Therefore, in a truly professional environment, remuneration models are not matters for legislative intervention or for free market bargaining between clients and financial planners. They must be self-regulated by our professional bodies within the constraints of strictly policed professional and ethical standards, which include standards for the avoidance of fundamental conflicts of interest. In that context, asset fees (which even the most conservative commentators admit are conflicted) cannot be allowed by professional associations.
The second justification offered above is that asset fees should be allowed because hourly rates are conflicted too. This is the “two wrongs make a right” justification. It is very muddled thinking.
Hourly rates are not conflicted in the sense that they do not lead to the sale of products or the accumulation of funds under management. Certainly, hourly rates may be inefficient and in the worst cases they may lead to improper practices, like the padding of time sheets, but they are not conflicted in the sense discussed in this debate.
Nevertheless, the criticisms of hourly rates can be easily overcome by adopting a fixed or flat fee in the same way as the traditional professions of law, accounting and medicine.
Having said all of this, there is no doubt that some of the financial planning industry’s aspiring professional associations are in a very difficult political position. Most of their members use conflicted remuneration models, particularly asset fees and commissions on risk insurance. And most of those members don’t want to change the way they do things; but change they must if they are to be accepted as true professionals.
Yes, it is commercially inconvenient, but it is professionally mandatory. Until it happens, the debate will roll on and on, continuing to frustrate and irritate those well-intentioned industry leaders whose sincere desire is to have financial planning recognised as a true profession.
Robert MC Brown is a chartered accountant with more than 30 years’ experience in taxation, superannuation and financial planning. He is independent chariman of the ADF Financial Services Consumer Council, and a member of the Government’s Financial Literacy board.
