Rethinking FoFA: React, prevent – do nothing?

The old adage “the more things change the more they stay the same” seems quite apt currently.

After a number of tough years, we are in a very interesting period with things appearing to be going quite well in terms of markets and regulation.

While we may reflect on the 2008 global financial crisis (GFC), and see the sharemarket on a bit of a rollercoaster ride, there is actually a lot of positive news. The Australian sharemarket hit a five-year high in September; interest rates are the lowest since 1959; property keeps getting positive reviews; and super funds are meant to have had their best return for a number of years. On top of this, we have made it through the main parts of the Future of Financial Advice reforms.

Anyone who has been around for a decade (or two) will know that things just happen in the market, and they seem to happen every few years. Since the sharemarket crash in 1987, we have had rising interest rates impacting fixed-interest investments in the 90s; unlisted property trusts frozen; the tech boom and bust; issues with Asian banks in the mid-90s – and the list goes on.

In addition, usually in alignment with these market issues, there have been examples of flawed products and inappropriate advice.

What we should have learnt from history – although at times I am not sure if we have – is that we are great at addressing issues after the event. After many market failures and corrections we inevitably hear words such as “we didn’t think it was that serious”, “it is an overreaction”, and “it’s different this time”. Alternatively, when issues or concerns are raised early, they are dismissed.

Unfortunately, time and time again we seem to be caught by surprise. And if the past tells us anything, it’s that we shouldn’t be surprised.

If there is one overriding perspective, it is that we are all usually too late. When things are going well, we want to enjoy it. And when issues or concerns are raised, they can often be ignored – dismissed as an overreaction or pushed down the to-do list.

As hard as it may be, now is not the time to sit back. Rather, the focus should be on looking forward to consider what could be next. The industry has a responsibility to take a forward-thinking, proactive position, irrespective of what may be at times vested interests.

For example, with the introduction of the best interests duty – the cornerstone of the FoFA reforms – the financial services industry could argue this will ensure a robust future framework for the industry and consumers. Despite this, as the saying goes, it takes years to build a reputation and seconds to lose it – and we are now in the critical time
of building a reputation.

Jorgen Holmquist, chair of the International Ethics Standards Board for Accountants (IESBA), was recently in Australia for an IESBA meeting. While speaking specifically about the accounting profession, the tenet of one of his addresses is widely applicable. He stated that nothing is more important than one’s reputation; and the overriding mandate is to operate in the “public interest”. While we can rely on new regulation – such as the best interests duty – it is imperative that all stakeholders take a pre-emptive approach to issues
and potential views.

While we may be preparing for further changes with a new government, it is time to take a greater level of responsibility and objectively assess the future. So the opportunity now exists to demonstrate a truly professional approach by assessing where the current weaknesses
and warning signs are.

To say there are none, or that people are overreacting, is not an appropriate outcome. Let’s see if we have really learnt from the past and the resulting regulatory changes. Let’s take a pre-emptive approach so we are not surprised again.