It’s fair to say that compliance, a focus on clients’ best interests and adherence to ethical and professional standards are not uniformly good across the financial planning community. Some individuals and some businesses clearly do these things much better than others.
Processes and systems are no guarantee of a healthy and ethical culture; and a good culture can be brought undone by poor systems and processes. It’s a symbiotic relationship.
Over the past five or six years, and possibly longer, the financial planning industry has been largely preoccupied with process. Specifically, it has developed, in many cases, into a compliance-led activity, with a great deal of time and effort expended of building systems to meet growing legal and regulatory requirements.
But in the next few weeks, the focus of the financial planning community will shift to the issue of people and culture, when the government formally hands down its response to a Parliamentary Joint Committee (PJC) inquiry into recommendations on lifting professional, ethical and education standards in financial services.
When you rely only a system, with no concept of professionalism or ethics attached, it can absolve individuals from responsibility to think for themselves. We do things this way because the lawyers say we must do them this way; or, that’s the way we’ve always done things. Then, if there’s a better way of doing something but the system doesn’t allow for it, it simply doesn’t get done that way.
People or process?
Very few systems on their own can completely compensate for ineptitude or dishonesty. It’s not for no reason that when a researcher delves into the capabilities of a fund manager they place as much importance on the “people” element of the business as they do on the “process”. Most highly rated fund managers claim that the ideal situation is a good mixture of both.
A process is important so the way the fund manager generates investment returns can be explained, attributed and is repeatable, and so there is no excessive key-person risk in the business.
And the people element is important because they have to be good enough to implement a process efficiently, but they are also custodians of a culture that gave rise to a process and philosophy in the first place.
IOOF boss Chris Kelaher told a senate hearing in early July he was “confident that I can confirm for you and the broader community that our company has an extremely strong compliance culture and that any claims of widespread wrongdoing have no basis in fact”.
Kelaher was no doubt sincere, but it is important in a discussion of standards in financial planning to differentiate between “culture” (or “people”), on the one hand, and “processes” (or “systems”) on the other.
Strong professional and ethical standards mean that even if a system dictates a particular way of doing things, an individual who recognises that there is a better way of doing them, or realises that the system is not producing the results it was designed to, will actively seek to change it.
Ethics and organisational change
Dr Simon Longstaff, executive director of the St James Ethics Centre, explains in detail in the August edition of Professional Planner just what role ethics plays in achieving organisational change. The good news is that ethics can be taught and can be learned, Longstaff says, which is why the ethics centre is in the process of rolling out an ethical literacy program for financial planners.
In the same senate hearings that quizzed Kelaher, Australian Securities and Investments Commission (ASIC) commissioner Greg Tanzer addressed the issue of “poor people”.
“The reason we are talking about this so much is that we quite often hear that there are problems in the industry with bad apples,” Tanzer said.
“There are problems in the industry with bad apples but it is not just because of bad apples. There is a problem with the culture that enables a bad apple to arise, enables a bad apple to continue to operate and enables a bad apple to end up in a management or supervisory position where their type of culture is modelled for other people and maybe even rewarded through the remuneration policies or whatever of the company.
“This can be well short of a core compliance problem; it can be just very poor behaviour or very poor customer orientation.”
Some organisations clearly already understand this. State Super Financial Services, for example, has spent $50 million to improve already solid advice processes and delivery. Its processes and systems are among the best there are.
Quality of financial planners
But another aspect of what it does, for which gets less attention, is to focus on the quality of the planners it employs. All of them hold the Certified Financial Planner (CFP) designation or are – in the words of SSFS managing director Michael Monaghan – “within an inch of getting it”.
Furthermore, SSFS is exploring the idea of a graduate training program, which will see it hiring graduates straight out of university and supporting them to complete their professional qualifications. Monaghan knows full well not all of them will stick around to be SSFS financial planners in the long term, but some will, and he views it as a potentially worthwhile investment.
Holding a CFP or other professional designation is not a guarantee that a person is ethical, of course. But you can’t be a CFP without being a member of the Financial Planning Association (FPA), and you can’t be a member of the FPA without consciously signing up to that association’s ethical and professional standards.
It’s just that of all the financial planners banned, suspended or otherwise sanctioned by ASIC in the past 12 months, Professional Planner understands that none were CFPs.
Focusing on the “people” aspect of the equation really does count for something. And for an industry that has been preoccupied with the process aspect of what it does, it’s an important piece in the jigsaw.
