News & Information

Financial Planner Education Requirements Lifting - Better Late than Never

November 10, 2014

It is with great pleasure to read that the financial planning industry that I work within, is enforcing changes to improve the education standards of its financial planners. It may well be reactive to recent scrutiny on the industry at large and on particular institutions, but better these changes happen late, than not at all.

Large institutions control over 80% of financial advice

It is understood that large financial institutions including ANZ, Commonwealth Bank, National Australia Bank, Westpac and AMP have all initiated or considered changes to the minimum educational requirements they will impose on new and existing financial planners (authorised representatives). As these institutions control over 80% of financial advice provided under Australian Financial Services Licences, this is a considerable industry initiative and improvement.

Thankfully I came into financial planning with degrees and qualifications that equipped me with knowledge that was useful in communicating to clients, adding value to their financial lives. But many have entered the industry without sufficient training or education and has more than likely contributed to the issues the industry continues to face.

It is fair to say that there are plenty of decent financial planners that don’t possess degrees, diploma’s or certifications, however I would also strongly argue that much of the selling of inappropriate financial products has been made by those without suitable qualification.

Sales results more important than knowledge and strategy

Financial planning as a profession is still developing. Even as early as 10 years ago, participating in an AMP induction program, it was clear that “selling” was more important and more of a training focus than knowledge and strategy. I was the only one out of more than 20 that had a technical (accounting) background. All others came from different (predominantly sales) industries, looking to make a transition into the financial planning world. It was quite scarey how few understood our tax system or had any knowledge of investment markets, but that wasn’t the content of my financial planning orientation.

So ten years on, it is not that surprising that we find the industry fighting issues such as conflicted remuneration and that has seen over 170 financial products fail and $38 billion dollars of investment capital lost. While I don’t have evidence that most of this investor money was advised by financial planners who were under-qualified, my guess is that it was those advisers who didn’t take the time to understand what they were actually investing in, and didn’t do adequate due diligence, were the ones who predominantly pushed failed financial products onto their clients.

Don’t get me wrong, there’s probably a reasonable percentage of sufficiently qualified advisers that have recommended agribusiness, off-plan property, structured products, and geared share portfolios immediately prior to the global financial crisis. But for these advisers, it is not education and qualification that is their limitation, but more of a situation of being motivated by financial reward and commission incentives – an area that the industry has since also regulated and legislated changes on.

learn and invest time

Enhancing adviser education provides information that will help guide clients make prudent financial decisions. The commitment to learn and invest time and energy into absorbing new information will surely result in advisers making informed decisions, and analyse financial products independent of biased business development manager opinion. Increasing financial planner education standards will assist in our profession being perceived by the public as a profession.

At the end of the day, it would be ideal to be working in a profession that is well perceived, highly trusted, with strong levels of consumer confidence. Understanding that all larger financial institutions are in the process of introducing minimum educational standards, far higher than what previously existed, this is a step in the right direction.

Enhancing consumer confidence and removing existing scrutiny is important for the financial planning industry and its participants. Even after implementation of higher educational standards, no doubt there will still be pockets of ordinary advice being given to clients but I’m expecting these will be fewer in number and the value or consequence of inappropriate advice will be far less in value, becoming a much smaller minority.

Education alone is not the complete solution to improving financial advice, but it will definitely help.