The Parliamentary Joint Committee report on lifting standards in financial planning came out on the afternoon of December 19, at almost the precise moment Professional Planner closed its offices for a break.
Not being in a fit state to read (or perhaps comprehend) the report prior to Christmas, and not wishing to put a marriage at risk by taking it away on a family holiday, the first opportunity to look through the 103-page document came at the beginning of this week.
It took until page x – that is, the page after page ix, even before reaching the report proper – to realise this is a document that means business. If its recommendations are adopted, it could be the catalyst for something approaching actual self-regulation. And it also addresses one of the biggest issues facing financial planning businesses today: professional indemnity (PI) insurance.
The report neatly ties together a range of existing bodies or previously proposed ideas – like the register of financial planners; the Financial Planning Education Council (FPEC) and the Professionals Standards Councils (PSC) – to create an elegant and robust structure for setting, raising and enforcing standards across the profession.
Reconstituted FPEC
It recommends the qualifications and competence of financial planners be set in the first instance by a reconstituted FPEC. Keen readers of Professional Planner will recall that FPEC is the independent body set up by the Financial Planning Association (FPA) to develop and set a national curriculum for university financial planning courses.
The FPA has previously offered to “give” FPEC to the profession; the PJC picks up on this idea and takes it a step further by proposing that FPEC be made up of representatives of professional associations, academics, consumer advocates and an ethicist. Note that FPEC has no space for representatives of product manufacturers or licensees (except for those employees of such businesses who might also be members of an approved professional association).
The critical aspect of the recommendation is that the Professional Standards Council (PSC) must approve any professional association that wants to put a representative on the FPEC board.
What’s the PSC?
The PSC might not be as familiar to Professional Planner readers as FPEC; suffice it to say, being approved by the PSC is not easy. Its website sets out in detail what it does, and how it does it. It might ring a few more bells to learn that the chief executive officer of the PSC is Dr Deen Sanders, a former head of professionalism for the FPA.
(Sanders is a member of the Professional Planner Advisory Board, a group that meets quarterly to provide feedback and advice on the development of the publication online and in print.)
Think about what it means for professional associations to be part of this proposed “new” FPEC. It means standards of professionalism, ethics and education will be determined by associations that represent only the interests of individual, professional practitioners.
Professionals themselves will set professional standards, with no input from institutions or product manufacturers. That is starting to look and feel like, if not outright self-regulation then certainly some form of co-regulation.
Associations approved by the PSC have to sign legal agreements to “monitor, enforce and improve the professional standards of their members, and protect consumers of professional services”.
Addressing PI insurance
A very significant benefit of committing to a Professional Standards Scheme is a cap on “the civil liability or damages that professionals who take part in an association’s scheme may be required to pay if a court upholds a claim against them”.
Professional Standards Schemes “limit the civil liability of professionals who take part in them. In other words, they cap the amount of damages that a court can award to a client if they succeed in certain claims against a professional”, the PSC website says.
It says that if a professional service provider is inadequately insured, consumers can end up missing out on any compensation awarded by the court, while still having to pay court costs and other expenses.
“Professional Standards Schemes address this dilemma by limiting liability – and making sure that, if a claim is upheld by a court, participating professionals are able to meet any damages awarded at or below that limit.
“This allows more professionals to stay in business, which increases competition and gives you more choice. It also stops professionals from going bankrupt if one of their clients makes a successful claim – a situation that would potentially leave them unable to pay the damages awarded to the consumer concerned.”
The PJC report’s recommendations are still only recommendations, and they’re doubly theoretical because no financial planning association is even approved by the PSC as yet. Several of the accounting associations are approved, along with a range of law societies.
The FPA is moving down the approval route, and at the time of writing it is clearly the best placed of the financial planning associations to gain PSC approval.
PSC approval for the FPA is not a foregone conclusion by any means, but at least it has started the process. The PJC recommends that the new FPEC be set up and operating by July 1 this year, so any financial planning association that wants representation on the FPEC board from that date needs to get its skates on.
Professional Standards Schemes currently approved by the Professional Standards Councils:
- Association of Taxation and Management Accountants (ATMA)
- Australian Computer Society (ACS)
- Australian Property Institute Valuers Limited (APIV)
- Australian Valuers Institute (AVI)
- Bar Association of Queensland
- College of Investigative and Remedial Consulting Engineers of Australia (CIRCEA)
- CPA Australia
- Engineers Australia
- Institute of Chartered Accountants Australia (ICAA)
- Institute of Public Accountants(IPA)
- Law Institute of Victoria
- Law Society of NSW
- Law Society of South Australia
- Law Society of Western Australia
- New South Wales Bar Association (NSW Bar)
- Professional Surveyors Occupational Association (PSOA)
- Queensland Law Society
- South Australian Bar Association (SA Bar)
- Victorian Bar Association
- Western Australian Bar Association (WABA)
Source: Professional Standards Councils website – www.pc.gov.au
