Last Week the Senate passed the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 and paved the way for wide ranging reforms (and increased compliance obligations) in the financial advisory industry. The new regime starts on 1 January 2019 and includes the following reforms:
– Compulsory education requirements for both new and existing financial advisers.
– Supervision requirements for new advisers.
– A code of ethics for the industry to apply from 1 January 2020.
– An exam that will represent a common benchmark across the industry.
– An ongoing professional development component.
There is a long transition period for the introduction of these changes. The education requirements won’t start until 1 January 2019 (with existing advisers having until 1 January 2021 to pass the exam). An independent standards body will be set up (as a Commonwealth company funded by the industry) to establish and administer the regime and develop the reforms. ASIC will have powers to approve compliance programs developed by professional associations to monitor and enforce the code of ethics (which may impact on the current landscape of professional associations).
The reforms are designed to increase the education, training and ethical standards of financial advisers, who will need to be qualified to a standard equivalent to a degree. AFSL holders will be required to ensure their authorised representatives comply with the new regime. Time will tell whether the reforms will be effective in improving standards (and reducing claims) in an industry which has been beset with problems in recent times, including litigation often funded by PI insurers. It will be interesting to see if these changes will ultimately lead to a changed risk profile for insuring Australia’s 20,000+ financial advisers (and AFSL holders). This may not be known for several years yet.