Professional standards for financial advisers – reforms

The Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 commenced on 15 March 2017. It introduced several measures in the Corporations Act 2001 (Corporations Act) to raise the education, training and ethical standards of financial advisers providing personal advice to retail clients on more complex financial products.

Scope of the reforms

The reforms apply to 'relevant providers'. A relevant provider is an individual who is:

  • an Australian financial services (AFS) licensee, an authorised representative, employee or director of an AFS licensee, or an employee or director of a related body corporate of an AFS licensee, and
  • authorised to provide personal advice to retail clients, as the AFS licensee or on behalf of the AFS licensee, in relation to relevant financial products.

'Relevant financial products' means financial products other than:

  • basic banking products
  • general insurance products
  • consumer credit insurance
  • a combination of any of those products.

The definition of 'relevant financial products' is broadly similar to the concept of Tier 1 financial products in Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146), but the concepts differ slightly. Personal sickness and accident insurance products are not 'relevant financial products' (however, they are Tier 1 products).

The reforms do not apply to advisers who are not relevant providers. This means, for example, they do not affect advisers who only provide general advice or who only provide personal advice on products that are not relevant financial products, such as general insurance.

Obligations for relevant providers

Under the new requirements, all relevant providers must:

  • have a relevant bachelor or higher degree, or equivalent qualification
  • pass an exam
  • meet continuing professional development (CPD) requirements each year
  • complete a year of work and training (professional year) – although this will not apply for individuals who are already relevant providers before 1 January 2019
  • comply with a code of ethics and be covered by a compliance scheme that monitors and enforces compliance with the code of ethics.

From 1 January 2019, only relevant providers who meet these standards can call themselves a 'financial adviser' or 'financial planner' or similar terms.

When do the reforms commence?

There will be a phased approach to the commencement of these reforms. The commencement dates for the key requirements are set out below.

Start dates for key professional standard requirements for relevant providers

Requirement

Start date for new relevant providers

(authorised on or after 1 January 2019)

Start date for existing relevant providers

(authorised between 1 January 2016 and 1 January 2019)

Have a relevant bachelor or higher degree, or equivalent qualification

1 January 2019

1 January 2024

Pass the exam

1 January 2019

1 January 2021

Complete a professional year

1 January 2019

Not applicable

Comply with CPD requirements

1 January 2019

(but not applicable in professional year)

1 January 2019

Comply with the code of ethics

1 January 2020

1 January 2020

Be covered by a compliance scheme

1 January 2020

(compliance scheme notifications to be received from 15 November 2019)

1 January 2020

(compliance scheme notifications to be received from 15 November 2019)

Transitional arrangements for existing providers

Transitional arrangements apply to 'existing providers'. An existing provider is a person who is a relevant provider at any time between 1 January 2016 and 1 January 2019, and is not prohibited from providing advice on 1 January 2019.

A person will demonstrate that they are an existing provider if they:

  • have a status of 'current' on the financial advisers register at any time between 1 January 2016 and 1 January 2019, and
  • are not banned, disqualified or subject to an enforceable undertaking (where they undertook to not provide financial product advice or financial services in any capacity) on 1 January 2019.

This means that if a person is currently providing personal advice to retail clients on relevant financial products, they should check that they are on the financial advisers register and have a 'current' status.

If an AFS licensee wishes to appoint an adviser from 1 January 2019 and that person did not have a status of 'current' on the financial advisers register at any time between 1 January 2016 and 1 January 2019, that person must (except in very rare circumstances):

  • hold a relevant qualification, and
  • have passed the exam,

prior to the appointment. The person will also need to undertake a professional year.

An existing provider can use the terms 'financial adviser' and 'financial planner' from 1 January 2019 provided they satisfy the relevant requirements that apply to them at any given time. This means that:

  • before 1 January 2021, an existing provider can call themselves a 'financial adviser' or 'financial planner'
  • between 1 January 2021 and 31 December 2023, an existing provider can call themselves a 'financial adviser' or 'financial planner' only if they have passed the exam. If an existing provider has not passed the exam by 1 January 2021, the person ceases to be a relevant provider and cannot use the terms 'financial adviser' or 'financial planner'
  • from 1 January 2024, an existing provider can call themselves a 'financial adviser' or 'financial planner' only if they have passed the exam and attained a relevant bachelor or higher degree, or equivalent qualification. Otherwise, the person ceases to be a relevant provider from this date and cannot use the terms 'financial adviser' or 'financial planner'.

See Section B of Regulatory Guide 175 Licensing: Financial product advisers – Conduct and disclosure (RG 175) for further detail.

Application of RG 146

RG 146 will continue to apply to existing providers until the new requirements apply. Existing providers must pass the exam by 1 January 2021 and attain the required educational qualifications by 1 January 2024, otherwise they will no longer be able to provide personal advice to retail clients on relevant financial products.

For new entrants to the industry seeking to become a relevant provider from 1 January 2019 onwards, RG 146 will not apply.

We will be updating our guidance on training for financial advisers who are not relevant providers (e.g. advisers who provide general advice or who provide advice about products other than relevant financial products). RG 146 will be reviewed and updated as part of this process.

The Financial Adviser Standards and Ethics Authority

An independent standards body, the Financial Adviser Standards and Ethics Authority (FASEA), will:

  • approve the relevant bachelor or higher degrees and equivalent qualifications that will satisfy the new requirement to have a relevant bachelor or higher degree, or equivalent qualification
  • approve the exam that every relevant provider must pass
  • set the CPD requirements
  • develop the code of ethics that all relevant providers must comply with
  • set the requirements for the year of work and training for new relevant providers (professional year)
  • specify the words or expressions that can be used to refer to a 'provisional relevant provider' (i.e. those completing their professional year).

Compliance schemes for the code of ethics

Monitoring bodies will operate compliance schemes to monitor and enforce relevant providers' compliance with the code of ethics. Monitoring bodies may be professional associations but are not required to be. An AFS licensee, or an associate of an AFS licensee, cannot be a monitoring body.

A monitoring body for a compliance scheme applies to ASIC for approval of the compliance scheme. We will only approve a compliance scheme if we are satisfied that:

  • compliance with the code of ethics will be appropriately monitored and enforced, and
  • the monitoring body has sufficient resources or expertise to carry out that monitoring and enforcement. 

ASIC released Consultation Paper 300 Approval and oversight of compliance schemes for financial advisers on 15 May 2018. Following consultation, on 28 September 2018 ASIC published in Regulatory Guide 269 Approval and oversight of compliance schemes for financial advisers (RG 269), which explains our proposed process and criteria for determining whether to grant approval to a compliance scheme and our proposed oversight of compliance schemes on an ongoing basis.

Updates to the financial advisers register

The financial advisers register will be updated to include the following additional information about relevant providers:

  • the relevant provider's principal place of business
  • the compliance scheme that covers the relevant provider
  • details of any failure by the relevant provider to comply with the code of ethics
  • if relevant, a statement that the relevant provider has not met their CPD requirements
  • if they are a provisional relevant provider:
    • the fact that they are a provisional relevant provider
    • the day that they commence their professional year
  • any other information that ASIC believes should be included in the financial advisers register that relates to the provision of financial services by the relevant provider.

AFS licensees will be required to give the additional information to ASIC.

Change in timing for giving information to ASIC

ASIC has made a legislative instrument to change the dates that AFS licensees are required to give the earliest additional information to ASIC.

You can download the legislative instrument and the explanatory statement here.

The changes are outlined in the table below.

Information AFS licensees need to give to ASIC

Original timeline – when ASIC needs to be notified

New timeline – when ASIC needs to be notified

New timeline – when information shown on the register

Details about provisional relevant providers who are authorised between 1 January 2019 and 14 November 2019

From 1 January 2019

15 November 2019 – 31 December 2019*

From 15 November 2019

Licensee’s CPD year start date (and any changes to that date)

15 November 2018 – 31 December 2018

15 November 2019 – 31 December 2019*

Not displayed

Details of any failure(s) to meet the CPD requirements

From 1 January 2019

From 15 November 2019*

From 15 November 2019

Date that an existing provider has passed the exam

Before 1 January 2021

15 November 2019 – before 1 January 2021

Not displayed

Relevant provider's principal place of business and compliance scheme covering the relevant provider

By 1 January 2020

In the first notice lodged between 15 November 2019 – 31 December 2019*

From 15 November 2019

* AFS licensees have an ongoing obligation after this date to keep information up to date about existing relevant providers and to provide information about any new relevant providers (including provisional relevant providers) they authorise.

What licensees still need to do

The changes in timing for giving information to ASIC do not affect the commencement of a licensee's substantive obligations. This means that a licensee will still be required to:

  • comply with the requirements for provisional relevant providers from 1 January 2019, including ensuring the provisional relevant provider has obtained a relevant qualification, passed the exam and is supervised
  • maintain appropriate records about the provisional relevant provider (e.g. name, product authorisations and when their professional year commenced)
  • comply with CPD requirements from 1 January 2019 and maintain appropriate records (e.g. the start date of the CPD year)
  • ensure existing providers under their licence pass the exam by 1 January 2021.

Keeping appropriate records is important because between 15 November 2019 and 31 December 2019, licensees will need to give ASIC information about a provisional relevant provider they authorised between 1 January 2019 and 14 November 2019, along with the information about CPD and the exam, as detailed above.

The changes do not affect the appointment of existing providers. This means that licensees who appoint an existing provider between 1 January 2019 and 14 November 2019 will still need to give information to ASIC about the existing provider when they are appointed (i.e. they should not wait until 15 November 2019 to give ASIC information about the appointment of an existing provider).

What licensees do not need to do between 1 January 2019 and 14 November 2019

Between 1 January 2019 and 14 November 2019, licensees do not need to tell ASIC they have appointed a provisional relevant provider.

  • Licensees should not lodge a form notifying ASIC that they have appointed a provisional relevant provider until 15 November 2019.
  • If a licensee incorrectly lodges a form with ASIC to appoint a financial adviser when the person is actually a provisional relevant provider between 1 January 2019 and 14 November 2019, the licensee will need to pay extra fees to correct the error.

Between 1 January 2019 and 14 November 2019, licensees do not need to tell ASIC about:

  • the start date of their CPD year
  • failure(s) by their relevant providers to comply with CPD requirements
  • existing advisers that have passed the exam.

Related links

What's new

Guidance on code of ethics compliance schemes for financial advisers

ASIC has released guidance on its proposed approach to approving and overseeing compliance schemes for financial advisers. 18-290MR. 28 September

ASIC review finds unacceptable delays by financial institutions in reporting, addressing and remediating significant breaches

ASIC has identified serious, unacceptable delays in the time taken to identify, report and correct significant breaches of the law among Australia's most important financial institutions.  18-284MR. 25 September.

Financial firms must join AFCA now

ASIC warns all Australian financial services licensees, Australian credit licensees, authorised credit representatives and superannuation trustees that they must join the Australian Financial Complaints Authority (AFCA) now if they have not already done so. 18-275MR. 20 September

More financial services releases

ASIC industry funding

Last updated: 10/10/2018 12:21