What is the future of the Financial Planning Association’s (FPA’s) Certified Financial Planner (CFP) designation and of the Association of Financial Adviser’s (AFA’s) Fellow Chartered Financial Practitioner (FChFP) designation in the new environment being created by the Financial Adviser Standards and Ethics Authority (FASEA).
It is a question already being asked by financial planners and something which has already led to a downturn in the numbers of planners signing up for the designations amid the uncertainty around how the new FASEA regime will work and the pathways they will need to follow.
FPA chief executive, Dante De Gori has confirmed that while planners have continued to sign up to pursue the CFP designation, numbers are down on previous years, while the AFA has reported a similar experience.
The commercial reality confronting the FPA and AFA is that unless the CFP and FChFP are in some way woven into the FASEA pathways framework, they risk facing a significant erosion to their bottom lines.
The CFP designation represents the second largest-revenue source for the FPA behind collection of membership dues, with the organisation’s 2017 annual report revealing that the CFP course brought in $2,046,702, while CFP certification accounted for a further $538,080.
FPA chairman, Neil Kendall is conscious of the uncertainty surrounding the future value of the CFP, but he believes that it will not only continue to be relevant but will become more important.
“We don’t believe CFP is a minimum standard, we believe it represents the highest global standard,” he said.
“FASEA’s ability is only to recognise qualifications, not designations so it means the CFP doesn’t fit into the degree or graduate diploma boxes but what FASEA haven’t so far told us is what represents an approved bridging course,” Kendall said.
“Taking some kinds of logic that this is about making sure financial planners are qualified to give financial advice and given that so far the way they have assessed this is that Financial Planning Education Council (FPEC) has a criteria and the 10 curriculum areas, then the CFP remains relevant.”
Kendall said that the FPA had mapped the CFP against 10 curriculum criteria and nine out of 10 of those were covered by the CFP.
“Where do we fit, where do we want it to fit? We think it is inconceivable that it cannot be an approved bridging course and at this stage FASEA has given away nothing on approved bridging courses,” he said.
Kendall said, on this basis, it seemed entirely possible that those who had done the CFP could be counted as having completed an approved bridging course.
“That’s where we think it’s likely to sit initially,” he said. “Longer-term the creation of FASEA has created an environment where the CFP becomes more valuable because right now you’ve got advisers out there who say they are more valuable because they’ve got a degree.”
“But in future there will be two standards – there will be degree-qualified financial planners and then there will be CFPs who have gone the extra step,” Kendall said.
“So it will be very strong in future for the CFP because it will be the point of differentiation going forward,” he said.
However, Kendall acknowledged that his hypothesis as to the future of the CFP only carried through if FASEA acted as expected.
So, the question for the FPA and the AFA is what happens if their designations have no particular standing in the FASEA regime or if individual financial planners decide that the pursuit of an approved degree is a better outcome?
The future is code monitoring
The obvious future for the AFA and the FPA lies in them leveraging their status as the likely Australian Securities and Investments Commission (ASIC)-sanctioned bodies empowered to monitor and police approved financial planner codes of conduct.
As monitoring bodies, the FPA and AFA will be expected to operate compliance schemes to monitor and enforce relevant providers’ compliance with the code of ethics.
But, again, it will be the FASEA which determines the final shape of the code of ethics which will be applied to financial planners.
ASIC is scheduled to release a consultation scheme on the criteria which will apply to code-monitoring bodies, but it is expected that the FPA and the AFA would be the only organisations with the necessary capabilities and membership base.
ASIC has made clear it will only approve a compliance scheme if it is satisfied that:
- compliance with the code of ethics will be appropriately monitored and enforced, and
- the monitoring body has sufficient resources or expertise to carry out that monitoring and enforcement.
ASIC will publish final guidance and an explanation of its criteria after the FASEA has released the code of ethics which will be applied.
Under the structure broadly outlined by the Minister for Revenue and Financial Services, Kelly O’Dwyer in mid-2016 it was clear that the Government wanted “professional associations’ such as the FPA and AFA to be responsible for policing member compliance.
The minister’s statement referred to a “single, uniform code of ethics will set the ethical principles that advisers will operate under”.
“Professional associations and other independent third party monitoring bodies will develop compliance schemes to monitor and enforce advisers’ adherence to the Code,” she said. “These compliance schemes will be approved by ASIC.”
“The reforms ensure that 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.”
Not stated by the minister but implicitly understood across the financial planning industry is that the requirements around obtaining code-monitoring status is likely to substantially exclude a number of smaller planner representative organisations, particularly those which already lack any substantial track-record of having acted against miscreant members.
For his part, Kendall acknowledged the importance of the FPA being designated as a code monitoring body and said it was something which had been quite deliberately working towards since the implementation of the Future of Financial Advice regime.
He also agreed that, given the costs and resources required to maintain code-monitoring status, it was likely to reduce the number of organisations claiming to represent planners in the industry.
“We’ve worked very hard on being a code-monitoring body and we’ve got a framework in place, we’ve got the ability and the knowhow and we’re positioning for that,” Kendall said.
He suggested that the costs required to establish code-monitoring capacity form a standing start was around $3 million, and thereafter you would be telling planners “this is your ticket to practice”.