Robert MC Brown says industry bodies that strive to promote the commercial interests of members are probably not going to win the battle for professional status.
Ask members to nominate what they believe should be the most important priorities of their professional body. The top of the list will invariably include thought leadership and the protection and promotion of the status of their professional designation. Of course, how members interpret what these priorities mean in practice varies a great deal.
A common misconception is that the principal role of a professional body is to protect the commercial interests of its members. When their association acts in a manner that aligns with their commercial interests, members will approvingly refer to that action as their professional body showing leadership; but when they perceive that their association has acted contrary to their commercial interests, that action is likely to be criticised as exhibiting a lack of leadership.
Faced with this political minefield, office bearers in many associations soon learn that making no decision at all on controversial questions has its attractions. Alternatively, decisions are sometimes based on compromised principles and the views of the noisiest or most powerful group. In that way, leadership of a kind has been demonstrated and the issue is neutralised.
The recent debate about financial planning reform is one area where inaction or acquiescence to the status quo has its attractions. In the case of the accounting profession, the independent standard setting body (Accounting Professional and Ethical Standards Board) has shown considerable courage and leadership by issuing a proposed mandatory ethical standard for the delivery of financial planning services (APES230).
The standard builds on the previous voluntary standard (APS12) and reflects the principles in the Institute of Chartered Accountants’ thought leadership paper, Reinventing Financial Planning (published in 2007).
‘Making no decision at all on controversial questions has its attractions’
APES230 (which has been issued as an Exposure Draft) asserts the timeless professional principles of independence, avoidance (not just disclosure) of conflict of interest, and the supremacy of the public interest. As a result, all forms of percentage-based remuneration, including commissions, asset-based fees, production bonuses and soft dollar benefits, are to cease from July 1, 2011 (or such other date agreed by the Board).
All of that will sound eminently reasonable, unless you’re an accountant financial planner with a large book of trailing income that fails to satisfy the new standard. Such a planner might take APES230 as a personal affront to his integrity. He might suggest that his professional body is not showing leadership because it is not supporting his right to earn an income in a manner agreed with his clients. And he may even suggest that the manner in which he earns an income is none of his profession’s business, and that his professional body should not interfere with his career.
Whilst understandable, these reactions reveal a misunderstanding of the principal role of a true professional body. That role is to adopt and enforce professional and ethical standards and the sometimes commercially inconvenient consequences that flow from them (in this case, the removal of remuneration-based conflicts of interest). By so doing, the community will trust accountants to act in the public interest and accordingly will continue to allow the profession the privilege of self-regulation.
Contrast this with the wider financial planning industry which faces the prospect of ever increasing legislative regulation due to a lack of community trust in the industry’s participants (whether or not that is a fair conclusion).
This point is best illustrated by a simple analogy. Imagine going to your local medical practitioner who tells you that he’s changing the basis of charging fees to his patients. Instead of a flat fee for service per consultation, he says that from now on he will charge a fee calculated by reference to a percentage of the value of the drugs he prescribes.
Would you agree to that proposition? After all, the new charging basis is a “fee for service” as understood in the financial planning industry; the fee is disclosed, it’s disclosed in dollars, it can be turned off at any time by the patient, and it’s not a commission paid by a product manufacturer. In addition, the doctor is well qualified, he is licensed to practise by the regulator, he is subject to a government-controlled compliance regime, he attends regular professional development activities and he’s committed to a Professional Code of Conduct and Ethics.