The raison d’être for this publication is to serve the professional financial planning community. So it is a safe bet that you, the financial planners reading this publication, would consider yourselves to be professionals. If so, you should be extremely alarmed by proposals, advocated by sections of the financial services industry, to dilute the best interests duty as part of the review of the Future of Financial Advice (FoFA) reforms.
Quite simply, if these changes become law, you – and future generations of financial planners – will be deprived of the opportunity to be regarded as genuine professionals. What is proposed is not a minor tweak. It effectively repeals the best interests duty, leaving in place just a hollow heading. Under the proposed changes a planner could meet the best interests duty without needing to consider their client’s best interests.
All other key professional service providers are subject to an unequivocal and legally enforceable obligation to act in the interests of those who engage them.
My background is in law, so let’s consider the legal profession as an example. My profession establishes professional conduct rules within a national framework that requires (among other things) legal practitioners to act honestly, fairly, and in the best interests of clients. No fine print. These rules have legislative underpinning and are enforced by the state-based law societies.
Likewise, professional and ethical rules for doctors have also been brought together under a national framework through the Medical Board of Australia, which oversees the registration of medical practitioners and the development of codes and guidelines for the medical profession.
The Board’s Good Medical Practice: A Code of Conduct for Doctors in Australia establishes clear professional and ethical rules for doctors, first and foremost of which is the requirement to make the care of their patient their primary concern.
This code also recognises that trust in doctors requires more than competence alone; it requires an expectation that doctors will not take advantage of the power imbalance that exists between them and their patients.
The concept of a best interests duty is inseparable from the regard in which these professions are held. Without the best interests duty, financial planning cannot continue its journey to a profession. For those who would argue that the best interests duty is a hard standard to meet in practice, here is a revelation: it is meant to set a higher and more rigorous professional obligation.
No publicly accepted case has been put forward to justify a reversion to the bad old days. Of course, most banks and institutional product providers have never really supported an effective best interests obligation as it makes it harder to distribute their product – and this, of course, is their primary motivation for providing financial planning services.
Against a backdrop where payments from third-party product providers are still the norm, it is a positive sign that the best interests duty should be challenging business-as-usual.
If we want to see an end to the very distressing examples of poor advice, which disproportionately damage the reputation of all, then a rigorous best interests duty must remain part of the regulatory framework. It ensures a client-focused culture – which many professional financial planners already subscribe to – as the minimum standard that consumers can expect of anyone calling themselves a financial planner.
Of course, there are other important aspects to professionalism: a broader duty to the community; tertiary qualifications as a minimum qualification; and a robust and effective professional body.
Yet without a rigorous and enforced requirement to act in the best interests of the client, financial planning will continue to be viewed, often unfairly, as the poorly-trusted distribution arm of the banks and their wealth management businesses.
This article appears in the February 2014 edition of Professional Planner