With the release of draft legislation to amend the Future of Financial Advice (FoFA) legislation – and a three-week consultation period – it seems as though the end might finally be in sight for this regulatory saga. I know, I’ve said that before. But this time it might be true.
The changes seem to have taken an age to get over the line. The original Parliamentary Joint Committee on Corporations and Financial Services Inquiry Into Financial Products and Services in Australia started in February 2009 – that’s five years ago now – and first reported to the government in November of the same year.
The whole FoFA process has created a lot of controversy, polarised sections of the industry, generated a vast amount of commentary and news coverage, enraged some and delighted others, placed the ethics and behaviour of financial planners in the spotlight, and to one way of thinking at least, could have been totally avoided.
How much of the pain and angst of the past half a decade would have been unnecessary if the financial planning industry had been able effectively to self regulate in the first place? What if there had been a willingness to hold practitioners to professionally determined levels of accountability, ethics and behaviour, rendering a regulatory overhaul redundant? And what if there had been a way to weed out those who didn’t measure up to peer-determined levels of ethics, competence and conduct? And how many misguided proposals and unintended consequences would there have been if the government had felt able to turn to an association that represents all financial planners, and say: this is what we want to do; how do we best do it?
These are rhetorical questions, of course. Legislative impetus was needed to smash the powerful vested interests ranged against meaningful change. But even so, maybe now is the time to think again, seriously, about safeguarding the profession from any future re-run of FoFA. Maybe now is the time to put in place, once and for all, the structures and systems that are needed to self regulate.
VOTE NOW: IS SELF REGULATION FOR FINANCIAL PLANNING A REALISTIC GOAL?
The banning earlier this month by the Australian Securities and Investments Commission (ASIC) of a mortgage broker and real estate agent (the individual concerned was both of these things) conveniently underlines one of the continuing issues with the idea of self-regulation that needs to be addressed. The chief executive of the Mortgage and Finance Association of Australia (MFAA), Phil Naylor, is reported to have said that the Sydney-based mortgage broker and real estate agent was ejected from the association last March after failing to meed membership educational requirements.
But being thrown out of the MFAA seems to have had little effect: the broker continued in business until the ASIC caught up with him, and banned him for three years for falsifying documents to secure $250,000 in loan funds. It’s the same problem faced by all industry associations. Terminating a member can be good PR – it shows a willingness to set and enforce standards – but unless being thrown out of the association also has a real and measurable impact on that individual’s ability to work in the industry, what does it really achieve?
This is not to single out the MFAA – far from it. It applies to the associations that represent financial planners, too, and the individual in the example above could just as easily have been a financial planner. It’s just that it wasn’t a financial planner on the top of the “ASIC bans…” pile of press releases.
Membership of an association – be it a professional association, an industry body, a group of like-minded planners, whatever – is not yet a precondition of practicing as a financial planner. Until it is, there will always be a piece missing in the self-regulation (or perhaps more realistically, co-regulation) model.
It is true in other professions that membership of the professional association is your ticket to practice. Get thrown out of the association and you lose your livelihood – it’s that simple, and that serious. But as things stand, get thrown out of a financial planning association (I use that term generically) and so what? There are plenty of practicing financial planners who aren’t members of an industry association anyway, so you’d merely join their ranks.
A structure that enables a professional association to demand, on pain of unemployment, that an individual measure up to peer-developed standards and ethics is one that gives real teeth to a profession’s code of professional practice. But it also places a great responsibility on the professional association to properly monitor its members’ behaviour, respond meaningfully to complaints and breaches of its code, and to issue appropriate sanctions and penalties where wrongdoing is proven.
Some of the steps that need to be taken to complete the circle, as it were, are quite simple. First, an association must develop a serious code of professional practice; then it must have it approved by ASIC. This means the code will requires standards of the association’s members that far exceed those set out in the law – it can’t just restate the law in different words. Then, the use of the term “financial planner” needs to be enshrined in legislation. And its enshrinement has to include the proviso that an individual can only use the term to describe themselves if they also are subject to an ASIC-approved code of practice.
Enforcing compliance with a code of practice takes resources. There has to be a process, properly administered, that is fair and transparent, and a willingness to cop the ire and legal challenges of ousted members when action is taken. So it’s not for the faint-hearted. It’s expensive, too; and it takes a real willingness for an association’s members to adhere to the code and to accept the consequences of being judged by their peers.
For any profession to be taken seriously by the public, by regulators and by government, its professional association has to have sharp teeth. And it has to be unafraid occasionally to bite its own members – the very hands that feed it. But effective self-regulation, or co-regulation, is perhaps the surest way to make sure that a re-run of the five-year FoFA saga never happens again.
VOTE NOW: IS SELF REGULATION FOR FINANCIAL PLANNING A REALISTIC GOAL?
