 January 2019, the Financial Advisor Standards and Ethics Authority Limited (FASEA) has put in place new professional standards requirements for financial advisors. These are aimed at raising the standard of education, training and ethical standards of financial advisors across the board – and to establish an industry standard of competence and skill. The standards will progressively replace training standards in Regulatory Guide 146: Licensing: Training of financial product advisors.
What do the new standards mean for financial advisors?
If you are an existing financial advisor or you’ve been authorised as a relevant provider since 1 January 2019, FASEA’s new professional standards requirements will apply to you. Under the new standards, you must:
- hold a relevant Bachelor or higher degree
- undertake a professional year
- pass an exam
- undertake continuing professional development (CPD)
- comply with a Code of Ethics.
When do the new standards come into effect?
Although there’s some time to fall into line with the new standards, there are certain cut-off dates to be aware of.
Existing providers will have to pass the exam by 1 January 2021. Before this, you may call yourself a ‘financial advisor’ or ‘financial planner’, but if you have not passed the exam by 1 January 2121, you cease to be a relevant provider. You will also need to have attained your relevant bachelor or higher degree by 1 January 2024, or you will cease to be a relevant provider and will be no longer be able to advise retail clients on relevant financial products.
If you’re a licensee, you must ensure any provisional relevant providers you authorized between 1 January and 14 November 2019 have obtained a relevant qualification, passed the exam and are supervised. You’ll also need to maintain appropriate records about the provisional relevant provider (this information will be required by ASIC between 15 November and 31 December 2019). You must also ensure existing providers under your license pass the exam by 1 January 2021.
What does CPD involve?
If you’re a financial advisor, you’ll need to comply with FASEA’s mandated annual 40 hours of CPD from 1 January 2019 (and maintain appropriate records). If you’re an existing provider, 70 percent of your CPD hours will need to be approved by the licensee. If you’re part-time with your licensee’s prior written consent, you’re entitled to a 10 percent reduction to 36 hours. The minimum hours for CPD (which came into effect January 1, 2019) include:
- Technical – 5 hours
- Client care and practice – 5 hours
- Regulatory compliance and consumer protection – 5 hours
- Professionalism and ethics – 9 hours.
Advisors can also count 30 hours of formal study towards CPD hours. For more info on the policy: FPS004 Continuing Professional Development Policy Statement
When does RG146 apply?
If you’re a financial advisor authorised by your Australian Financial Services (AFS) licensee as an ‘existing provider’, the standards in RG 146 may continue to apply to you in the transitional time until the new requirements apply (i.e. existing providers must pass the exam by 1 January 2021 and attain the required educational qualifications by 1 January 2024).
RG146 will also continue to apply if you’re a financial advisor who’s not a ‘relevant provider’ (i.e. you only provide general advice or advice about less complex financial products). As part of the new standards coming into effect, RG146 will be reviewed and guidance for advisors who are not relevant providers will be updated.
Please note: This information is of a general nature only. Readers are advised to seek legal advice on any particular matters.