Neil Macdonald

The Advisers Association (TAA) says the Joint Associations Working Group (JAWG) is proof that financial advice associations can work together to advance the profession, and therefore the time for self-regulation is right.

TAA CEO Neil Macdonald says, ‘JAWG includes key associations from across the industry, representing many different types of financial advisers and many with quite different views, yet it is able to arrive at enough commonality to produce, for example, joint submissions to Treasury on the future of the profession. Since forming, some of the member associations have merged, so increasingly, we have a common voice.’

Mr Macdonald says the financial advice landscape has changed significantly in the twenty-plus years since the Financial Services Reform Act (FSRA) drove the change to Licensees and Authorised Representatives, and increased consumer protection.

‘The ASIC business model of regulation that resulted from that was predicated on a small number of large institutionally-owned licensees – eg, the big four banks. That has changed over the past five years, and we now have a few large licensees and many smaller ones,’ he says. ‘The Future of Financial Advice reforms, the Best Interests Duty and the exit of the banks has radically and quickly changed advice firms and advisers. It’s a whole different ball game.’

Mr Macdonald also says both the Quality of Advice Review (QAR) and the Australian Law Reform Commission (ALRC) recognised that regulation and legislation have built up over the years, resulting in an overly-complicated complaint process for advice, without any material benefits to consumers, and significantly increased the cost for advice. It also didn’t meet consumer expectations or immediate requirements.

‘Our industry and our associations have matured, we are now a profession and professions self-regulate,’ he says. ‘The role of associations could include the setting and supervision of not only education standards, but also ethical standards. Associations could very effectively triage and address problem advisers and maintain appropriate professional standards.’

Associations are also well-placed to handle Standard 12 of the Code of Ethics which requires financial advisers to report any unethical behaviour of their peers. ‘In fact, Australian Financial Complaints Authority data shows advisers are harder on other advisers than AFCA staff when reviewing cases,’ he says.

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Neil Macdonald

The Advisers Association (TAA) welcomes the Government’s formal response to the Quality of Advice Review (QAR) announced yesterday.

TAA is broadly supportive of the fact that the Government has indicated it will accept 14 of the QAR recommendations and is encouraged that concerns TAA raised in its various submissions appear to have been heard.

TAA CEO, Neil Macdonald said, ‘We are pleased that the Government is looking to remove regulatory red tape, and particularly welcome that Statements of Advice may be replaced with an advice record that is more fit-for-purpose.’

Mr Macdonald said TAA expects replacing SoAs with advice records would lighten the load on financial advisers and make accessing professional advice more affordable for consumers. ‘SoAs are overly bureaucratic, not fit for purpose and offer little tangible benefit to consumers, who often do not even fully read them.’

Mr Macdonald said TAA is also keen for some of the recommendations to be legislated quickly. ‘We encourage the Government to look for a legislative slot to enact the recommendations as soon as possible,’ he said.

If legislation cannot be enacted quickly, TAA would like to see Government consider a facilitative, ‘no action’ approach until it is enacted.
 
‘We think some of the recommendations, particularly around addressing regulatory red tape, could be addressed quickly, if the Government was prepared to adopt a facilitative ‘No action’ approach for 12 months,’ Mr Macdonald said. ‘For example, substituting advice records for SOAs as soon as possible could reduce the administrative burden on financial advisers very quickly, giving them more time to see more people.’

TAA is also broadly supportive of the fact that the Government has indicated it is looking to expand access to retirement income advice and exploring new channels to advice.

‘We have always said that Australians need greater access to advice, therefore we were generally supportive of introducing a ‘good advice’ duty under which non-relevant providers could offer personal advice,’ he said. ‘However, as we have also said, guardrails do need to be in place.’

The guardrails should be around who should be permitted to deliver personal financial advice, the extent of the advice they give, and the minimum education and qualifications they hold.

‘The Government has indicated that it is seeking to consult with the industry and consumer stakeholders on how non-relevant providers should be able to give advice. We welcome their prompt commitment to that further consultation,’ Mr Macdonald said. ‘We believe there should be a level playing field in relation to the provision of personal financial advice, with similar rights and obligations for all providers.’

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Neil Macdonald

If we are not careful, consumers are set to become even more confused about who to turn to for financial advice, according to The Advisers Association (TAA).

Referencing the association’s recent submission to Treasury’s consultation on Education Standards for Experienced Financial Advisers and Technical Fixes for New Entrants, TAA CEO Neil Macdonald said all consumers really want to know is that the financial adviser they are dealing with is suitably qualified, knows what they’re doing, and can be trusted.

‘We must have an experienced pathway because in order to fulfil consumer demand for advice, we have to do something to stem the exit of highly experienced advisers from the profession,’ he said. ‘But are we over-complicating it? If we stand on the outside for a moment and look in, consumers must be wondering what is so difficult.’

Some of TAA’s concerns centre around the way the experienced pathway is being framed.

‘We think using terms like ‘experienced provider’ and ‘relevant provider’ just creates deeper consumer confusion,’ he said. ‘The differences between these two providers are not immediately clear and will have to be explained. There’s also the risk that people will think ‘experienced’ is somehow better than ‘relevant’. It certainly looks like that at first glance.’

TAA’s preference is the same naming convention for all financial advisers in law.

‘The difference between an experienced adviser and a relevant adviser could then be simply addressed at the consumer level, for example, adviser qualifications or lack thereof, and experience, could be contained in the Financial Services Guide and marketing materials,’ Mr Macdonald said.

Consumers are also likely confused about the level of education and training required of advisers.

‘We’re sure many consumers still don’t know what qualifications financial advisers must hold and, if they do, they are likely scratching their heads as to why there has so far been such a one-size-fits-all approach to adviser education,’ he said.

‘They’re likely also wondering why prior learning and a broader range of relevant qualifications are not better recognised, particularly for those wanting to enter the profession from closely-related professions.’

Mr Macdonald said it does not make sense that new entrants are being given flexibility around process changes to education and training standards, when experienced advisers are not.

‘We’re trying to grow a profession here, so these anomalies are counter-intuitive,’ Mr Macdonald said.

TAA is also concerned about the many different months and years being applied to the 10-year experienced pathway.

‘It creates unnecessary risks, unintended gaps and unnecessary complexity for Treasury, regulators, licensees and advisers,’ Mr Macdonald said. ‘This level of complexity might be all well and good if it provided substantial additional consumer protection, but in our opinion, it does not – and once again, it will need to be explained to consumers, creating yet another education exercise.’

To retain experienced advisers and for consistency, TAA thinks the period for the 10-year experience should be aligned with the current education standards deadline, i.e., 31 December 2025 or ‘before 1 January 2026’.

‘Wealth Data identified^[1] that this change alone would enable an additional 555 advisers to meet the experienced pathway, continue to provide advice to their clients and, if the Quality of Advice Review recommendations are implemented promptly, free up their time to advise more consumers,’ Mr Macdonald said.

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*Using FAR records which showed that pre and post 31 Dec 2011, 3,586 advisers did not have a degree. If the 10-year experience were aligned with the education standards deadline, 4,141 highly experienced advisers (an additional 555), would be able to continue to provide advice to their clients without a degree pre and post Dec 2025.

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Neil Macdonald

Guardrails need to be put in place before implementing some of the Quality of Advice (QAR) recommendations related to non-relevant providers giving ‘good advice’, or Australia will likely face a return to vertical integration, according to The Advisers Association (TAA).

TAA CEO, Neil Macdonald said, ‘While we broadly support the Quality of Advice Review recommendations, we believe great care must be taken before implementing some of them, or we may face a back-to-the-future scenario that did not serve Australians well.’

The guardrails should be around who should be permitted to deliver personal financial advice, the extent of the advice they give, the minimum education and qualifications they hold and the obligation to provide ‘good advice’.

‘It is very clear, particularly as a large percentage of the population nears retirement, that we need to enable more people to give personal financial advice,’ Mr Macdonald said. ‘But while the advice profession continues to debate what the future should look like, industry funds have continued giving advice and are taking over the role previously played by the banks.’

However, the relatively low Statement of Advice (SOA) production from the industry funds sector appears to indicate that general advice is being provided, where personal advice is likely required, especially in preparation for retirement.

‘There is a world of difference between giving people general information and giving them personal financial advice that meets their needs,’ Mr Macdonald said. ‘There is also a risk that general advice will continue to be provided instead of ‘good’ personal advice, and that doesn’t address the issues of the past.’

Mr Macdonald said the QAR recommendation to expand the definition of personal advice to require non-relevant providers to provide ‘good advice’ is a very important consumer protection and must be enforced if there is no Best Interests Duty.

‘If it is not, then complex retirement advice could easily be provided to members of a super fund, without any consideration of issues that profoundly impact consumers in retirement – for example, Centrelink benefits, who and when to move to pension phase, etc.’

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Neil Macdonald

While there is good work occurring in some places to help meet the unprecedented consumer demand for advice over the next five to ten years, it’s uncoordinated, insufficient and happening far too slowly, according to The Advisers Association (TAA).

‘The profession can and should take a much more proactive role,’ said TAA CEO, Neil Macdonald.  ‘Not only is it possible to close the gap, it is also essential – but we need to take coordinated action right now.’

First cab off the rank should be stemming the exit of experienced advisers.

‘There are highly experienced advisers who have passed the FASEA exam, but are not willing, or not able, to commit to the further education required to continue practising,’ Mr Macdonald said. ‘Highly experienced advisers should be allowed to continue to practise without having to meet the new education requirements potentially until 2035, subject to certain criteria.’

TAA says the criteria could include:

• passing the FASEA exam
• having a minimum of 15 years’ experience at 31 December 2021, and
• passing a competency assessment at AQF7 level or above.

‘Submissions were previously made about an experience pathway, but this is now outside our control and for Government to decide,’ he said. ‘What is within our control is helping to change the mindset of older advisers in relation to further education and helping them prepare for it.’

Education providers could, for example, be encouraged to create training specifically for older advisers, in the same way that driver education programs have been created to help those over the age of 75 keep their licences.

Mr Macdonald also said the profession could be thinking more laterally in relation to attracting university graduates.

‘The 2022 longitudinal Graduate Outcomes Survey^[1] revealed that some people graduating from some undergraduate programs are underemployed in the short term – that is, four to six months after graduating,’ he said.

‘Graduates of study areas such as mathematics, computing and information systems, accounting, business management, banking and finance, economics, and law had short-term, full-time employment outcomes of around 80 per cent or less,’ he said.

‘Some of these study areas are closely related to financial advice. We therefore have a window of opportunity when people first graduate to encourage them to consider other options and doing what may be just a few additional subjects to follow an advice career.’

Mr Macdonald said the profession needs to create an organised recruitment campaign, so that this opportunity is not lost. ‘The campaign could highlight all the great things about the profession and make it easy for graduates to find and take up places,’ he said.

The third issue to be tackled is the Professional Year which Mr Macdonald said creates a significant time and money impost on licensees and smaller businesses.

‘When you’re a small AFSL, supervising graduates often means you can’t be as productive in your business. You also obviously have to pay them,’ he said. ‘The flip side is that employing graduates is likely to be more affordable than hiring experienced advisers, and they’re likely to be tech savvy, which could lead to greater business efficiencies.’

While the profession is not in control of those kinds of decisions, Mr Macdonald said it could work with educators, technology providers, licensees and practices to develop programs that make the supervision, recording and assessment of PY requirements easier and more consistent.

‘Like any other profession, we need to reimagine and redevelop our own future, rather than relying entirely on governments and lawmakers. We need to do it together and we need to do it now.’

———

[1] 2022 longitudinal Graduate Outcomes Survey

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Neil Macdonald

With general advice set to remain in play under the Quality of Advice Review (QAR), albeit in a more restricted form, and non-relevant providers likely to be able to give ‘simple’ advice, The Advisers Association (TAA) believes now is the time to set a higher education bar for those delivering these forms of advice.

“The current minimum requirement for people giving general advice is RG146,” said TAA CEO, Neil Macdonald. “RG146 was an accreditation for its time. Following QAR, we will move into a new era for financial advice, an era of growing consumer needs and greater consumer expectations. To meet these needs and expectations, we believe RG146 should be upgraded with AQF7 or AQF8 level assessed topics.”

The QAR proposals also indicate that individual non-relevant providers will be left to decide what training and education is required for their employees to give simple, ‘good advice’.

“We think this would likely result in inconsistent outcomes for consumers, as people won’t know what they don’t know,” Mr Macdonald said. “We therefore think providers across the industry could agree on a common requirement, such as an upgraded RG146, for people giving ‘general advice’, and for the staff of ‘non-relevant providers’ providing ‘good advice’. This would result in minimum consistent standards being applied across the industry, which should have the flow-on effect of improving consumer confidence.”

TAA also suggests that when upgraded, the RG146 accreditation, if it is still a regulatory guide, be renumbered to avoid any previous negative connotations.

“Only a few years ago, some product providers were saying that RG146 qualifications were inadequate, and less onerous than those required to be a hairdresser,” Mr Macdonald said. “They now have the opportunity to call for change.”

Requiring an upgraded common standard would give trustees more confidence that their employees were appropriately trained and competent. “Importantly, it would also increase consumer protection, as consumers would be more likely to consistently receive good advice and be better serviced than they currently are,” he said

“However, we say all this with a fair degree of caution. What we want to avoid is a situation where consumers think they are receiving personal financial advice when, in fact, they are only receiving product advice and general information.”

Common standards would also establish a better understanding of the requirements for providing advice; and recognised qualifications. “Additionally, it has the benefit of creating a wider pool of people who can, if they want to, progress their studies to become fully qualified financial advisers,” he said.

TAA also believes it could be a good way to bring new advisers into a practice and supervise them while they learn on the job, similar to the ‘associate doctor’ program being run in NSW Hospitals to help alleviate the current shortage of doctors in the health system.

“A healthy industry and advice profession needs to get more people into it and build a pipeline of people progressing to becoming fully qualified advisers,” he said.

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Neil Macdonald

The changes that are likely to occur as a result of the Quality of Advice Review (QAR) and other changes occurring across the industry will ultimately make advice more affordable and accessible for consumers, according to The Advisers Association (TAA).

TAA CEO, Neil Macdonald, said that implementing the proposals creates potential for financial advisers to change not only the way they service clients, but also how much they charge and therefore how many clients they serve. “It’s old news that there are currently not enough advisers to service the number of people wanting advice,” Mr Macdonald said.

“The new news is that the significant time savings that will occur as a result of recognising an adviser’s professional judgement and removing much of the unnecessary paperwork and duplication that currently exists within the profession will mean advisers will be able to service many more people. That’s great news for Australian consumers.”

Mr Macdonald reasoned that if a large amount of unnecessary work is sliced out of any service, it must significantly reduce the cost to provide that service and allow that time to be used more productively.

“A classic example in our profession is ultra-long statements of advice that are left largely unread by clients, and which are fast-becoming unnecessary, if they are not already,” he said.

Removing redundant processes and passing cost-savings on to the people wanting advice services – in other words, making it more affordable – means advisers will attract more clients.

“Having cut much of the hard work out of delivering that service means advisers are also going to be physically able to service them.”

Mr Macdonald said the question is how quickly the financial advice community is prepared to move with the times.

“I’ve heard a number of industry commentators bemoaning that affordability will remain a problem. They don’t seem to be able to factor in the considerable efficiencies and cost savings that QAR and other changes will bring about,” he said.

However, Mr Macdonald said he believes the advice profession will ultimately move with the times. “Like any profession, we will eventually bring in new processes and new people who will charge less, based on less experience,” he said.

Changing demographics will mean that clients will also change. “Younger people will come to advisers with different expectations – for example, for a ‘health check’ and episodic advice,” he said.

“However, those parts of the advice community, including practice principals and licensees that refuse to evolve, as Darwin famously stated, will most likely become extinct.”

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Neil Macdonald

The Advisers Association (TAA) says there are two problems currently facing the financial advice industry – the short-term exodus of advisers and recognising advice as a profession.

TAA CEO, Neil Macdonald said, “The question we are asking is which of these two problems is Treasury attempting to resolve with its recent consultation paper on financial adviser education standards? If it is both, what trade-offs are acceptable?”

Treasury released its Financial Adviser Education Standards Consultation Paper (the Consultation Paper) on 23 August 2022.

Mr Macdonald said for financial advising to be recognised as a profession, advisers must have ‘relevant’ tertiary level qualifications. “The industry therefore needs to decide what qualifications are relevant, by when and for whom, as not one size fits all.”

In order to address the more pressing problem and stem the current outflow of advisers from the industry, competent advisers with many years’ experience must be allowed to stay in the industry for an extended period of time without being compelled to earn a degree. However, this will likely impede the recognition of financial planning as a profession.

“Consumers face a massive advice gap,” Mr Macdonald said. “We are losing hundreds and hundreds of advisers at the same time as demand for their services is increasing. Therefore, it’s reasonable, and even necessary, to allow highly ‘experienced advisers with decades of experience’ to remain in the industry for an extended period of time, and Treasury’s recent consultation paper recognises that.”

However, TAA thinks this should be redefined as highly ‘competent’ advisers with decades of experience.

“We also think there should be other caveats, as outlined in our submission to Treasury’s Quality of Advice Review in January this year.”

In its submission, TAA said the extension should only apply to highly competent advisers with:

• 15 years’ experience as of 31 December 2021
  • The consultation paper suggests advisers to have 10 years of full-time equivalent experience in the 15 years between 1 January 2004 and 1 January 2019 in Australia, which may or may not be consecutive
• Require a competency assessment of those advisers at AQF7 level, or above, and
• Have a sunset clause for those advisers to either have the relevant qualifications by 30 June 2030 or 2035, or exit the professio

“What we need to recognise is that a lot of advisers just got on with it,” Mr Macdonald said.  “They undertook the study required, often at great personal and professional expense. To have an open-ended extension for those who did not go the hard yards is not fair on those who did.”

The Advisers Association will be making a submission in response to the Consultation Paper. Submissions close on 16 September 2022.

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Neil Macdonald

A side effect of the exodus of financial planners from the profession can only be the rise and rise of the finfluencer – a trend which The Advisers Association (TAA) does not see abating, despite the release of ASIC Information Sheet (INFO 269) reminding social media commentators not to stray across the line from information into advice.

“Finfluencers do serve a need for financial information and financial education, particularly for younger people, and people who cannot afford personal financial advice, and we don’t actually want to see them disappear,” said TAA CEO, Neil Macdonald.

“However, it’s extremely unfair that well-qualified, experienced, professional advisers have to go through so many more hoops than finfluencers to provide similar information and education.”

Mr Macdonald said one of the reasons consumers, particularly younger consumers, pay attention to finfluencers is that they typically provide short, sharp, easily digestible financial information on one particular aspect of growing wealth or managing money at a time.

“The challenge facing advisers, however, remains the same as it has long been – advisers carry heavy regulatory burdens which hamper them in delivering similar information at a price the consumer can afford. Finfluencers do not carry that same burden.”

Mr Macdonald said he hopes the Quality of Advice Review (QAR) will address this inequity.

He also said advisers should be enabled to provide simple advice.

“The fact that consumers listen to finfluencers indicates to us that there is an appetite for bite-sized advice within the community and therefore there is a place for scaled or scoped advice,” he said.

“Advisers are the people best qualified and experienced to provide good quality advice, but they have their hands tied by a range of factors including product-focussed legislation, multiple regulators and licensee policies and processes. They are not enabled to provide simple advice, simply and they should be.”

Mr Macdonald said it is important to raise consumer awareness of the difference between finfluencers and financial advisers.

“More needs to be done to create awareness that quality advice is not just information, or education, it’s not just product. It’s about the overall strategy, managing the risks and it’s personal. It is tailored to the individual client and is designed to help them stay on track,” he said. “It’s also about helping them to avoid the noise and stop them from making silly decisions.”

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Neil Macdonald

Members of the Authorised Representatives Association (ARA), which represents around 90 Charter Financial Planning advice businesses and approximately 250 advisers, have voted to close the 40-year-old association and join The Advisers Association (TAA), effective 1 July 2022.

ARA members voted for the closure of the association at an extraordinary general meeting in April.

In welcoming ARA members into TAA, CEO Neil Macdonald said, “We are very much looking forward to representing ARA members and supporting them as they help clients achieve better financial outcomes. Our two associations have a long history of working closely together via numerous consultation groups and this merger will give us an even stronger voice in what continue to be challenging times for advisers.”

Mr Macdonald said the merger will also allow for greater collaboration.

“As we have consistently said, in order to move forward, the financial advice community needs to genuinely collaborate. The merger will enable us to deliver a more united message in our ongoing communications not only within our own community, but also with the media and with the government,” he said.

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