There actually is a silver bullet to solve this problem

Do you trust him to act in your best interests, or would you be suspicious that under his new “fee for service” arrangement, your doctor might be tempted to over-prescribe drugs? The answer is obvious. While you might continue to trust him to a point, you would not do so without doubting his motives and you’d always have an eye on his prescription book.

The medical profession would not dare to suggest a “fee for service” like this, but most financial planners are suggesting it. That is, they are proposing to remove commission, replace it with a percentage-based fee, and then misleadingly call the percentage-based fee a “fee for service”. They claim that this will create unambiguous trust. It won’t. Calling it a “fee for service” won’t make any difference, except that it will fool a few people into believing that planners are acting without a conflict, when they aren’t.

Whether you’re a doctor, a lawyer, or an accountant, the fundamental ethical principle is the same. Trying to earn trust while acting with a remuneration-based conflict of interest simply won’t work, even if the conflict is disclosed. It’s not about disclosure of conflicts; it’s about avoidance of them.

Until the financial planning industry comes to accept that proposition, the industry will continue to suffer legislative regulation, and will never earn the professional trust and status that many of its members deserve.

‘Whether you’re a doctor, a lawyer, or an accountant, the fundamental ethical principle is the same’

The implementation of APES230 may prove inconvenient for some accountant financial planners because they may have to unravel longstanding commercial relationships. That being so, the accounting bodies have an obligation to offer members a workable implementation process.

However, adoption of the standard’s principles will transform financial planning into a trusted, legitimate, mainstream and growing segment of the accounting profession. The income of these financial planning practices will become predictable and sustainable and their value will grow because they will be built on solid commercial and professional foundations, not on the unpredictable movements of the stock market and the imperatives to sell a product and accumulate funds under management.

Unless the financial planning industry as a whole adopts the principles in APES230, the industry will soon fragment into a growing segment, consisting of those who have adopted the highest ethical standards (free of remuneration- based conflicts), and a contracting segment, which will continue to be heavily regulated and treated by much of the public as a product sales force.

It’s often said by commentators that “there’s no silver bullet” to reform in the financial planning industry. Actually, there is. Remove remuneration-based conflicts and the industry will soon transform into the profession that it claims it wants to be.

Robert MC Brown is a chartered accountant with over thirty years’ experience in taxation, superannuation and financial planning. He is Independent Chairman of the ADF Financial Services Consumer Council and a member of the Government’s Financial Literacy Board.