As claim and counter-claim continue about the Australian Securities and Investments Commission (ASIC) and its ability to regulate financial services effectively, now would be a good time for the financial planning profession to stand up and be seen and heard.
The events of the past week or two have shown again that in financial services – specifically, in financial planning – when regulation is deemed to have failed, it’s not natural, yet, for policymakers or commentators to assume that the profession itself can play a role in policing its own members.
Nowhere in the debate about funding for ASIC or calls for a royal commission on financial services, has anyone said, hang on a minute, this group of practitioners has spent a lot of time and energy organising itself into a professional structure, with codes of ethics and professional standards, along with monitoring and enforcement of codes, to address the very issues that ASIC is believed to have missed.
It illustrates that there is still quite a long way for financial planning to go before it’s accepted as a profession in quite the same way as, say, accounting or law or engineering.
It’s apparently going to take more time, and continual, relentless reinforcement of the principles of professionalism by everyone involved, before the public and those who represent the public trust the profession to police its own practitioners.
Let’s be blunt. The problems that ASIC is being asked now to address more intensely, and which have prompted multiple inquiries and calls for a royal commission, ultimately have been caused by individuals.
You can blame the institutions they work for if you like – and blame is due – but if these individuals had even an inkling of what professional duty and responsibility means, they might have thought twice before going down a particular path to begin with.
And they might have had the courage to resist a course of action urged upon them by their employer or licensee. They would have understood that a professional’s first responsibility is not to themselves or to their employer, and they may have had the gumption (and the unequivocal backing of their peers) to simply say no.
Meanwhile, in the wake of the government’s decision this week to restore some of the funding stripped out of ASIC over recent years, two questions remain. First, whether the increase in funding is enough to enable ASIC to do what everyone thinks it should be doing; and second, whether a better-resourced regulator really can head off calls for a royal commission on financial services.
Both the Association of Financial Advisers and the Financial Planning Association (FPA) have argued eloquently and persuasively that when it comes to further legislative reform of financial planning, enough is enough. Financial services is broader than just financial planning, but it would seem unlikely that a royal commission could avoid having more things to say about the state of financial planning.
The associations’ views are understandable. Members of both, undeniably, are suffering from reform fatigue, and the leadership of both have been run off their feet preparing submissions, appearing at inquiries, interpreting draft after draft of legislation, dealing with media and communicating with members.
For the past seven years the only constant seems to have been change, and while change was absolutely necessary, the scale and the scope of what the industry has been through can be truly appreciated by reading a document produced by the FPA – to see it summarised like this is simply astonishing.
Maybe that’s what the government had in mind when it floated (and then sank) the “continuity and change” slogan it apparently lifted from the TV series Veep.
Opponents of the idea of a royal commission argue that ASIC already has “all the powers it needs” or equivalent powers to a royal commission to identify and prosecute wrongdoers. ASIC may have the powers, but it hasn’t necessarily had the resources. It needs what it’s been given – and possibly considerably more – desperately. In truth it’s no better funded now than it was a few years ago, but it’s better funded today than it was at the start of the week.
A parallel with pigeons?
Thinking through the perceived failure of the regulator in financial planning, and the role of a profession in protecting consumers, a friend came to mind who used to keep pigeons. For a while, he had an issue with foxes or cats or something – it might have been rats – getting into the loft and killing birds.
He had an old dog. The older it got the slower it got, and the more teeth it lost. It was not good at protecting the loft, nor even at sounding the alarm when danger presented. No one blamed it; it was old and toothless, after all. But even when he got a young and unfeasibly energetic puppy, the rate of pigeon mortality didn’t really change much.
What made the biggest difference was when he had the idea of setting up a motion-sensitive light system on a timer. It meant that after the pigeons had gone inside to roost (or whatever pigeons do at night – play poker, possibly), powerful floodlights would go on if there was motion nearby.
The role of the profession – and “profession” means not only the associations and those who lead them, but each and every individual practitioner who has signed up to professional and ethical standards and who wants to be seen in that light – is to be a kind of motion sensor and floodlight system.
If we think of the pigeons as consumers (which seems appropriate), the foxes, cats or rats as unscrupulous service providers (and you can choose for yourself which creature represents financial planners) and the old dog as the regulator, then the motion-detector-and-floodlight system can be thought of as professionalism and self-regulation. Sort of. It’s a tortured analogy.
Individual obligations and duties
The role that individual professional responsibility and obligations must play in protecting consumers and in policing behaviour cannot be understated. And ultimately, the role of a profession and of its practitioners must be considered when framing an appropriate consumer protection framework. So far, the role of the profession has not featured.
If more individual planners recognised and took seriously their professional duties and obligations, calling out bad behaviour – either by peers or, in some cases, by employers – then over time it might become the norm to ask what the profession can do, rather than continuing to assume it needs ever-more regulation and external policing.