No one doubts the education of financial planners needs a major overhaul.
When you can determine your clients’ financial futures with just a few weeks’ training, something is seriously wrong.
The aim to raise financial planner education to degree standard is laudable and necessary, but the way it’s being done is creating a lot of ill feeling within the industry.
Sydney-based Elizabeth Hughes is an example.
Ms Hughes has nearly 20 years’ experience as a financial planner, a university degree, a diploma in financial planning, and has achieved the industry’s highest designation — “Certified Financial Planner” (CFA).
But most of it won’t count under the proposals from the newly created Financial Adviser Standards and Ethics Authority.
Forced to study again
“I feel quite aggrieved that they have put me in the same basket as, for example, an ex-hairdresser who did one of these one-month, RG 146 courses, and then was able to call themselves a financial planner,” Ms Hughes said.
Despite her two decades of experience in the industry, Ms Hughes’ undergraduate degree was not in what’s been deemed a “related field”.
To stay in business she’ll be forced to add a graduate diploma in financial planning to her educational qualifications.
“I studied a BA [bachelor of arts] in psychology,” she said.
“And I would actually argue it’s quite relevant to what I do because there are a lot of behavioural aspects, certainly in investing and how people make decisions around their money.”
The Financial Planning Association — which sees itself as the peak industry body — agrees that someone with Ms Hughes’ experience should not be forced to study again.
“We look at that scenario and say, why does that individual not meet the education component? We think they do,” said FPA’s chief executive Dante De Gori.
While Ms Hughes will grudgingly take herself back to the classroom, many won’t.
One-third of planners to quit
“With 25,000 advisers in the industry, we are looking at about one third going to be exiting the industry by 2023 when the new professional standards come into play.”
That was the prediction of Associate Professor Adrian Raftery, from Deakin University’s business school.
Dr Raftery thinks older planners in particular will find the prospect of studying too hard and will instead choose to walk away.
Although the loss of a large number of people will be painful for the industry, he believes it won’t necessarily be a bad thing.
“There has been a lot of bad advice in the industry over the years,” Dr Raftery said.
“There has been a need to do some type of correction to eliminate some of the bad eggs who are in the industry.
“Education standards is one part of that process.”
Will better education lead to better advice?
Given that the global financial crisis was delivered by people with PhDs, the jury is out — especially as many of the conflicted payments like commissions and so-called “asset-based fees,” at the heart of bad advice, will stay.
“In a perfect world, a utopia world, a pure fee for service model, only between a client and an adviser, is the way the model should work,” Mr De Gori said.
But it doesn’t, and in January ASIC found that 75 per cent of advice on superannuation from bank financial planners failed the “best interest” duty, in an environment where selling products is a key goal.
Three of the big four banks, who together with AMP dominate the financial planning industry, are getting out of product manufacturing.
Only time will tell if customers will be better off.
This story will also appear on The Business tonight, 9:45pm (AEST) on ABC News and ABC iview.