Knowledge = Power

The evolution of financial advice into the profession and industry it is today has been a slow process of unfolding.

From its origins in sales, advice has split into many pieces which, together, make up the holistic idea of ‘the planner’. Unlike other professional fields such as medicine and law, however, financial planning is grappling with shedding its reputation of the briefcase carrying, door-to-door salesman to instead become regarded as a true profession.

A Roy Morgan poll released in May 2013 ranked accountants the 11th most ethical and honest profession, with financial planners well behind at 18th. Even more worryingly, the percentage that held the profession in high regard had dropped by a percentage point from the previous year to just 25 per cent.

One of the major points of contention within the industry concerns the level of training and education required to become a financial adviser, with strong voices on both sides of the fence. Many argue the current requirements are not aligned with the professional image the industry is struggling to create.

However, countless others with whom ifa spoke questioned whether this renewed focus on education ignores what advice is all about: people skills.

With the education debate intensifyingy, ASIC released Consultation Paper 212 (CP212), a proposal to increase minimum standards for new advisers and boost the industry’s perceived professionalism.

While ASIC is set to finalise the requirements in April, ifa spoke to the industry to understand the debate as it stands, the current state of education and how education is set to change the face of financial advice.

On the table

Regulatory Guide 146 (and its predecessor PS146) has formed the bedrock for the training of financial advisers for more than a decade. Despite some amendments, its components have not changed significantly in that time.

As it currently stands, the level of education required to give advice to retail clients on tier 1 products is broadly equivalent to an Australian Qualifications Framework (AQF) diploma; for tier 2 products, it is broadly equivalent to a Certificate III.

In addition to the initial education requirements, “licensees must implement policies and procedures to ensure that their advisers undertake continuing training to maintain and update the knowledge and skills that are appropriate for their activities”.

With industry leaders lining up on both sides to debate the state of education, ASIC has released CP212 in a bid to increase the minimum standards for new advisers and improve the industry’s reputation. Its advent has brought plans to implement a national examination – unveiled in CP153 – to a grinding halt “to allow appropriate time for other reforms to be implemented in the financial sector”.

Under CP212, ASIC intends to make all generic knowledge requirements for tier 1 advisers mandatory. To do this, it has suggested a two-stage approach, increasing the comparative educational level of advisers on tier 1 products from diploma level to advanced diploma level in 2015 and to bachelor degree level by 2019.

Tier 2 products will have training requirements increased to AQF Certificate IV in 2015 and to diploma level by 2019.

For existing advisers, the further education regulations will only be of impact when changing advice activities. For example, adding a specialisation, changing the type of advice from general to personal or moving from tier 2 to tier 1 products.

However, for many in the industry, the regulations usher in a new wave of financial advisers who are trained for the industry, not just by it.

As ifa went to press, ASIC had received 49 submissions from 39 stakeholders concerning CP 212 and 215.

One of the major concerns of the Financial Planning Association was the course overhaul that would be required by education providers under CP212. In its submission on CP 212, the FPA noted that RG146 won’t be finalised until April 2014, with the additional educational requirements for new entrants coming into force on 1 January 2015.

This will require courses to be re-written and completed by new entrants within eight months.

Mixed messages?

FPA head of professional designations Belinda Robinson says the FPA also had concerns about the “mixed messages” sent by ASIC through CP212 over what constitutes degree-level training, claiming the differences between curricula can be “chalk and cheese”.

“The problem I have is that I don’t believe that moving from having an advanced diploma covering a range of things – which is not a requirement – but moving from that sort of pathway to a single subject at a university [represents] raising the standards,” Ms Robinson told ifa.

“I don’t believe that mandating AQF 7 without specifying a quantity of study at AQF 7 is raising the standards,” she says.

Ms Robinson adds that if the national exam as part of CP153 goes ahead, it won’t be sending a consistent message about advocating increasing education for financial planners.

However, the FPA broadly agrees with increasing the minimum standards of entry into the industry – so much so that it has raised the minimum standards in its own Certified Financial Planner (CFP) designation to include a degree requirement.

“There is a lot of talk about RG146. The FPA position is the standard for education and competencies for financial planners is too low,” FPA general manager, policy and government relations, Dante De Gori says.

“We firmly believe ASIC needs to form a working group for what the RG146 standard should be. We think it should be degree level.”

On this point the Association of Financial Advisers agrees.

“The AFA’s view is that there is no doubt that we need to raise education levels and professional standards and I guess this is the sticking point for us: education is a key part of delivering great advice to more Australians,” head of Campus AFA Nick Hakes says.

“Our view on CP212 is that we welcome anything from ASIC that looks to increase education levels.”

However, Mr Hakes explains there are also concerns that the consultation paper may create too prescriptive a pathway for career changers.

“Too few people seek financial advice but likewise we actually have too few financial advisers,” Mr Hakes says.

“So our view is that rather than modify a system that is just kind of built around RG146, it might be better to bring all industry stakeholders across all sectors of financial services and recognise that there are some participants within the financial services sector that might not need a degree.

“I think having a clear pathway of how to become licensed – and how to become a qualified financial adviser that doesn’t involve three years of an undergraduate degree – that’s kind of what we see as an important way that we could raise the minimum education levels for all people but not discount career changers.”

ASIC has also proposed an overhaul of its assessment and approval of training courses in CP215, released in August 2013. As part of the changes, the regulator plans to cease operating its training register and simply keep it as an archive.

“The ASIC Training Register did not add the value or quality assurance that it was perceived to add,” it states in CP 215.

Under the new regime, advisers will be adequately trained if they’ve completed training courses that have been assessed to meet the new training standards or if they are individually assessed by an assessor.

The FPA, however, strongly criticised the move.

“ASIC strongly influences and even dictates the course curriculum, and as such is acting in the education regulator space,” the FPA stated in a response submission.

The status quo

With the regulator looking at an overhaul of education, providers are trying to compromise on addressing the current RG146 standards, while ensuring their services will see them well into any changes that lie on the horizon. While the core messages that come out of each of these courses may differ, the one thing all providers that ifa spoke to had in common was they also believed the push for education was a necessary step.

The Australia and New Zealand Institute of Insurance and Finance (ANZIIF) claims it maintains standards that are higher than AQF to ensure the organisation keeps ahead of the regulations.

“The AQF is a very useful framework but it’s a minimum framework,” ANZIFF chief executive Prue Willsford says.

“One of the things we’ve done is work to ensure that students have a deeper understanding of what their job role is and how it fits with industry.”

While ANZIIF has a technical focus, Ms Willsford says she believes interpersonal skills are important for all financial advisers. In her students – who range from “early 20s to occasionally people in their 70s – Ms Willsford tries to instil a foundation base while promoting ongoing professional development.

“Generally speaking, our courses are technical and a lot of those other skills are learnt through ongoing professional development,” she says.

Griffith University associate finance professor Mark Brimble says the university’s degree was the first to be approved by FPEC (on whose board he sits).

The university offers both a postgraduate degree and an undergraduate one covering foundation and specific financial planning subjects, as well as a financial planning construction course which Dr Brimble refers to as the “capstone” of the degree.

“[It’s] where they pull all of that information together and have to do a full plan. They do role play interviews and role play presentations of their plan back to their clients, so it’s pulling all of the knowledge together for that final outcome of the process,” Dr Brimble says.

The university also runs a professional development program and internship placements, ensuring that vocational skills “are run as implicit characters of the degree”.

The University of New South Wales (UNSW) has also had its masters of financial planning and its undergraduate commerce degree placed on FPEC’s approved courses list.

“Any student who comes in to do these courses will cover basic areas in terms of a mainly technical focus – a technical evaluation of product and an analysis of the impact of those products,” Chris Adam, associate dean, postgraduate programs, at UNSW’s Australian School of Business says.

“The second half of the masters is the electives. Once you get to the electives, really the world is your oyster and it’s what you’d like to choose from the long list that we have.”

While the course has a predominantly technical focus, it also involves a class on ethics and “outreach with the practitioner community”, including an arrangement with AMP-backed financial training program AMP Horizons, which sees Horizons students gain credits at UNSW if they decide to seek a masters qualification.

The university offers students the chance to apply their knowledge in a practical way by linking up with an internship program, Grad Mentor, which is run by UNSW alumnus Alisdair Barr.

“When you’re sitting across the desk giving financial planning, there is a lot of sort of interpersonal interaction, awareness of empathy and so on that is actually fairly hard to teach – and certainly in a university framework,” Professor Adam says.

“The ability to put someone in the situation, to observe a financial planner giving advice or to see the process work is actually incredibly valuable… and it makes a much smoother entry for the student into the workforce.”

Practical implementation is also the focus of TAFE NSW’s offering. Head teacher of accounting and finance Diana Bugarcic says both the diploma and the undergraduate course offered by TAFE NSW attract a range of students, from those with master’s degrees that aren’t RG146 complaint to career changers.

“We actually get [our students] to role play client scenarios, initial client meetings, scoping out the advice, and we actually get them to role play providing the SOA, so communicating what it is and making sure that they actually understood what the client wanted, which I think is missing in a lot of the online diploma courses,” Ms Bugarcic says.

Of the Sydney Institute degree offered by TAFE, Ms Bugarcic says the course not only ensures students emerge as technically proficient but it also focuses on refining soft skills, with students required to complete an internship as well as having XPLAN software in the classroom.

“We want to make sure that students that are graduating from TAFE, from Sydney Institute, do maintain [our] reputation that on graduation from the diploma they are work-ready and that they do actually understand what is required in the industry,” she says.

“So when we say our grads are work-ready they really are because they’ve… used the software, they’ve done an internship placement in the industry and hopefully they’re going to get a job out of it.”

Ms Bugarcic says the other element that gives her students an edge is being part of the Grad Mentor program, along with several other universities in NSW, Victoria and, most recently, Queensland.

In addition to mentoring, Grad Mentor runs internship events that connect students to industry members and are designed to give students a door into the industry.

According to Mr Barr, the key things that set Grad Menotor students apart from their predecessors are an eagerness to learn, strong technical skills and the different and efficient way in which they consume – a product of the paperless, internet age.

“The thing that they lack is experience on the ground – dealing with a client and building relationships with clients,” Mr Barr says.

“If they’re coming straight out of an undergraduate [degree] ... they’re going to need to skin their knees with some experience around customer service and building relationships. We fill a gap by letting them apply [their technical experience].”

Students have to apply for the program and go through a series of interviews and tests, including psychometric testing of their ability to communicate and problem solve.

These skills, as well as examples of customer service work and team sport, give a good indication of a student’s having the right kind of emotional intelligence to work successfully in the industry, says Mr Barr.

A focus on ‘soft skills’

Meanwhile, AMP Horizons goes even further and says a focus on soft skills is the key differentiator of its program.

AMP Horizons requires applicants to already be RG146-complaint and takes them through a competitive recruitment process of assessment tools, interviews and role-plays.

While the course teaches technical components and a range of different financial planning strategies, the real focus is on building relationships and providing quality advice.

“A financial planner needs to be resilient, they need to be optimistic and quite flexible to deal with all the different client situations,” says AMP Horizons head, Amelia Constantinidis.

“Most of our candidates are from different industries so I think that sets us apart,” she says. “We’ve had chefs, air hostesses, vets, nurses, teachers and lots of other different backgrounds as well.”

AFA’s Campus program, which provides graduates with the Fellow Chartered Financial Practitioner (FChFP) qualification, mirrors this focus on soft skills.

The course requires candidates to already have an advanced diploma or equivalent, as well as three years’ practice experience, and it can be undertaken through an online, self-directed model or a peer group process that sees a group of practitioners working together.

This practical application is built into the degree as the four major units in the course are projects which are implemented directly within their business.

Students are assessed on their strategic plan, client experience strategy, an advanced advice paper and a governance plan, as well as through knowledge tests conducted throughout the course.

“We know through consumer research that clients and consumers value highly educated advisers, but part of that advice is actually how it’s delivered,” Mr Hakes says.

“You need to have a whole heap of technical skill and expertise, but most importantly you have to be able to communicate it.

The next generation

While it may be a point of contention in the industry, some education providers are as optimistic about the next generation of advisers as the students are about the industry itself.

Grad Mentor’s Mr Barr says it’s important, however, that the industry look to increase the popularity of financial planning to ensure there is a new generation to keep it going.

“It’s about getting fresh blood into the industry, not just cannibalising the existing businesses,” Mr Barr says.

“There is a real issue with the ageing population in the industry. So encouraging young people to [take up] financial planning as a career path, and injecting it with new people, is the key to what we do.”

TAFE’s Ms Bugarcic agrees that the industry will grow in importance as the population ages – both within and outside the industry – but says it hasn’t seen the injection of new students that she would hope.

Griffith University’s Dr Brimble says mentorship within industry is the way to tackle this issue.

As part of the journey to professionalism, “businesses need to be aware that a big part of their role is to take the new talent in and have graduate recruitment programs and models for them to transition”, Dr Brimble says.

“I think it’s a big part of this transition to professionalism that we build those bridges and graduate programs and those graduate pathways so we can build the next generation of planners that meets the expectations of the clients.”

But ask the next generation what advice means to them and their views aren’t too unlike those of the planners of the past.

“There is nothing quite as rewarding as financial advice,” said Li, a Macquarie student, at a recent Grad Mentor event supported by ifa.

“The reason being is that you can just see people benefit from the advice you can give and your hard work can translate to [their] being better off in the long run. That’s something I would like to see.”

Jason, a student at UNSW, has a vision of financial advice that matches perfectly the view of the industry as it stands. He follows the old industry mantra that relationships are front and foremost.

“Instead of talking about the products, talk about [the people],” Jason says.

“Talk about ‘what do you want to do in your life, what you like, what’s your interests, how is your family’. You [need to] know everything about them. [When] I know their taste, their personality, then I know how to meet their demands.”

It seems that whichever pathway ASIC takes when it comes to education requirements, as long as the financial planning students of the future continue to focus on these key points, the industry will be – as Dr Brimble puts it — “in good hands”.

This article first appeared in the February 2014 edition of ifa magazine

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