This week the Financial Planning Association of Australia (FPA) was recognised by the Tax Practitioners Board (TPB) as a tax-agent association. Part of this process involved a robust examination of the FPA’s code of professional practice. It passed.
The chair of the FPA, Matthew Rowe, says the association lodged its code with the Australian Securities and Investments Commission (ASIC) in February. In light of the FPA’s experience with the TPB, Rowe expects ASIC to complete the approval imminently.
If approved, FPA members will gain exemption from the opt-in provisions of the Future of Financial Advice (FoFA) reforms.
“I believe we’re taking a matter of months. Maybe even sooner,” Rowe says.
The FPA’s code of professional practice has been developed over several years and is now positioned right at the very centre of the transition of financial planning from industry to profession.
It’s clear that ASIC can and will only approve a code of practice – and provide class-order relief to those who sign up to it – if it sets a standard of behaviour that exceeds the standards set in law.
So while members of the FPA may be exempted from the specific FoFA opt-in provisions, they will absolutely not be exempted from the effect of opt in, which is designed to protect consumers from paying for services that they are not actually receiving.
The big difference, though, is that it will be achieved through a code of practice developed by financial planners themselves (and approved by ASIC), not by legislation.
A code beyond the law
But that’s how a profession operates. And at the core of every profession is a robust and respected code of professional practice. The job of such a code is to modify behaviour – not to prescribe modes of conduct in every conceivable adviser-client situation, but to establish a way of thinking and behaving that is guided and informed by a set of clear principles. And a code does not simply parrot the law.
If you go looking for ‘opt in’ or its equivalent in the FPA code of professional conduct, you won’t find it neatly outlined in one place. Rather, the principles that underpin its intent are found throughout the document, under, for example, rules that relate to pre-engagement with clients; documenting the terms of engagement; presenting recommendations to clients; and agreeing on recommendations or implementation.
“We have a fundamental principle that you cannot charge or receive any form of remuneration without providing a service,” Rowe says.
“It’s in the code of practice, and in our remuneration policy as well, so they link very clearly. You cannot receive or charge any form of remuneration if you’re not providing a service.”
Approval of the FPA’s code of practice and enshrining the term ‘financial planner’ in law are two vitally important steps on the path to professionalism, but the two of them on their own are not enough.
FPA membership standards
“What does a professional look like?” asks Rowe. “Firstly, there has to be education standards.”
“From July 1, 2013, to become an associate financial planner (AFP) – that first step to becoming a practitioner member of our professional body – you’ll be required to have an approved undergraduate degree. And from there, go on to further study to become a certified financial planner (CFP), which is the pre-eminent certification and designation, globally recognised. Education is key.
“Remuneration and remuneration practice will be a non-issue. It will be something we look at and laugh at and [ask], well, why was it such an issue going back all those years? The same way we look at the past practices of agency development loans – with the benefit of hindsight you go, why was that ever an issue? Where were those guys’ heads?
“So our remuneration principles and code comes out on July 1 this year, 2012, well in advance of anything to do with FoFA.
“You need to have a code of professional practice. That is just non-negotiable. You cannot call yourself a profession or a professional body unless you, as professional colleagues, stand by each other around a universally respected and acknowledged code. That has to be the framework on which everything else is built.
“We have that. It is recognised by the court. It’s recognised by the Financial Ombudsman Service. And now it will be recognised by ASIC that you need to be a member of a professional body with an approved code.”
Rowe says that despite its membership changes a year ago, the FPA has a wide range of views and opinions on how it should develop towards professionalism.
“But this will provide a regulatory hook to help bring people along and … what may have taken 15 or 20 years, I believe will now take place in five,” he says.
“And in five years’ time, to call yourself a financial planner, you will need to have a certain level of education, which will be well above the corporations law; you must be a member of a professional body; and a professional body must look a certain way, have certain resources, [and have] certain governance practices around transparency.
“Then, and only then, will we start to be able to differentiate ourselves from others in this space, from advisers in this space.”
Branding the financial planning profession
Restricting the use of the term financial planner will “accelerate in the mind of the community our professional brand, the brand ‘financial planner’, or the brand, in our case, ‘CFP’”, Rowe says.
“And it will start to mean something because not everyone will be able to call themselves a financial planner.”
Rowe says a code is much more than just the words that constitute it.
“It’s not just a matter of having a Word document that says we’ve got a code of professional practice, because you can go and copy and paste one [of those],” he says.
“It’s having the infrastructure within your organisation, some sort of independent disciplinary committee. So we have our Conduct Review Commission, with an independent chair, Professor Dimity Kingsford-Smith; an investigations team; a complaints team; a process around a board committee – again, all the governance aspects. And that’s very expensive to run.
“You’re going to have to show not just having a code, but that you have the wherewithal and the experience to have this in place. There’s no point having a code and just playing lip service to it: you’re going to have to demonstrate that you can enforce and examine members’ behaviour.
“Accountants have it, lawyers have it, we have it. That’s why I’m questioning whether others may be able to develop it and build it from nothing. It took us five years and cost millions of dollars.”
Rowe recognises that the tag of ‘professional’ is bestowed, not self-proclaimed. Ultimately, the financial planning profession will be assessed and judged by consumers and other stakeholders – not by its words but by its actions.
“With that privilege comes great responsibility to do the right thing,” Rowe says.
“It is a privilege, and it should be seen as one that we’ve had to earn over a number of years – decades, even – thousands of man-hours around policy positions, countless debates with key stakeholders to get there.
“But the FPA has come of age. That’s the only way I can describe it.”
