The chair of the Parliamentary Joint Committee (PJC) charged with examining the educational, ethical and professional standards of Australia’s financial planners says there are examples from professions that can be applied to create a robust and effective co-regulatory approach to lifting standards.
Senator David Fawcett, chair of the Parliamentary Joint Committee on Corporations and Financial Services inquiry into proposals to lift the professional, ethical and education standards in the financial services industry, says one of the aims of the inquiry will be to find common ground among stakeholders on how regulation of financial planning can be structured to accommodate the range of skills, experience and qualifications of existing practitioners.
“I imagine, just based on the public comments that I’ve seen from a number of the peak bodies and a number of the banks, that people broadly support the concept of increasing professionalisation,” he says.
“The question that we’ll be interested to see is whether we can come to a common landing point in terms of what should that look like, and where should the threshold be set.
“Certainly, FPA [The Financial Planning Association of Australia] has put forward one particular model and that seems to be supported by SPAA [the SMSF Professionals’ Association of Australia], for example. Whether all stakeholders will support exactly the same level…
“The other issue that would come out of it is the whole grandfathering side of it. You have a number of people who are working very competently and with great ethics, with the customer’s best interests at heart, who are no holders of a postgraduate qualification. The question would be: how do you grandfather those people into a new system?”
Varying standards
Fawcett says financial planning is not the only sector that has faced the issue of how to regulate practitioners or participants of varying standards.
“My background is in aviation; my experience of regulators is both across the military and across the aviation sector, and it’s not an uncommon problem,” he says.
“You have people of different levels of competence; you have a regulator who in the face of a rapidly changing and evolving world struggles to attract and retain staff who have the background and the competence and the capacity to effectively impose standards and practice. The best way forward is to say, how can we essentially co-regulate?
“Most people are uncomfortable with self-regulation, but there’s a big difference between self-regulation and co-regulation, where professional bodies both work with the regulator to articulate what the standards should be and then in a separate measure, if you like, that cuts across the vertical stovepipes of the regulator and what companies are doing, this separate approach says how do we try to empower each individual to work to a higher standard professionally and ethically across each of the measures that the individual companies and the regulator and individual companies put in place.
“You see that with large airlines that have their own check and training system. They do their own training and development and testing of their people, within a framework that’s approve by the regulator. And that works very well.”
Over and above
Fawcett this model comprises “an approach to professionalism and professional conduct that is over and above, on one hand, what the regulator stipulates; but on the other hand is actually part of what the regulator requires”.
“That’s what I’d envisage here, in that ASIC would say we’re going to have a register of providers and we’re going to recognise a given number of professional organisations, and professional advisers would have to be part of that,” he says.
“That’s one potential model. I’m not trying to second-guess what the inquiry will come up with, but I’ll be looking to see how the different stakeholders would want it to work [and] the level of regulator involvement that they’d be comfortable with.”
Fawcett says the Senate Economics Committee inquiry heard evidence form a broad range of stakeholders that the current minimum educational standard as set out in Regulatory Guide (RG) 146 Licensing: Training of financial product advisers is inadequate.
“We’ve heard people like FPA…saying we should look at a more professional approach, and they have put forward a standard that should be achieved and a concept of how to enforce that,” he says.
“The question that flows is, what would that look like, how broadly is it supported in the community of stakeholders, and what things would government need to consider specifically if they were going to take that on board?
“That’s why this inquiry is a bit more focused than the generic recommendation that came out from the Senate Economics [committee] – OK, if we’re going to do this, what are the considerations, and what would it look like?”
Association structures
Fawcett says the issue of what actually constitutes a “professional association” is covered by point three of the inquiry’s terms of reference. Association constitutions, structures, membership and entry requirements will all be examined.
“It addresses that exact point: what is a professional body for the purposes of this kind of scheme?” Fawcett says.
“I imagine we would take evidence from a range of people as to what should constitute a ‘professional body’ and then we would recommend to the government accordingly that the following parameters should be the basis of what a professional organisation is.”
Fawcett says there was “a specific recommendation in the Senate Economics [References] Committee report where they were looking at the oversight of ASIC, and one of their recommendations was that my committee should look at the issue of qualifications”.
“That’s where the reference came from; committees generally either get a reference from one of the houses of the parliament, a minister or another committee,” he says.
“The terms of reference are essentially developed by discussing amongst committee members and looking at the aspects that we wish to cover, and you will notice in there that we are looking essentially at what are the current qualifications – are they adequate? Clearly, the evidence that’s coming in to other committees is that they are not.
“The question that follows from that is what can we do about it and, importantly, what would be the consequences of that to costs, competition, et cetera? You can often come up with regulatory responses which sound good in theory but have all kinds of unintended consequences for just the ability of someone to run a business effectively and efficiently.”
Late August
Submissions to the inquiry are currently open, and close on September 5. Fawcett says one of the first things the committee will do when it next meets is to approve submissions for publication, and he expects that to take place in late August. A program of public hearings will follow, and Fawcett says the committee expects to present its report to the government before the end of the calendar year.
He says part of the committee’s role is to make sure it engages the appropriate range of stakeholders so that when the government receives the report it can be sure that the report’s recommendations have an adequate level of support among all stakeholders.
“Even if you have unity amongst the committee members, if the stakeholder community in a particular sector is divided…it still means you potentially have a large section of the community that won’t support a particular approach,” he says.
“So the government has to take into account the stakeholders as well as the particular view formed by the committee.
“But what it does do is give each of those stakeholder groups, on the public record, to put forward their position, and to argue the case as to why change should be made.”
