Coronavirus delays standards regime changes for the financial advice sector

The so-called FASEA regime hinges on a new qualification system for advisers.

Senior sources in the industry suggest the exams are most likely to be formally pushed out to the deadline as originally promised.

A new standards regime for the financial advice sector that was expected to kick off by the end of the year has been pushed out as parliament and key stakeholders in the industry try to reframe advice in the context of the coronavirus crisis.

The so-called FASEA regime, which has been planned as the template for the trouble-plagued sector in the wake of the financial services royal commission, hinges on a new qualification system for advisers.

Each one of the nation’s financial advisers was meant to have sat and passed a new exam by the end of this year, but a report from the Adviser Ratings group shows that a mere 7488 have done the exam, with 1080 failing to pass.

That leaves the vast majority of advisers — at least 16,000 — not having attempted the exam at all, with just months to go before the original slated deadline.

As the deadline has approached, an unlikely combination of stakeholders — particularly a coalition of the Association of Financial Advisers and the Finance Sector Union — have sought to press parliament to follow through on an earlier agreement to extend the qualification deadline by a year, which would mean the exam deadline moved to January 2022.

Though this legislation has not been passed as expected, the reality is that with a shortened parliament only able to get through the most pressing matters, the issue is now not likely to come before the Senate until August.

At that stage, with only four months to go before the end of the year, senior sources in the industry suggest the exams are most likely to be formally pushed out to the deadline as originally promised.

The effective extension of the FASEA (Financial Adviser Standards and Ethics Authority) regime comes as the Adviser Ratings report reveals key changes occurring across the sector in recent months.

In essence, the practice of offering full service comprehensive personal advice is now so heavily regulated that the numbers of new professionals joining the sector are due to slow substantially, with very few graduates joining the industry.

At the same time very large numbers of older professionals are expected to leave the industry in the months ahead as the prospect of a comprehensive exam looks all too difficult — especially for advisers who have built up expertise in single areas such as life insurance.

As the complex push to professionalise the sector evolves, with a selection of pitched battles regularly erupting between factions in the industry, the prospects of everyday investors getting good quality independent advice for a reasonable price appear to be shrinking.

Two key developments weigh against the retail investor: one at the lower end of the market and the other at the upper reaches.

Among less wealthy investors there is a shift towards general advice and away from highly regulated personal advice which customises solutions to the individual.

Among wealthier investors there is a move towards advising the individual under the category of sophisticated investor. A sophisticated investor is defined by the corporation law as anyone with either total assets of $2.5m or an income of $250,000 two years in row — the definition can include self managed super funds, which captures a swathe of local self-directed investors. However, a sophisticated investor does not have the same protections as an individual investor.

As Mark Hoven, CEO of Adviser Ratings, suggests: “The definition has got very little to do with understanding, [and] the idea of a new exam for sophisticated investors is now on the agenda.”

Academics in the area, including Pamela Hanrahan, a commercial law professor at UNSW who advised the royal commission have previously said the sophisticated investor model is flawed in being based on a monetary criteria rather than being linked to understanding of finance.