To become a financial adviser you must meet the requirements of the Adviser Professional Standards laws.
The Adviser Professional Standards laws1 commenced on 1 January 2019 and are intended to raise the education, training and ethical standards of financial advisers. Those who give personal advice to retail clients on financial products2 must hold an Approved degree, pass an exam, meet Continuing Professional Development (CPD) requirements and comply with the Code of Ethics. Potential new advisers will also need to undertake a Professional Year - a year of workplace training and other activities intended to develop professional competence.
For simplicity, we use the term ‘Adviser’ to refer to those who are subject to the standards.
This article complements our Adviser Professional Standard’s article and focuses on the qualifications, work and training standards as they apply to New Entrants. “New Entrant” is the term used to refer to someone entering the profession who does not qualify for the transitional rules available to Existing Advisers.
When do New Entrants have to meet the new standards?
Before being authorised to give personal advice to retail clients on financial products,1 new entrants must meet the:
- qualifications standard by completing an Approved degree (explained below)
- work and training standard by completing a Professional Year (explained below), and
- exam standard, by successfully passing the Financial Adviser Exam (explained in our earlier article).
Sequence of key milestones
The diagram below provides an overview of the anticipated sequence of key milestones for a New Entrant.
An Approved degree will need to be completed before a New Entrant can sit the Financial Adviser Exam. The individual will need to pass the exam before Quarter 3 of the Professional Year can commence.
During a New Entrant’s Professional Year and after they have completed an Approved degree and passed the Financial Adviser Exam, they may be authorised to give personal advice to retail clients, be referred to as a Provisional Financial Adviser or a Provisional Financial Planner, and be registered on ASIC’s Financial Adviser Register (FAR) on this basis. From this time, the Code of Ethics will apply3.
Following successful completion of the Professional Year, the New Entrant can be authorised to give personal advice to retail clients in their own right and be registered as a Financial Adviser on the FAR. From this time, the CPD requirements will apply4.
Apart from the timeframes, the Financial Adviser Exam, Code of Ethics and CPD requirements are the same for all Advisers (new and existing). These elements are covered in our previous article.
The key differences between the requirements for New Entrants and those for Existing Advisers relate to the qualifications standard and work and training standards (which applies to New Entrants only). We have expanded on these below.
Qualifications standard
The qualifications standard sets out the range of courses that both Existing Advisers and New Entrants will need to undertake. For New Entrants there are two separate pathways:
- Undergraduate – an Approved 24-unit bachelor degree
- Postgraduate – an Approved graduate diploma or master degree
Approved degree
Numerous degrees from a range of education providers have been approved for New Entrants5. These cover bachelor’s and postgraduate degrees, generally with majors/specialisations in financial planning. Conditions for each degree are specified, for example, particular subjects must be completed.
A condition that will apply to all the Approved degrees is that the candidate complete a course on the Code of Ethics unless the degree includes such a course.
The postgraduate pathway is designed for those with existing tertiary qualifications and/or substantial work experience in a related field at the discretion of the education provider’s postgraduate entry policy. The minimum requirement for a new entrant using this pathway is an approved graduate diploma (AQF86) comprising of eight subjects.
Work and Training standard
The work and training standard requires New Entrants to undergo a Professional Year. This is a year of workplace training and other activities intended to develop professional competence to provide financial advice.
By the end of the Professional Year, the individual will need to:
- be able to undertake specified activities
- demonstrate key competencies; and
- have passed the Financial Adviser Exam.
Specified activities
- analyse, compare and apply underlying principles and theories from relevant areas of technical competence to complete work assignments and make decisions, and to do so effectively
- integrate technical competence and professional skills in managing and completing work assignments
- understand and apply the Code of Ethics, including in relation to avoiding inappropriate personal advantage, and applying professional values and attitudes, to work assignments
- present information and recommendations, and explain ideas, orally and in writing in a clear confident and professional manner likely to be understood by retail clients
- make appropriate judgments on courses of action, drawing on professional values, ethics and attitudes, and
- with appropriate consultation, assess, research and develop appropriate solutions for complex business or client problems and issues.
Key Competence
- technical competence: technical proficiency to ensure that advice strategies are appropriate to the objectives, financial situations and needs of different classes of retail clients
- client care and practice: the ability to act as a client-centric practitioner in advising both new and existing clients
- regulatory compliance and consumer protection: a satisfactory understanding of applicable legal obligations and how to comply with them, and
- professionalism and ethics: the ability to act as an ethical professional
A final completion certificate from the individual’s supervisor and licensee is required to evidence that the above requirements have been met.
In satisfying the Professional Year requirements, supervisors and licensees have important roles in planning and monitoring the work and training required of aspiring professional Advisers.
Supervisor and licensee requirements
A supervisor is required to have at least two years’ experience working as an Adviser (excluding the Professional Year). The individual being supervised can have more than one supervisor in their Professional Year, whether successive or joint (e.g. different supervisors for different advice specialisations).8
Supervisors must provide supervision that actively assists the New Entrant in getting the full benefit of the Professional Year. The supervisor must approve, in writing, any statement of advice provided to clients and is taken to have provided the advice relating to the financial products.1 A client who interacts with the New Entrant (either direct or indirectly) during their Professional Year must be informed before such contact (in writing) that they are undertaking supervised work and training, the name and contact details of the supervisor and that the supervisor is responsible for personal advice provided to the client relating to financial products.1
A licensee is required to ensure that appropriate supervision is provided and make appropriate resources and opportunities available to enable the individual to meet the Professional Year requirements.
Professional Year plan
The New Entrant, supervisor and licensee must develop and agree on a Professional Year plan. The individual, supervisor(s) and licensee must take reasonable steps to ensure the plan is followed.
Professional Year plan
A Professional Year plan (including as varied) must be in writing and must:
- identify the person, the supervisor and the responsible licensee
- identify any other Adviser who will be involved in the supervision of the person, including in respect of areas of specialist expertise
- identify the period and each quarter of the Professional Year
- identify the particular work and training outcomes to be achieved by the person during the Professional Year and during each quarter
- describe the resources and opportunities that the responsible licensee will make available
- for each quarter of the Professional Year, describe in detail the work activities and the structured training to be undertaken, and
- set out any other arrangements for the Professional Year.
Minimum hours
Individuals need to gain a minimum of the full-time equivalent of one year of relevant experience before they can be authorised as an Adviser. This is 1,600 hours, to be split between:
- 100 hours of structured education and training, and
- 1,500 hours of work and supervised experience.
Formal education can contribute to the 100 hours structured training requirement of the Professional Year. For example, individuals who haven’t yet completed the Code of Ethics course will be able to count that towards their structured training. Other education and training could include:
- education for the purposes of achieving a professional designation
- education to be accredited in specific financial products, and
- education for the purposes of meeting the requirements in the provision of specific financial advice (for example, SMSF, stockbroking and aged care, etc.).
Structured training should be measurable, assessed and lead to further qualification (formal and informal) outcomes for the individual.
Quarterly activity requirements
The Professional Year is split into four quarters, with particular requirements specific to each. An individual is not able to progress from one quarter's activities to the next quarter's activities unless they have completed the work activities and structured training planned for that quarter. Work activities or structured training for Quarter 3 cannot commence until the individual has passed the Financial Adviser Exam.
Quarter 1 (client observations and supporting supervisor or other relevant provider) | The individual must undertake all the following work activities, under the direct supervision of the supervisor or other Advisers nominated by the supervisor:
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Quarter 2 (supervised client engagement and advice preparation) | The individual must undertake all the following work activities, under the direct supervision of the supervisor or other Advisers nominated by the supervisor:
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Each of Quarters 3 and 4 (indirect supervision of client engagement and advice preparation) | The individual must undertake all the following work activities, under the limited or indirect supervision by the supervisor or Advisers nominated by the supervisor:
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Ethical dilemmas
For each of Quarters 3 and 4, the work activities include identifying and resolving at least two problems (ethical dilemmas) relevant to Adviser practice. The objective is to develop knowledge and understanding of the Code of Ethics and the ability to resolve ethical issues as they arise.
Completion certificates
At the end of each quarter an individual's supervisor must give a completion certificate, certifying satisfactory completion of the work for that quarter, before the next quarter can commence.
Completion certificate - Quarter
The supervisor must apply the following general criteria in assessing whether to give an individual a completion certificate for a quarter:
- whether the individual has completed and maintained his or her logbook for the quarter (see below)
- the number of hours of work activities and structured training the individual has undertaken, in accordance with the Professional Year plan, up to the end of the quarter
- the extent to which the individual has achieved the particular work and training outcomes set out in the Professional Year plan for the quarter
- the extent to which the individual is capable of satisfactorily completing the work and structured training for the next quarter
- for Quarters 3 and 4—whether the individual’s identification and resolution of the ethical dilemmas demonstrate the ability to identify ethical issues and resolve them appropriately
- whether the individual has achieved satisfactory progress against the requirements of his or her Professional Year plan, including satisfactorily addressing areas for further development.
Completion certificate - Final
The following additional requirements apply to final completion certificates:
- The individual must have:
- in accordance with the Professional Year plan, completed the required hours of work activities and structured training, and
- passed the Exam.
- The licensee must also give the certificate and can only do so if:
- the licensee is satisfied of the general criteria listed above, and
- has conducted an audit of at least five client files on which the individual worked during their Professional Year and is satisfied that the individual can be relied on to comply with applicable legal and regulatory requirements.
Record-keeping (including logbook)
An individual undertaking their Professional Year is required to complete and maintain a logbook of:
- the hours spent on work activities and structured training during his or her Professional Year
- details of the work activities and structured training undertaken, and
- notifications given to clients.
Supervisors are also required to keep detailed records of their assessments and the reasons for those assessments. Licensees responsible for individuals undertaking their Professional Year must make complete and accurate records in relation to completion certificates.
Treasury has indicated that it is up to Licensees to determine how record keeping is maintained, including developing templates and systems if required. For examples, Licensees can still access the completion certificate templates and logbook templates published by FASEA.
