In the current debate about the public image of financial planning, there’s a clear opportunity for planners who adhere to a code of professional conduct to put daylight between themselves and those who don’t.
The benefit that an individual enjoys if they are perceived to genuinely be a professional is sometimes referred to as the “professional dividend”. These are not people who claim the title of “professional” for themselves, but rather, those who do the truly hard yards to have that status granted to them by the broader community.
A non-negotiable aspect of professionalism is adherence to a code of professional practice – a code that requires a commitment to standards that clearly exceed minimums prescribed by law.
To be effective the standards in a code must be onerous. But a code is not a check-list; rather, it’s a set of principles that inform how an individual interacts with clients, and how that individual ultimately serves the public interest (the number one priority of all professions).
So a code effectively becomes second nature. It eventually becomes a way of living, rather than a reference document. A clumsy analogy is the Ten Commandments. Once you’ve got the hang of those, you generally don’t have to consult them regularly or to have a compliance offer looking over your shoulder to check you’re not coveting your neighbor’s ass.
A code of practice can be constructed by any organisation that wants to construct one. But any code needs to have certain characteristics: standards that easily exceed the law; close monitoring of members’ compliance; strict monitoring; and meaningful penalties.
A member of the public looking for a professional service can look the law and the minimum standards that it prescribes, and they can look to a professional code, and the standards it prescribes. To my way of thinking, every day of the week you’d go for someone operating under a professional code.
The Financial Planning Association (FPA) has quantified the professional dividend in a number of ways – an example of a tangible benefit comes from the research it has done showing that a typical Certified Financial Planner earns a higher income than a non-certified planner.
Now the FPA has highlighted another potential payoff, as the debate about the public image of planners reignites.
It says that in an environment where “sectors of the superannuation product industry [are] using fear and misinformation to once again depict financial planners in a negative light…professional financial planners who have individually subscribed to a binding code of professional practice not only have nothing to fear, they have everything to gain”.
Last week I suggested the role of professional codes would come into focus because there is a perception that consumer protection has been diminished by the FoFA amendments. A strong code could eventually become the foundation for effective co-regulation (if not self-regulation) – the holy grail of professional governance.
Under this model, the profession itself plays an active, ongoing and constructive role with government and regulators – and by virtue of the existence of an effective code (and effective monitoring and disciplinary processes) it avoids much of the heavy-handedness we saw in the framing of FoFA.
The FPA had already come out in support of amendments the Future of Financial Advice (FoFA) laws, announced by the government just before Christmas. It said the changes would reduce cost, reduce administrative complexity and not affect the standard of consumer protection. This was a view also expressed by Treasury in a Regulation Impact Statement published in November.
I do not doubt the FPA’s sincerity in its position on FoFA. But it’s spotted a clear opportunity to use the current debate to position its members ahead of the pack. It asks consumers to make a choice about the kind of service they want to engage: a professional one, or a non-professional one.
And it puts some difficult questions to other organisations that hold themselves out to be professional associations, or to be advancing the cause of professionalism: Where’s your code of professional practice? What does it look like? How do you enforce it? And what do you do to members who breach it?
