Eric Walters is a company director and senior financial planner at Continuum Financial Planners Pty Ltd on Brisbane’s Southside. With many years’ service to the accounting profession in the governance stream at CPA Australia, he and his firm argue that the financial planning industry has a strong case to attain recognition as a profession. He plots a pathway to that status:
The recent article
in Wealth Professional (9 May 2014) – ‘CBA and ASIC get defensive’ – has reignited my interest in this issue: one that I have argued in a number of forums; and one that I had suggested should form part of the agenda for the Financial Services Review currently under way.
In the steady evolution of the financial planning industry, partly through the leadership of the regulator working with licencees; partly through the cooperation of advisers who are focused on delivering a sustainable, profitable and compliant business service to clients; partly through the professional/industry organisations that represent the advisers; and partly because of the law-makers in federal parliament, new discussions are opening up as to how to transition from an ‘industry’ to being truly ‘professional’.
Organisations such as the accounting professional bodies CPA Australia (CPAs) and The Institute of Chartered Accountants in Australia (ICAA) have long prescribed ethical standards by which the members are guided - and a self-discipline process is in place to see that they do so.
I understand that FinSIA, the Financial Planning Association (FPA) and other groups representing industry members, similarly guide and ‘supervise’ their members. So what stands in the way of the financial planning industry from being considered a profession?
The distinguishing hallmarks of a profession, include:
• A body of knowledge that is ‘expert’ in a particular discipline;
• A code of ethics, preferably self-disciplined; and
• A market willing to pay for the trusted services of the holders of the expert knowledge.
A fair argument can be made that a significant body of those practising as financial planners are expertly trained and have attained graduate tertiary learning accreditation to support their discipline.
As stated above, a number of organisations representing a significant proportion of the financial planner population have also prescribed ethical standards, and self-discipline members for any breach: so where are financial planners falling short in the use of their expert knowledge to gain the trust of the community to engage them to share that expert knowledge?
A simplistic case is made that it is in the cross-over of providing advice – and selling product!
A further issue in the evolution is that the financial services industry is so entrenched in its old-style distribution process that participants are reluctant to restructure the model, with the consequence that there are perceptions of (and in too many situations, real) conflicts of interest in the distribution remuneration model.
It should be understood that in at least a number of these cases, the end-user client can be shown to actually benefit cost-wise from the existing structure.
The real-life commercial dilemma in this is that for all that any financial planner wanting to act ‘professionally’ may want to do to change the model (and/ or the perception of conflicted remuneration), they are competing with others who are willing to accept the commission paid by certain providers, who are in the main, insurance providers.
Any attempt to change the process and still receive ‘fair’ compensation for the effort made and risk taken appears to be in danger of economic failure.
Until the industry can change its distribution model, the only sure path to professionalism for financial planners is to withdraw from the sale of product and limit their services to wealth management ADVICE! Once the advice has been provided, the client would then accept responsibility for meeting the strategic plan by buying product through a broker, investment product adviser, or another ‘shop’ specifically set up for such transactions.
There will be some practical issues to negotiate as financial planning firms move away from selling product and towards concentrating on the client’s ‘advice in their best interest’ – for a fee commensurate with the professional risk undertaken by the planner.
But at the end of the journey, clients will have a clear perception of who serves their best interest; and planners/advisers will be recognised in society for their professionalism, and trusted for their professional conduct.