Professions face disruption from the forces of innovation and competition just like other occupations, despite the barriers they deliberately set up to restrict entry by enforcing high ethical, professional and education standards.
In any occupation, competition is “driven by entry”, says Ian Harper, a partner at Deloitte Touche Tomahtsu, a former (and inaugural) chair of the Australian Fair Pay Commission and chair of the Competition Policy Review.
That is, “the capacity for another party to come in, quite possibly using different technology, to offer its services to the customers of the incumbents with impunity or minimum obstacles”, Harper says.
“Even if none of them actually come in, the fact they are able to do so keeps the guys who are already there agile,” Harper says.
Barriers to entry – education standards, professional standards, ethical standards – are prima facie anti-competitive, but in the example of a profession they are tolerated in the public interest. The anti-competitive nature of the barrier is seen as acceptable for the sake of protecting the public from charlatans and crooks.
Investment being commoditised
Computers and technology can obviously do some things faster and more accurately than people. In financial planning, it’s the investment piece that is currently being rapidly taken over and commoditised.
“But wherever you say, hang on a second, I know the textbook tells me that’s what something is, but I don’t think that’s what it is, I think it’s X – and you do the investigation and sure enough you were right – how did you know that?” Harper says.
“Well, it’s 30 years in the service.”
Harper says the message for financial planners is clear. To survive, or adapt, they must become “far more relational, much more the trusted adviser, much more the person who is engaged with the client”
Don’t raise barriers too high
Practitioners themselves and standards-setting authorities need to be careful that they do not raise the barriers too high. For a start, they may “run straight into the competition law”, Harper says.
“If there are barriers that are put in place that substantially lessen competition, and where there is no overriding public interest, they can be held to be against the law. But the law since it was written in the 1970s acknowledges that there may well be reasons for diminishing competition in the market that are in the public interest. That’s well established.”
Yet raising standards too high will stifle competition and innovation, as the purpose of the standards shifts, subtly, from protecting the public interest to protecting practitioners’ own interests.
“We say – says the industry – that we need to have a standards review board or something. And that board ought to be able to say yea or nay to who can practise or not practise – a licensing board. The government says that seems reasonable: one, we want to protect the public from charlatans; two, we need people to sit on the licensing board who know the difference between a charlatan and a genuine practitioner. Who are we going to get? The worthies of the industry put their hands up, and the government can’t say no – maybe it sprinkles in the odd consumer representative or something – but at the end of the day, it’s very difficult for your ethicist or consumer representative. They may hold out, but at the end of the day, these decisions are made by people who ‘know the business’.
“Then how easy is it for that group to do precisely what you’re saying: to raise the barrier, to raise the standard, to a level that is frankly beyond what is necessary to protect the public, and starts to protect the existing practitioners?
“What starts out as a perfectly legitimate way of protecting the public against charlatanry can end up protecting the suppliers, the existing incumbent firms.”
In the public interest – until it is not
Harper says there is “nothing wrong” with a certification or a licensing system that sets high minimum standards.
“Yes, it is anti-competitive, but it is anti-competitive in the public interest – until it’s not,” he says, and passing that point is “poison to innovation”.
“The incumbents have no reason to change anything – it’s always been like this and anyone who wants to come along and suggest there’s a new way to do things, it’s all dangerous stuff,” he says.
Harper stresses that financial planning is no more or less likely to find itself in this kind of position than any other profession. “But it’s an issue that has to be watched all the time,” he says.
“Adam Smith pointed this out in The Wealth of Nations in the 18th century; that a conversation between a bunch of producers or sellers hasn’t been going on for more than five minutes before it turns to the subject of how to fleece the public. It’s often thought of as a cynical remark, but it is in fact broadly right.
“It’s not deliberately conspiring against the public, it’s subtler than that: how can we protect the public from people who aren’t like us? That amounts in the end to the same kind of thing.”
This is an edited version of an article that appears in the April 2016 edition of Professional Planner.
