12 October 2018

‘The future of advice’, Address to Association of Financial Advisers National Conference, Gold Coast, Queensland



It's great to speak at this year's AFA National Advisers Conference. It's wonderful to have so many financial advisers here supporting our local economy.

As many have said since the conference opened on Wednesday, the financial advice industry is an important part of the wider Australian economy, generating $4.8 billion in revenue and employing tens of thousands of people.

The industry serves a critical role for consumers.

Access to affordable, quality financial advice can bring significant benefits to consumers. It can help them make informed decisions by providing guidance with financial planning, insurance and product recommendations.

Access to high-quality and affordable advice is vital for Australians as we have one of the largest pools of superannuation savings in the world at $2.7 trillion – and this is expected to almost triple by 2040.

As the population ages and client needs shift, the role of financial advice will play a more important role than ever.

It is estimated that currently less than 20 per cent of Australian consumers access the services of a financial adviser or planner, with 48 per cent of Australian adults indicating unmet advice needs. This represents an important opportunity for the financial advice industry.

It's been many years since I joined you last, which was after the completion of the Post GFC Banking inquires and what then became the Ripoll Report. I made the point then, that the industry was at a cross roads and that there was an urgent need for greater professionalism, greater depth in educational standards and the need for a defined professional body to look into these areas.


I note progress on these areas has been steady but slow, resulting in Government reform. It is this reform agenda I wish to cover this afternoon in the form of:

  • the changing nature of your industry,
  • the professional standards reforms and FASEA,
  • the establishment of the Australian Financial Complaints Authority,
  • the establishment of the Banking and Finance Royal Commission

1. Changing nature of the industry

The financial advice industry has seen significant changes in recent years, with some of the most important including:

  • The Government's policy of raising the professional standards of financial advisers and the creation of the Financial Adviser Standards and Ethics Authority (FASEA)
  • The establishment of the Financial Services Royal Commission and
  • Most of the major banks are in the process of selling their wealth management arms.

We're also seeing a change in the composition of advisers in the industry as financial advisers have been exiting institutionally affiliated and owned businesses to work for privately owned firms.

Technology, like in all other industries, is playing a role in the financial advice sector. Technology based advice products, such as 'robo-advice', offer consumers the opportunity for relatively cost-effective financial advice.

While robo-advice remains a nascent development in Australia and in other similar jurisdictions, the Government is introducing reforms to facilitate the entry of such FinTech-led advice models in the market.

For example, the Government has introduced legislation to establish a world leading financial services regulatory sandbox, building on the existing ASIC sandbox. The enhancements will allow more businesses to test a wider range of new financial products and services without a licence from ASIC for a longer period of time.

Further Fin-tech innovations are entering every area of the market from mortgage brokering, trading, financial advice, digital superannuation and digital banking. This digital revolution will continue and is one of the biggest mega trends that will impact your industry.

All of this is occurring in the shadow of moves to provide greater certainty for consumers through enhanced regulation of the financial services sector. The Government's challenge is to find the right balance between consumer protection and ensuring that consumers have access to affordable financial advice.

2. Professional Standards Legislation

Whilst acknowledging that your industry was making some moves towards reform, the Government eventually stepped in and the professional standards reforms came into force from the 1st of January with the intent of raising the education, training and ethical standards of financial advisers.

This came about due to repeated instances of inappropriate financial advice decreasing consumer confidence in the financial advice industry and followed a further inquiry by the Parliamentary Joint Committee on Financial Services. Any reduction of trust acts as a barrier to consumers seeking financial advice, which is a poor outcome for both consumers and the industry.

The PJC's inquiry into proposals to lift the professional, ethical and education standards in the financial services industry and the Financial System Inquiry identified that the existing professional standards for financial advisers are too low and do not ensure that all financial advisers have the necessary skills to provide high-quality advice to consumers.

This was, by the way, an outcome from the Ripoll inquiry and an outcome I communicated to this conference some seven to eight years ago.

The Royal Commission has also raised important questions about the ability of the industry to appropriately manage conflicts of interest and ensure appropriate customer outcomes.

It's in this context the Government's professional standards legislation established a series of professional, ethical and educational requirements that will apply to financial advisers, and provided for the establishment of a standards body (FASEA) that will define many of the new standards.

FASEA is independent from Government, and is led by a board comprising of industry, consumer and specialist representatives. As a Minister I have no authority over the board.

Over the first half of 2018, FASEA released a number of draft guidance documents for consultation on the proposed educational, training, and ethical standards for financial advisers. This has been an open process of voluntary consultation.

I met with FASEA yesterday and the next steps are as follows:

  • FASEA has now finished its initial voluntary consultation
  • FASEA will take the feedback it has received from your industry and from Government, through me as the Minister, and will now develop draft Legislative Instruments which form its authority to set the Industry standards comes.
  • FASEA will then provide these draft Legislative Instruments to your Industry for formal and final comment for a statutorily defined period of time. I encourage you to have a formal say on these Legislative Instruments.
  • FASEA will then provide these Instruments to the Parliament whereby they become law.

My discussions with FASEA have been open and and very positive, respecting the fact that they are a statutorily independent agency. I have found the organisation to be both professional and eager to engage and I am particularly impressed with the Chair, Catherine Walter AM.

Note that the legislation has seven non negotiables:

  • New Advisors will require a degree.
  • There will be an exam, that starts next year and all Advisors must complete it by 2021.
  • There will compulsory professional development
  • There will be a professional year
  • There will be an ethics component
  • There will be a recognition process for foreign degrees.
  • All existing advisors will need to meet the FASEA requirements by 2024

Having said that, FASEA and I have agreed, amongst many other things, the following:

  • Existing advisers with no degree will not be required to undertake a bachelor degree, but will be required to undertake eight subjects, equivalent to a graduate diploma. Of these eight subjects
    • those advisers who hold an existing advanced diploma in Financial Planning will receive two subjects credit.
    • Another two subjects will be credited in recognition of the education coursework to attain the designation of CFP (FPA) or FChFP (AFA) provided these qualifications were gained after a certain date. This is in recognition of the extensive work conducted by your association and the FPA.
    • That leaves four subjects of which one will be Ethics.
  • Existing advisers with a related degree will have to complete three bridging courses on Chapter 7 of the Corporations Act, the new Code of Ethics and behavioural finance;
  • Existing advisers with a postgraduate degree related to financial advice, or a bachelor or postgraduate degree approved by FASEA, would have to complete one bridging course on the new Code of Ethics.

The remainder of FASEA's requirements will be made available shortly when the Legislative Instruments are published in draft. I acknowledge that there will be some impost, but I'm satisfied having worked very constructively with FASEA, that what they will be proposing is sound.

It's now up to all of us, the Government and the financial advice sector to work hard to continue to build trust and confidence in this critical sector of the Australian economy

3. Australian Financial Complaints Authority

From 1 November 2018, the Australian Financial Complaints Authority – the new one stop shop for financial complaints – will commence accepting disputes.

The recommendation to establish AFCA came from the Review of financial system external dispute resolution and complaints arrangements (the Ramsay Review), which recommended the establishment of a one-stop shop industry funded dispute resolution scheme.

AFCA will replace the three existing dispute resolution bodies – the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal.

Consumers and small businesses will be the main beneficiaries from the new one-stop shop as AFCA will deliver free, fast and binding dispute resolution in relation to all financial complaints, including superannuation complaints.

AFCA will be governed by a board comprised of an independent Chair and equal number of industry and consumer directors.  This composition means that both consumer and industry perspectives will feature in the board's decision making.

To ensure that the board has an appropriate mix of skills and experience, the Government has appointed a minority of the inaugural AFCA board (5 of the 11 board members), including The Hon Helen Coonan as the independent Chair.

Helen Coonan is a distinguished former Cabinet Minister in the Howard Government and as the then Minister for Revenue and Assistant Treasurer (my role now), and she has a deep knowledge and understanding of the financial services sector and the issues faced by consumers of financial products and services.

The Government has also appointed Claire Mackay, a highly regarded financial planner and Principal of Quantum Financial Planning, to the AFCA board. Ms Mackay will bring the perspective of small financial firms and the financial planning sector to the AFCA board.

In addition, recognising there will be some costs in transitioning from the existing schemes to AFCA, in the 2018-19 Budget, the Government committed to providing a grant of $1.7 million to support AFCA's establishment.

AFCA will significantly improve access to redress for consumers and small businesses as it will operate with significantly higher monetary limits and compensation caps than the existing ombudsman schemes, FOS and CIO.

This is appropriate – it is important that consumers who have wrongfully suffered a loss have access to fair compensation.

All financial firms, including holders of Australian financial services licenses, were required to become members of AFCA by 21 September.  If you have not become a member of AFCA, it is important that you take steps to join AFCA as soon as possible.

While AFCA will have a significantly expanded jurisdiction, it is also required by law to operate efficiently and to ensure it has appropriate expertise to resolve the complaints it hears.

To ensure that AFCA meets the benchmarks set in law, ASIC has been provided with new oversight powers. ASIC has released its new Regulatory Guide 267 - Oversight of the Australian Financial Complaints Authority (RG 267)

This regulatory guide provides policy certainty for stakeholders over a number of areas and supports the transition to AFCA.

To ensure that the new framework is operating as intended, the Government will commission an independent review as soon as practicable 18 months after AFCA commences operations.

4. Financial Services Royal Commission

Lastly I'm going to touch on the Financial Services Royal Commission.

As many of you will now have seen, the Royal Commission has published its interim report.

This is an important piece of work and the Government thanks the Commission for its ongoing work.

Commissioner Hayne identified in his interim report a number of key over-arching issues which emerged during the Commission's hearings:

Financial institutions putting their short-term pursuit of profits over the duties they owe customers and basic standards of honesty and fair dealing.

A sales culture, rather than a culture focused on good customer outcomes, which is driven by remuneration and incentive structures at all levels in firms and for intermediaries.

That when misconduct was revealed, it either went unpunished or the consequences didn't reflect the seriousness. 

That more law is not the only answer:  more often than not the misconduct was contrary to existing law.

Complexity of the law may be part of the problem, and simplification may be part of the solution.

In relation to the financial advice industry, while the Commission has asked a number of questions, it has not yet made any recommendations – it is therefore too early to start speculating on what the Government's response to the Royal Commission may look like.

There is an opportunity for the industry to use the Royal Commission as a catalyst for change and take into consideration what needs to occur so that such misconduct is not repeated in the future

I encourage all parties interested in these issues to make a submission.

I note the Association of Financial Advisers has previously made a submission to the Royal Commission and the Government welcomes that engagement.

The Royal Commission has been set up by the Government to ensure that Australia's financial system continues to work efficiently, effectively and in the interests of consumers – there has been clear evidence from the hearings that this is not always the case.

The Government will carefully consider the recommendations made by the Commission – and this will be done with the highest level of priority. 

We will also need to consider any recommendations in the context of the significant reforms that have recently been implemented by the Government or are currently in train.

The Commission is required to provide a final report to the Government by 1 February 2019 and the Government looks forward to receiving that report so it can get on with the job of making sure our financial system continues to work for all parties.


Let me conclude by saying that reform is well and truly upon the Industry as is great change. I flagged the industries cross roads to you seven years ago and the Government's reform agenda has now chosen a path. That path will be further refined once the Hayne Royal Commission hands down its findings.

The path of an independent financial standards authority (FASEA) has filled that void and the Australian Financial Complaints Authority (AFCA) is looking to simplify complaints handling through a one stop shop. A former Assistant Treasurer in the person of Helen Coonan is just the person to Chair this.

We're all committed to a vibrant, transparent and professional industry and Government is looking forward to working with your industry to deliver just that.

Thank you and I hope you enjoy the rest of the conference.