IN BRIEF - CREATING UNIFORM PROFESSIONAL STANDARDS WILL BOOST
RETAIL CLIENTS' CONFIDENCE
Amendments to the educational, training and ethical standards
for holders of Australian Financial Services Licences (AFSL) under
the Corporations Act 2001 (Cth) (the Act) will commence on
1 January 2019 and will affect AFSL holders who provide personal
advice to retail clients.
GOVERNMENT AIMS TO RAISE FINANCIAL ADVISERS' PROFESSIONAL
Under the amendments, the Commonwealth government is
establishing an independent standards body to administer the regime
which will place heavy ethical, educational and training
requirements on holders of AFSLs and their authorised
representatives if providing personal advice to retail clients.
AMENDMENTS APPLY TO AFSL HOLDERS PROVIDING PERSONAL ADVICE TO
These changes will apply to a holder of an AFSL who provides
personal advice to retail clients. Personal advice is advice that
takes into account your personal situation.
Under the Act, a retail client is a client that is not a
wholesale client. There are various categories of wholesale client
under the Act, the most common include:
the client is investing in or being advised on a product that
exceeds $500,000 in value
the client has net assets of at least $2.5 million or gross
income for last two financial years of $250,000, as certified by an
the client is a professional investor
the client is a large business (more than 20 employees, or less
than 100 if business involves the manufacture of goods), or
the client is a sophisticated investor
The new regime has been introduced to protect those retail
investor clients that are not perceived as financially savvy,
informed or confident enough to protect their interests.
FINANCIAL ADVISERS MUST MEET FOUR TRAINING AND EDUCATIONAL
Currently, there are no minimum educational or training
standards or ongoing professional development for financial
The amendments to the Corporations Act will significantly alter
this landscape by establishing four new education and training
standards to be met by financial advisers:
the person has completed a bachelor or higher degree, or
equivalent qualification, approved by the standards body or the
person has completed a foreign qualification approved by the
standards body (Qualification Standard)
the person has passed an exam approved by the standards body
the person has undertaken at least one year of work and
training that meets the requirements set by the standards body
(Training Standard), and
the person meets the continuous professional development (CPD)
requirements set by the standards body (CPD Standard)
ASIC will not grant an AFSL to an individual who has not met the
Qualification Standard, Exam Standard and Training Standard. An
authorised representative or sub-representative of a financial
service licensee must meet the Qualification Standard and the Exam
Standard and must be undertaking the Training Standard (if not
already met) to be appointed.
All providers of personal advice must comply with the CPD
Standard in a CPD year.
STANDARDS BODY WILL MONITOR COMPLIANCE AGAINST A CODE OF
There is currently no requirement for a financial adviser to be
a member of an industry body and even then each body has its own
code of conduct. Under the new regime, the standards body will
develop and monitor compliance across the industry against a
uniform code of ethics.
AMENDMENTS WILL IMPROVE INVESTOR CONFIDENCE, BUT MAY INCREASE
COST AND TIME OF FINANCIAL ADVICE
The new regime will create a uniform professional standard for
industry participants which will increase retail clients'
confidence in the quality of advice being paid for and received. We
consider that this will have a significant influence on investor
confidence not only in an individual financial adviser but the
Australian financial markets as a whole.
Unfortunately, this higher standard may result in significant
exit from the industry by those advisers who are unwilling or
unable to comply with the new requirements, potentially increasing
the cost and timeliness of receiving financial advice.
WHEN DO THE AFSL AMENDMENTS APPLY?
From 1 January 2019, new advisers entering the industry will be
required to comply with the requirements. Existing advisers will
have until 1 January 2021 to pass the exam and until 1 January 2024
to meet the educational requirements.
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