Australia’s lawmakers on Tuesday and Wednesday approved legislation that aims to boost the quality of financial advice on offer in the country by setting new minimum qualifications for advisers, and establishing a new Code of Ethics that advisers would be obliged to comply with from 1 January 2020.
Australia’s Association of Financial Advisers (AFA) said the enactment of the Corporations Amendment (Professional Standards of Financial Advisers Bill 2016) would pave the way towards greater recognition of financial advice as a profession, while also improving consumer perception “and ultimately [the] take up” of financial advice.
Under the proposed legislation, from 1 January 2019, new advisers must pass an exam, be degree-qualified, and be supervised during their first professional year by a registered financial adviser. There are also new requirements for existing advisers, including the need to comply with the new Ethics Code, which will be set by a new Professional Standards Body, and to successfully pass an exam by 1 January 2021, and attain degree equivalency by 1 January 2024.
The need for advisers to to actively engage in “ongoing professional development” is also called for.
Australia’s minister for Revenue and Financial Services, Kelly O’Dwyer, sponsored the legislation. She told Australian media that repeated examples of inappropriate advice have eroded consumer trust in Australia’s financial advice industry, which she noted acted as a hurdle to consumers seeking financial advice.
Once the final text of the bill is agreed by both houses of Australia’s Parliament, it goes to the governor-general for final approval.
News of the bill’s progress was greeted with some disgruntlement by established Australian financial advisers, some of whom, in comments on Australian trade press websites, said they didn’t believe the legislation would solve the problem of bad advice and out-of-pocket investors. A few wondered whether it might be time to set professional standards for Australian Parliamentarians.
One such commentator, who identified himself only as Stewart, for example, posted the following comment on the ifa.com.au news website: “Now there is only one other group that should be forced to pass an exam, demonstrate their experience, and get a degree – Politicians.”
Australia has been cracking down on poor quality financial advice for more than six years, in response, some media commentators have noted, to a series of publicised scandals, in which investors lost money. The country’s so-called Future of Financial Advice (FoFA) reforms, signed into law in 2011, were among the first investor protection laws globally to include a ban on the use of commissions as a means of paying for financial advice, and have often been likened to the UK’s Retail Distribution Review regulations, which were brought into being around the same time.
In 2014, following the election of a new government, the FoFA rules were reviewed, and there was talk of making changes that were seen as potentially watering them down, including talk of changing or eliminating its version of the US Fiduciary Rule, which in Australia is called the Best Interests Duty rule. This rule has survived, however, and last year the Australian regulator began to enforce it for the first time.