Treasury estimates that the cost of compliance with new ethical, professional and education standards for financial planners will exceed $165 million. This seems like a lot of money when much of what needs to be done has already been done.
How it arrived at this figure isn’t clear, but on the face of it, it looks like time, effort and money might be spent duplicating a whole bunch of things that already exist, when all the government really has to do is join a few dots.
Draft legislation released by the government last week provides for the creation of an entity that will create new education standards and develop a code of ethics. This entity is referred to as “the body”. (It has no formal title yet so at Professional Planner we have been calling it Elle.)
The government wants all financial planners to measure up to higher education standards and it has already said a university degree is the bare minimum for new entrants. It wants the body to set new education standards.
The government wants all financial planners to adhere to a stringent set of ethical standards. And it wants the body to develop these standards.
Developing either of these things from scratch will take a lot of time and money, and in fact, most of the work on both of them has already been done. It is to be hoped that the work carried out by the body doesn’t result in mere duplication of what’s already been done, and it’s also to be hoped that the standards it eventually comes up with do not reduce what has already been created to a functionally useless, lowest-common-denominator set of standards.
High demand
The Financial Planning Education Council (FPEC) has developed a comprehensive curriculum for university financial planning courses. Even as we speak, universities are turning out graduates from these courses, and on all of the evidence available, these graduates are in high demand among prospective employers. The Financial Planning Association (FPA) has repeatedly offered to “gift” FPEC to the new standard-setting body. The government should take up this offer.
A code of ethics for financial planners already exists. It exists, it is in place and it is enforced. It has been developed over time, in painstaking detail and with full input of practitioners. The problem is not – and has never been – that stringent ethical standards do not exist. They do. The problem has only ever been that not all financial planners are required subscribe to them.
It’s been possible to call oneself a financial planner, and indeed to do all of the substantive elements of the job of a financial planner, yet be entirely untroubled by pesky things like a code of ethics or education and professional standards.
Insisting that all financial planners sign up to, and are held accountable to, high standards can solve this problem. The standard-setting body should use the FPA code of ethics as a starting point and only water down of modify its requirements if there is a very, very good reason.
The government’s proposed method for enforcing ethical standards across the profession is a creative one. Instead of having individual bodies developing and enforcing their own ethical standards, the government wants one set of standards to cover the entire profession, and will instead approve individual bodies to monitor and enforce those standards.
The same set of standards
This means, for example, if the Association of Financial Advisers (AFA) and the Financial Planning Association (FPA) both become approved bodies, each will monitor and enforce the same ethical standards. And the same goes for any other body whose members are in the business of providing personal financial advice – so-called “relevant providers”.
These “other bodies” could include Australian financial services licensees (AFSLs) as well – but the crucial point is that irrespective of what the entities are, they will be enforcing the same standards.
Don’t forget, there are about 22,000 people on the ASIC financial advisers register, and these ethical standards have to apply to them all. Failure to comply with the standards will result in the individual being removed from the register and losing the ability to work as a financial planner or adviser.
That’s why the standard-setting body should resist any pressure to dilute existing standards – ethical and education standards. At the end of the day a financial planner is a financial planner, irrespective of who the employer is.