This gave me the opportunity of positioning my services as independent and professional, without actually being independent and professional. Therefore, I had the best of both worlds. Unfortunately, this flawed practice will become widespread in the financial planning industry as a result of the Future of Financial Advice (FoFA) legislation, which proposes to ban commissions, but not asset fees (except on gearing).
However, in the back of my mind, I had always recognised that an asset fee was not a true “fee for service”, irrespective of what I and the rest of the industry chose to call it. I knew that the conflicts inherent in it would never truly convince me that I was acting as professionally, even if my clients took a while to catch on to the fact that I was advisingthemundertheinfluence of much the same conflicts of interest that I claimed to be avoiding by refusing to take commission.
Eventually, I accepted the inevitable conclusion. That is, if I wanted to be treated as a genuinely professional financial planner, I would have to admit to the uncomfortable truth that my remuneration must be based on a flat fee, hourly rate or other methodology that did not rely on the sale of products or the accumulation of funds under management.
That is, I would have to remove (not just disclose) both asset fees masquerading as “fees for service” and commissions on insurance. In so doing, I would avoid remuneration-based conflicts of interest and I would be unreservedly trusted by my clients to advise and act in their interests.
Unqualified trust is the key to true professionalism. I knew it all the time, but I was fearful of change and unwilling to face the perceived commercial consequences that would inevitably flow from reaching that conclusion.
Interestingly, I found that implementation of this conclusion was not as hard as I had expected. It not only improved relationships with my clients, it freed me from the influence of platforms and financial products; it removed me from the uncertainties of investment markets over which I had no control; and it gave me the predictability of income which I had never before experienced as a financial planner.
While there is a steadily growing band of financial planners who have come to the same conclusion, the industry’s principal “professional associations” have not – reflecting the strongly entrenched views and commercial interests that still dominate much of the industry.
Those associations continue to avoid dealing with the “elephant in the room”. They do so by employing superficially attractive deflecting arguments, such as the need for higher educational standards, the desirability of legislative restrictions on the use of the term “financial planner”, the “under-insurance” of the Australian community and the importance of client choice and disclosure in determining planner remuneration. In this way, they hope that the elephant will disappear from the room. It won’t.
Sadly for the promoters of the status quo, they are attempt- ing to hold back an inevitable tide of change. They cannot continue to defend and sustain an industry built on flawed ethical principles, and then rationalise why its participants should be called “professional”. Deep down, I suspect many of our industry’s leaders know this to be true.
Sooner or later (like many individual financial planners have done already) the industry’s leaders must face reality. Until they do, recognition of financial planning as a profession will remain a frustratingly elusive goal.
Robert MC Brown is a chartered accountant with more than 30 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.
