Exam for financial advisers
By ASIC Chairman Greg Medcraft
Last month I addressed the National Press Club in Canberra and was asked about financial advisers. I spoke plainly about my frustration and dissatisfaction with the sector and the lack of trust and confidence consumers have in financial advisers.
I was fired up and I think with very good reason. Only one in five Australians get financial advice and with recent high-profile cases of advisers mis-selling financial products, this is no surprise.
Many people have lost their life savings and suffered great hardship and this is very hard to deal with and I empathise with these people. I am a major believer in free markets, but the reality is that markets recover but people may never recover.
Now, I want to acknowledge that over the past few months there has been a lot of activity in the financial advice space particularly around adviser standards.
The Government has clearly recognised the importance of this issue through the establishment of a working group on adviser standards. The Government is now considering its report, and ASIC was an active participant in this group.
There has been the Parliamentary Committee into standards and training for advisers. And there have been announcements from individual firms on their initiatives to lift financial adviser competence. The momentum towards higher professional standards for advisers is growing, as it must if we are to rebuild consumer trust. And I strongly believe that a national exam for financial advisers is critical to assuring consumers that the industry is on the right path to professionalism.
As I told the National Press Club, I am passionate about lifting standards in the financial advice sector. This requires tough enforcement, banning bad advisers and taking action against misconduct in financial planning firms. But it is also essential that we have a robust, nationally consistent qualification for advisers. This will help ensure that Australian investors can have the trust and confidence in financial advice that they deserve.
I believe a national exam for financial advisers is fundamental to this vision. It is similar to the approach taken in other jurisdictions to assure investors about a minimum level of financial adviser competence. The Series 7 exam in the United States comes to mind. We want a co-regulatory model where industry sets competence levels for advisers and then ASIC oversees the exam, which tests these competencies.
ASIC does not want to micro-manage the education process. We are focused on outcomes. In this case, national assurance that financial advisers do meet a minimum level of competence and tested in a secure environment. This will go a long way towards underpinning investor trust and confidence in the financial advice sector.
Our early thinking is that the exam should be modularised to take account of the different skills different types of advisers have. There should be a compulsory module for the basic skills all advisers need and ethics needs to be the cornerstone of such a module. There would then be optional modules covering different areas of specialisation.
The exam should also be conducted in a secure environment, to maintain the exam’s integrity and to avoid cheating.
Should financial advisers have a university degree also? Anyone undertaking our proposed exam will need to have the experience and the study that could only be gained from a doing a degree. There are a myriad of education providers in Australia and ASIC does not want to micro manage the process.
What I want is the outcome – I want a national exam that provides a national assurance that financial advisers have met this minimum standard. The key word is 'minimum' standard. And from this investors can be trust and confidence in financial advice.
We want a system not unlike the one the Civil Aviation Safety Authority (CASA) uses to test pilots. I understand that pilots sit an exam set by CASA to test their skills and knowledge acquired from both training and experience. CASA controls exam standards, and approved exam providers conduct exams in accordance with the CASA framework.
The industry needs to get its house in order and the introduction of a compulsory national examination will help it do that.
A opinion piece by Greg Medcraft, Chairman, Australian Securities and Investments Commission published in the Australian Financial Review, 13 January 2015.