With the holidays just a sun-drenched memory, it’s time to get back behind the desk and grapple with all of December and January’s regulatory activity. wealthdigital has been on duty over the break and we’ll help you get back in the swing of things with a back-to-work series of Industry Insights articles. The final topic in our trilogy is FASEA’s new CPD rules for advisers.
The Legislative Instrument
On December 20, 2018, The Financial Adviser Standards and Ethics Authority (FASEA) released a finalised legislative instrument on the Continuing Professional Development (CPD) obligations of financial advisers.
The legislative instrument contains a number of amendments from the draft version on which FASEA consulted in November 2018. These include:
- The earliest any licensee will need to have a finalised CPD policy has been moved from January 1, 2019 to March 31, 2019.
- The earliest financial advisers will need to have a written CPD plan has been moved from January 1, 2019 to March 31, 2019.
- The definition of a qualifying CPD activity can now relate to financial advice services and financial advice business, not just financial product advice.
- The leader or conductor of a qualifying CPD activity now has to meet a minimum of one of a list of qualities, rather than all of them.
- A single CPD activities can be split across multiple CPD areas.
- Part-time advisers may have their minimum annual CPD hours reduced by 10% (to 36 hours) with the approval of their licensee.
- The maximum annual CPD from formal training (such as relevant degree or designation coursework) is capped at 30 hours.
- Advisers’ record keeping requirements may be met if their licensee keeps the records.
The legislative instrument sets the minimum number of annual CPD hours at 40 hours per annum. For advisers who work on a part-time basis, this may be reduced to 36 hours, however they must gain the prior written consent of their licensee to make this reduction.
The CPD categories and minimum hours under the legislative instrument are:
- Technical competence (5),
- Client care and practice (5),
- Regulatory compliance and consumer protection (5),
- Professionalism and ethics (9), and
- General (no minimum).
A CPD activity can count towards more than one of the 5 categories, however activity hours may not be double-counted.
According to the legislative instrument, activities in the general category must be:
designed to maintain and extend participants’ professional capabilities, knowledge and skills, including keeping up to date with regulatory, technical and other relevant developments, but is not in an area referred to in another item of this table (i.e. the other 4 categories).
FASEA’s legislative instrument appears to be broad enough to allow advisers to only undertake technical competence CPD in areas of advice in which they are authorised. This contrasts with FASEA guidance around qualifications requirements and the adviser exam which is not as flexible.
Approval of CPD activities is to be the responsibility of an adviser’s licensee. 70% of the minimum 40 hours (28 hours) is required to be CPD approved by the licensee. The remaining 12 hours still needs to be a “qualifying CPD activity”, it just doesn’t need licensee approval.
There is no minimum CPD hours in each category that must be approved. In effect, this means that any of the CPD categories’ minimum hours’ requirements could be met by unapproved CPD for a full-time adviser.
12 hours of CPD can be met by unapproved CPD events. This 12 hours is more than any of the 5 category minimums, with the highest minimum being 9 hours’ worth of ethics. That said, if all 9 hours of ethics training were unapproved, only 3 hours of unapproved CPD could be spread amongst the other 4 categories.
Under the previous, ASIC-led CPD regime it was common practice to have CPD training approved by an industry body (or sometimes multiple industry bodies). Whether this will remain the case, particularly for advisers that use designations from industry bodies, is, as yet, unclear.
Licensee requirements, including approval processes
Each licensee will be required to create, maintain and adhere to their CPD policy. Under the legislative instrument, this policy must include:
- The licensee’s CPD year (when it commences and ends),
- The licensee’s overall approach to its CPD obligations and those of its authorised representatives,
- How the licensee:
- Approves CPD plans of its advisers,
- Monitors and implements these CPD plans,
- Assesses, approves and attributes hours to CPD activities,
- Ensures its advisers meet the minimum approved CPD requirements,
- Ensures it, and its advisers, comply with the licensee’s policy and the regulations,
- Maintains records and evidences completion of CPD by its advisers.
The CPD policy must be published on the licensee’s website.
Licensees and employers are required to make appropriate resources and opportunities available to their advisers to help them meet their CPD requirements.
The start and end dates of a CPD year will generally be set by the licensee. In 2019, where the licensee’s CPD year starts after January 1, the first CPD year’s requirements will be proportionally increased for the time between January 1 and the start of the CPD year.
Beige FP’s CPD year starts on July 1. Under the legislative instrument, the first CPD year for Beige will run from January 1, 2019 until June 30, 2020. The minimum hour’s advisers will need to meet over this timeframe will be proportionally increased from 40 to 60 hours. The minimum hours for each category, and the maximum hours that can be met by technical reading will be also increased proportionally.
Beige’s second CPD year under the new policy will run from July 1, 2020 until June 30, 2021 and will return to the normal 40-hour requirement.
It is the responsibility of the advisers themselves to create their annual CPD plan. These plans must by in writing and must include:
areas for improvement in the provider’s competence, knowledge and skills and describe the qualifying CPD activities the provider will complete during the CPD year to achieve those improvements.
If the adviser’s employer is their licensee, they must provide their plan to that employer. Plans can be amended at any time.
Where an adviser has had a continuous career break of at least 2 years, their licensee must approve their CPD plan before the adviser can resume providing financial advice. The licensee is obligated to ensure the plan will address any gaps in the adviser’s knowledge that stem from their break.
“Qualifying CPD activities”
While not all CPD must be approved by the licensee, all activities must meet the standards of being a qualifying activity. To be a qualifying activity, it must:
- Align to one of the 5 CPD categories outlined in the draft legislative instrument,
- Have sufficient intellectual or practical content,
- Primarily deal with the provision of financial product advice,
- Be led or conducted by one or more people who are appropriate with sufficient experience, standing, expertise, academic qualifications and/or practical experience, and
- Be designed to enhance advisers’ knowledge and skills in areas relevant to the provision of financial product advice.
CPD activities that are professional or technical reading do not need to meet condition 4.
The legislative instrument identifies the following types of activities as potentially being CPD activities limited to a maximum of 30 hours a year:
- Formal education (such as tertiary courses),
- Study towards obtaining a professional designation, and
- Study to gain relevant qualifications to practice as an adviser.
Issues addressed and those outstanding
The draft legislative instrument left some questions about CPD content unanswered. Some of these have been clarified in the final instrument, such as the broadening of content to allow non-product specific CPD.
Some issues are no clearer, including:
- No clarification in the policy or explanatory statement of what constitutes “sufficient intellectual or practical content”.
- No clarification in the policy or explanatory statement of what constitutes “sufficient experience, standing, expertise, academic qualifications and/or practical experience”.
- How the requirement for an activity to be led or conducted by a person will be applied to online learning – particularly eLearning modules.
Advisers must make and maintain records of their own CPD activities, including:
- When they were undertaken,
- The number of hours spent on the activity,
- Evidence the activity was completed and of the outcomes, and
- Progress towards implementation of their CPD plan.
Advisers must keep these records for 7 years and provide a copy of these records to their licensee. It is sufficient for as adviser’s licensee to perform this record keeping obligation on the adviser’s behalf.
Little time to get everything prepared
Even with some licensees and advisers being given an extra 3 months to implement a number of these CPD rules, there is still much to be done in a very short timeframe. AFS licensees need to be working with their advisers now to ensure all the necessary structures are in place to comply with their CPD requirements.