Cultural change in the financial planning industry has not proved to be easy. That’s understandable, because the default position of all human beings is to resist change, particularly when we sense it will disturb the financial certainties in our lives and diminish comfortable power structures.
Nevertheless, cultural change is a prerequisite if financial planning is to become a true profession. Such a transformation requires leadership by people who understand and support the principles that must underpin any occupational group claiming to be a profession. These people must never compromise those principles (the way the political process does) and they must not be afraid to disturb the status quo. Governments and industry lobby groups cannot be expected to do this.
It can only be achieved through individual leaders who are willing to stay the course regardless of obstacles, in the knowledge that they are doing the right thing by the public interest.
The latest challenge for our leaders in the industry’s slow and somewhat unsteady “journey” towards professionalism is the education and ethical standards body proposed in the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2015. So far, most of the industry’s leaders have offered qualified support for this legislation, which includes the prescription of higher educational standards and (perhaps more controversially) the development by the new body of a mandatory code of ethics.
Key to success
The key to the success and credibility of this body will be the membership of its board and the manner of its appointment. The explanatory memorandum to the bill proposes that there must be seven members of the board, namely, the chair, three financial services industry representatives, two consumer affairs experts and an ethicist.
The three financial services industry representatives must have experience in operating a financial services business or in providing a financial service. Two directors must be appointed for their experience gained representing consumers in relation to financial services, while one director must have experience in the field of ethics.
Furthermore, directors must not hold an executive position in an industry or consumer association at the time they are serving on the board of the standards body. Directors may be members of such associations, however, they will sit on the board in a personal capacity and not represent the associations.
The chair of the board of directors is to be appointed by the minister. The other six directors are to be appointed by the existing directors (whatever that means!). Importantly, there must be appropriate conflict of interest provisions in relation to the appointment of potential directors.
Promising, as far as it goes
All of that sounds promising, at least as far as it goes. However, what is yet to be announced is the detailed process by which nominations will be put forward and appointments will be made to the board, especially for the six appointments other than the minister’s appointment of the chair. It seems that some industry participants would like to think that they will be playing a large part in deciding these appointments. For example, an industry leader was reported recently as suggesting: “The remaining six will be appointed by a consensus group of associations and relevant bodies”. Surely not. Perhaps, this was incorrectly reported, although it’s likely that many of this leader’s constituency would have approved.
If nothing else, the reporting of such a statement serves to remind us that the process of appointment must not be decided by the industry. It must be independent, public, transparent and fair. If the process were to be controlled by a faceless “consensus group” of financial services industry and consumer lobbyists meeting in a proverbial “smoke filled room”, the standards body would have little credibility in the wider Australian community. Furthermore, its likely appointments would be people who are “safe”, “reliable” and “controllable”.
In short, there would be an unacceptable risk that the appointees would be people expected by their supporters and sponsors to take positions that favour commercial, vested and sectional interests. That would be a sad result for legislation that holds such promise.
A wonderful opportunity
Whether we like it or not, the proposed standards legislation presents a wonderful opportunity to achieve genuine and permanent cultural change in the interests of consumers and financial planners alike. However, if we choose to pay lip service to these reforms by seeking to control or improperly influence the appointments to the standards board, the industry’s status quo will remain substantially unaltered, its flawed culture will continue and these expensive reforms will achieve very little, other than imposing an estimated $165 million of additional compliance costs on the industry and its clients.
Furthermore, future governments, in response to continuing scandals and mistrust, will eventually be forced to act to remove the final vestiges of self-regulation on an already heavily regulated industry. However, if we were to show genuine leadership by supporting both the spirit and substance of the proposed standards board, we would be collaborating in the creation of a profession whose interests would be truly aligned with the public interest.
This must always be the sole and uncompromised objective of any true profession.
