Paul Greenwood, MBus (Bkg&Fin), GradCert (Fin&Bkg), Dip FP, began his career in the financial services industry in the early 90’s and is one of Australia’s most experienced financial advisers. Paul is working on his PhD within the Faculty of Business and Economics at Monash Business School, from where he also holds a Masters Degree in Business. As if that weren’t enough, he also holds a Graduate Certificate from Swinburne University, in the fields of Banking and Finance. He holds a Diploma of Financial Planning and, in addition to being a Licensed Financial Adviser, he is a registered Tax Financial Adviser. He’s a man with a number of qualifications, to say the least.
I was lucky enough to connect with Paul at the FPA Annual Conference and our chat was incredibly insightful. He opened my eyes to all of the regulatory changes that are happening in Australia — and how the industry (you’ll see why I don’t call it a profession in a second) is changing right before his eyes. In this interview, Paul shares a detailed look inside the massive transformation that Australian financial planning and banking industries are experiencing, and where he sees his country heading as a result of those changes.
Australia’s royal commission inquiry
Australia has been widely discussed in the world of financial planning as of late, due to some extreme regulatory changes that are occuring. Paul gave me a bit more context on the background of these changes, which were really interesting (and more than a little shocking). Almost two years ago, the Australian government conducted a royal commission (which is essentially a broad inquiry) into banking and financial services.
During the initial inquiry, the major banks in Australia were the prime focus. The banks were asked to give evidence in regard to their customers, how those customers had received financial advice, and how they were treated. During the inquiry, customers of those banks were also interviewed.
The findings showed something really shocking: consumers were being charged a fee-for-service… but no quality of service was being provided in most cases. As far as government inquiries go, this was sort of a bombshell. As Paul put it (and as most financial planning pros would agree), a client should be informed of what they’ll be charged for and then they should receive that service. Unfortunately, as this inquiry exposed, that hasn’t always been the case in Australia. So, like I said: bombshell news. It’s also brought with it some really important (and obviously necessary) changes to the banking and financial planning industry in Australia.
Consequences of the inquiry and findings
As a result of these findings by the royal commission, something like $10 billion AU is being returned to consumers. That’s a lot of money! Aside from that enormous consequence, Paul also explained how banks’ reputations have been negatively impacted, and many are shutting down their financial services divisions as a result.
As you can imagine, there is a lot of chaos and division in the financial planning and advice industry in Australia. With 70-80% of financial advisers linked to banks, Paul says, there are thousands of people out there considering their next career move. This is a massive shakeup for the industry, and both consumers and planners alike are being affected.
Another major side effect of this damage to the industry’s reputation: professional indemnity insurance has skyrocketed. This is to help cover the insane amounts of money being refunded to the consumers. “So in Australia now, our professional indemnity insurance is about two and a half percent of the revenue that each firm produces,” Paul shared. “Which, in Australia, is about ten times what an accounting practice normally pays for their professional indemnity insurance.” All of this, he shared, is adding to the complexity of this crisis, and adding extreme costs to running a financial services business. And that doesn't even touch on education.
Regulatory education changes
To rebuild the reputation of the financial services industry In Australia, they’re going to need to start instituting some regulations. Paul explained that, prior to the inquiry, most planners could just label themselves a financial planner after taking a 3-month course. After the course, planners can find employment as an authorized representative, and then (within another six to twelve months of training) they’re allowed to take on clients. Paul admits that this bar, in his regard, seems low.
Of course, just like here in the States, there is a difference between a financial adviser and a Certified Financial Planner™ in Australia. To be a CFP® in Australia before this inquiry, you needed to have a degree from any profession. You’d then do your professional qualifications and you then could call yourself a CFP®.
But that’s not all it takes to become a CFP® in Australia anymore. Now, there is a new regulator in place called the Financial Adviser Standards and Ethics Authority (FASEA), which is responsible for the education standards of advisers.
The new minimum requirements for an adviser include receiving a degree in financial planning, as well as one year of professional mentoring. Ultimately, towards the end of that year, aspiring planners will also need to complete a three-hour exam given through the FASEA. If they pass, they can be a financial adviser.
As for existing advisers, they will need to go back and complete these education requirements as well. Even those who are highly experienced will need to go back to university on a part-time basis for two years. This is incredibly costly and, as Paul shared, many current advisers are rethinking their entire futures as a result. There are highly experienced advisors who aren’t sure if they want to invest the time and effort that is required — and who can blame them?
The goal and delivery of financial planning services
While these regulatory changes are really shaking things up for new and veteran advisers alike in Australia, there is one clear intention: to move this not-so-trustworthy industry into a reliable, trusted profession.
As a result of this inquiry and the subsequent changes, Paul believes that advisers in Australia have to get a lot better at articulating what they do — and providing that value.
Paul believes the key takeaway from everything that’s going on is that advisers need to make some promises to a client about how their services can benefit them, and they need to be of value to those clients. They shouldn’t be superficial, and they should always deliver on their promises.
As NexGen planners, I think those are words we can live by. If you want to hear more about what was happening in the financial planning and banking industry in Australia (and what’s changing), you should definitely listen to this episode. This is why we are constantly elevating the profession, and we’re excited to see other countries across the world doing the same.
What You’ll Learn:
- The inquiry set forth by the royal commission in Australia
- The bombshell findings on the fee-for-service inquiry
- Widespread regulatory changes that are taking place in Australia
- New education requirements required for Australian financial planners
- Changes to the financial services industry as banks discontinue their services
- What these changes mean for the financial services industry and those who comprise it
Show Notes:
In this episode of YAFPNW, I talked to Paul Greenwood about:
- The Financial Services Royal Commission
- The Australian Securities & Investments Commission
- The Financial Adviser Standards and Ethics Authority
Paul is incredibly knowledgeable and a wonderful resource in the financial planning community. You can follow him on: