An analogy here is if auditors started charging a “fee for service” based on a percentage of the value of a company’s assets. Would that be acceptable? Would the accounting bodies “back off” on the basis that they shouldn’t be telling members how to charge their clients? No doubt, the professional bodies would move quickly to stop this practice on the basis of an unacceptable conflict of interest having the potential to bring the profession and its designation into disrepute.
Similarly, if the medical profession moved away from flat fees for service and adopted a “fee for service” definition based on a percentage of the value of drugs prescribed by doctors, there is no doubt that community outrage would act to stop such a conflicted remuneration practice.
And yet, that model is essentially what many financial planners employ in their so-called “professional practices”, or will employ, when commissions are phased out by the proposed FoFA legislation.
A variation on the “don’t tell me how to charge my clients” theme is the view that clients should have the right to choose how to pay a financial planner (and that this has nothing to do with professional bodies who should “butt out”). That sounds like compelling logic.
‘That includes prescribing how (but not how much) they must charge their clients’
I certainly accept that clients have the right to choose whether to pay a “fee for service” from an investment platform/product or via their credit card or bank account; however, of far greater importance is that clients have the right to expect that members of a professional body who provide financial planning services do so free of conflicts of interest (which is not the case with commissions, asset fees, volume bonuses and similarly highly conflicted remuneration arrangements).
The current round of reforms in the accounting profession (APES230) and the wider financial planning industry (FoFA) may prove to be painful for some financial planners because they may have to reinvent inherently unsustainable business models that have served them well for so many years.
However, in the end, a genuine professional firm is not a business. Of course, it should be run in a business-like fashion, but it is not a business. It is a higher calling that requires its members to act (and be seen to act) in their clients’ best interests, even when doing so is not necessarily in the members’ best interests.
Until financial planners accept that truth and act accordingly to completely remove the cancer of conflicted remuneration, they will never be accorded the true professional status to which they so fervently aspire, and they will continue to create doubt about whether they can ever be trusted by a sceptical public.
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.
