New laws regulating financial advisers will see the big four banks and AMP funding an independent body to oversee professionals standards in the troubled wealth management industry.
The federal legislation, to be introduced to parliament later this month, will mandate professional standards for financial advisers, including qualifications, exams, continuing education and a code of ethics.
“This independent standards body will raise minimum standards in the financial advice industry and improve public confidence in the sector,” says Kelly O’Dwyer, the minister for financial services.
The wealth management industry has been hit by a series of scandals where customers have been given bad advice and lost life savings and retirement nest eggs.
The big bank CEOs have already been questioned in a parliamentary committee on their track record and whether any senior executive had lost their jobs because of poor financial advice.
The Australian Financial review says that the corporate regulator ASIC will next week release a report that reveals the big banks and AMP have been shortchanging customers tens of millions of dollars by charging them for services they didn’t get.
The professional standards legislation will establish an independent standards body, funded “exclusively” by the large banks and AMP, the biggest players in the wealth management industry.
The new professional standards regime will start January 2019. Existing advisers will have until January 2021 to pass the new exam and until 2024 to reach degree-equivalent status.
Professional associations and other independent third party monitoring bodies will develop compliance schemes to monitor and enforce advisers’ adherence to a code of ethics. These compliance schemes will be approved by ASIC.
O’Dwyer says the reforms ensure financial advisers will be held to a high standard of ethics, with non-compliant advisers subject to disciplinary action and sanction by the monitoring bodies.
In reaction, the Australian Bankers’ Association has today welcomed the Federal Government’s announcement that it will introduce new legislation into Parliament this year to create a new independent body to set higher professional standards for financial advisers.
“This is an important step in the professionalisation of the financial advice industry,” ABA Executive Director – Retail Policy Diane Tate said.
“Customers rightly expect to receive high quality financial advice to help them maximise their savings, build their wealth, plan for retirement or help manage their money in retirement.
“The new education and professional standards framework will mean we have more competent financial advisers who meet higher standards of ethics and conduct.
“Banks support the introduction of higher minimum qualifications, a new exam for all financial advisers, a new supervision year for new financial advisers, mandated continuous professional development requirements and a model code of ethics for all financial advisers,” she said.
“Banks (Financial advice banks are ANZ Banking Group, Bendigo and Adelaide Bank, Commonwealth Bank, Macquarie Group, National Australia Bank, Suncorp Group, and Westpac) are helping to fast-track the professionalisation of the financial advice industry by agreeing to fund the establishment costs of the new independent body. This will mean that the new professional standards framework can be introduced as soon as possible.”
Ms Tate said banks had already made significant changes to their businesses to lift standards.
“We have led the way on industry reforms including changing how banks hire financial advisers, so they know a lot more about the adviser’s conduct history and performance before employing them.
“The aim is to better identify financial advisers who have not met the industry’s minimum legal, conduct and ethical standards, and help ensure Australians can trust they receive financial advice from professional, competent and ethical financial advisers at their bank,” she said.
The ABA’s new protocol for hiring financial advisers is open to all providers of financial advice, and allows signatories to ask a standardised series of questions about the financial adviser’s conduct history, quality of advice, risk management and compliance record.
The banking industry is also working on additional industry standards to ensure that banks can apply the Government’s professional standards framework in their competency and training programs, human resources policies, and compliance frameworks.
“Our efforts as well as the new standards set by the Government will serve to professionalise, and build trust and confidence in financial advice from banks,” Ms Tate said.
