A question the Financial Services Council (FSC) needs to answer after claiming that self-regulation is “no longer a credible option” for improving standards in financial planning is: how on earth would they know?
The FSC’s call for a new body to set and enforce standards in the financial planning industry is based in a faulty premise. Self-regulation hasn’t even been attempted in financial planning yet, so it’s difficult to see how it can be dismissed as having no credibility.
Self-regulation, or a form of self-regulation called co-regulation, is something the emerging profession has long aspired to; it’s something that may yet emerge from a Parliamentary Joint Committee on Corporations and Financial Services inquiry into proposals to lift the professional, ethical and education standards in the financial services industry. But it hasn’t happened and it’s not here yet.
A more likely explanation for launching a pre-emptive strike on self-regulation is that some of the members of the FSC are only just waking up to what’s been going on in the financial planning profession over the past three and a half years. They don’t like what they belatedly see, so they’re mounting a rearguard action against the possibility of financial planners achieving self-regulation.
Paramount responsibility
Genuine, self-regulating professionals simply can’t be controlled like sales people can be controlled. A professional’s paramount responsibility is to act in the public interest; then it’s to act in the interests of clients; and only then do the planner’s own commercial interests and/or those of the employer come into the picture.
Self regulation leads to setting standards of behaviour, ethics, competence and practice that do not put the demands of the employer first. An institution that treats financial planners as nothing more than a distribution arm would rightly be terrified by the prospect of independent thinking and independent actions by a group of self-regulating professionals. Who knows where that might lead?
All of this kicked off in April 2011 when 8000 eligible members of the Financial Planning Association of Australia (FPA) were invited to vote on restructuring the association so that institutions lost direct influence and involvement. Almost half of the FPA’s eligible members voted on the restructuring proposal, and of those, 94 per cent voted in favour.
It’s an indictment on any institution that didn’t see what’s been coming, and has only just woken up to the potential consequences. Any executive who didn’t figure this out was either asleep at the wheel, or, more likely, looking in another direction: probably towards sales targets, and other KPIs. The significance of the event was so obvious at the time that even Professional Planner noted it. The future was set: the FPA was on the path to becoming a professional association, and a form of self regulation was always going to be a central feature of that future.
Raising a voice
But here we are, with self-regulation closer than ever – though by no means yet a sure thing – and institutions that were cut out of the conversation three and a half years ago are suddenly raising a voice.
In public, they stand for higher standards, having recently mandated educational and qualification standards for their financial planners, and those moves are welcome. It’s good business for an institution which gains the credibility of being able to say its financial planners are, say, Certified Financial Planners (CFPs).
But the institutions didn’t themselves develop the standards they want to impose on their planners; and it’s hypocritical to bask in the reflected credibility without also committing to the underlying development of a profession, which we already know is focused on achieving self- or co-regulation.
It also beggars belief that a group which collectively lobbied so hard for a dilution of the original Future of Financial Advice (FoFA) proposals – on the basis, among other things, of reducing red tape – could now turn around and say something needs to be done about financial planning standards, and the answer is an additional layer of regulation. But we’ve already seen through their financial planning-related actions that some members of this lobby group have no shame and, frankly, at best only half a clue.
Interesting move
It’s worth noting in this context that a number of institutions that own financial planning licensees have recently decided to stop paying the professional fees of their financial planners. That’s an interesting move, when they are at the same time claiming to be committed to raising standards.
Financial planning as a profession doesn’t need the input of institutions, either philosophically or in a practical sense – a properly constituted professional association can be independent and self-funding, sustained simply by the fees of its members. It can have the resources to collaboratively develop, set and enforce standards of education, of practice and of ethics for its own members.
And the profession certainly doesn’t need product-manufacturing institutions trying to call the shots on standards.
