BACKGROUND
Today the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced that the Turnbull Government will introduce legislation into the Parliament this year to mandate professional standards for financial advisers.
This follows the previous Government release of an exposure draft of the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2015 designed to give effect to reforms to raise education, training and ethical standards for financial advisers. The Bill did not affect general insurance advisers.
This initiative is essentially as a result of two reports which recently examined the professional standards of the financial advice industry:
- on 19 December 2014, the Parliamentary Joint Committee (PJC) on Corporations and Financial Services reported on ways to lift the professional, ethical and education standards in the financial services industry; and
- the Financial System Inquiry (FSI) made recommendations on lifting the competency of financial advisers to improve the quality of financial advice.
THE NEW PROFESSIONAL STANDARDS
The reforms will include:
- compulsory education requirements for both new and existing financial advisers;
- supervision requirements for new advisers;
- a code of ethics for the industry;
- an exam that will represent a common benchmark across the industry; and
- an ongoing professional development component.
The professional standards legislation will also establish an independent standards body, as a Commonwealth company, to govern the professional standing of the financial advice industry.
Once the standards body is operational, the Government will work with stakeholders to ensure the ongoing funding model is developed and implemented as soon as practicable.
Professional associations and other independent third party monitoring bodies will develop compliance schemes to monitor and enforce advisers’ adherence to the Code. These compliance schemes will be approved by ASIC. The reforms ensure that financial advisers will be held to a high standard of ethics, with non-compliant advisers subject to disciplinary action and sanction by the monitoring bodies.
The Bill only applied the new education and training standards to individuals who provide personal advice on relevant financial products to retail clients. A relevant financial product was defined in the Bill as a financial product other than a basic banking product, general insurance product, consumer credit insurance, or a combination of any of these products.
Assuming there is no proposed change to this (the Minister makes no comment on who is carved out) insurance brokers won’t be caught if they only provide personal advice to retail clients for general insurance products (or mixed life and general insurance CCI). They would be caught for life risk insurance (excluding CCI) and other financial products (e.g. discretionary mutual funds and extended warranties etc).
WHO PAYS?
The cost of establishing the body will be met exclusively by the large banks and AMP.
WHAT IS THE TIMING?
The new professional standards regime will commence on 1 January 2019. Existing advisers will have until 1 January 2021 to pass the new exam and until 1 January 2024 to reach degree-equivalent status.
FOR FURTHER INFORMATION
See the Hon Kelly O’Dwyer’s media release.
ISSUES TO CONSIDER
Whether the general Insurance carve out will remain as proposed in the Bill. The Minster makes no comment on this.
Avoiding unfair cross subsidisation of funding model between industries will also be important.
Who the “professional associations and other independent third party monitoring bodies” will be responsible for compliance monitoring and enforcement regarding the code of ethics compliance is yet to be clarified.
IMPORTANT NOTICE
This document is designed to provide helpful general guidance on some key issues relevant to this topic. It should not be relied on as legal advice. It does not cover everything that may be relevant to you and does not take into account your particular circumstances. It is only current as at the date of release. You must ensure that you seek appropriate professional advice in relation to this topic as well as to the currency, accuracy and relevance of this material for you.
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