You might have heard whispers here and there about this idea of professionalising financial planning. There is – apparently – a desire in some quarters to lift the education, professional and ethical standards of financial planners to a level where they are comparable, and in some ways exceed, those of other professions, and to create a regulatory and legislative framework for a true profession to emerge.
I say “apparently” because even though it’s 2016 and we have a piece of draft legislation due to be introduced to the parliament this year that will create a solid foundation for a financial planning profession, some in the industry still seem to misunderstand what the creation of a profession actually means.
The head of one association recently reportedly urged financial planners to resign their memberships of two other associations, because by being a member of either of those other associations financial planners are “funding the enemy” – effectively doing the bidding of licensees owned by, or affiliated to, institutions.
It was reported that the other associations do not represent the views of “the independent [advice] sector”, and that independent financial planners “cannot rely on them to support our needs”.
That is a puzzling stance. It may yet turn out to be irresponsible and to put financial planners’ and advisers’ livelihoods at risk. It overlooks two things: First, the duties and obligations of professionals; and second, legislative changes that are in the pipeline and expected to be in place this year.
Let’s – again – recap the duties and obligations of a professional.
They are, first and foremost, to serve the public interest (more on that in a moment). Then they are to serve the interests of clients. Only then, and some considerable distance behind, do the interests of the professional themselves or the professional’s firm or employer come into the picture. If you’re really not prepared to subordinate your own interests along with those of your business or employer to the public interest and to the interests of your clients, then step away now. There’s no room for you in a profession.
It makes no difference where a professional works
Given this, it really should be obvious that once a profession is established (and the individuals within it subscribe to genuine professional standards, obligations and duties) it then makes no difference at all where a member of that profession works. A lawyer doesn’t subscribe to a different code of ethics or have different professional duties and obligations if they work for King Wood & Mallesons than if they work for Joe Blow’s legal practice on the high street of a country town.
A professional financial planner might work in an independently-owned own-AFSL firm. They might own their own practice and be an authorised representative (AR) of an independently owned licensee. They might be an employee and be an AR of an institutionally affiliated licensee. They may be a salaried adviser employed by a bank or an insurance company or any other sort of business.
Even if you define 10 or 1000 or a million other ways an individual can work as a financial planner, there will not be one scenario where professional duties do not apply: public interest first, clients’ interests second, their own (and those of their business) after that.
Serving the public interest and then the client’s interests are the key concepts in all of this. They mean that irrespective of where a professional works, they must not do something that is detrimental to the public interest or to clients’ interests. And that will mean refusing to carry out an employer’s instructions or meet the demand of an institution where those instructions or demands would be contrary to their professional responsibilities.
A profession gives the individual strength
It takes guts to stand up to an employer or an institution and say “no”. But that’s where a profession gives strength back to the individual. A strong profession body will use its standing to expose malpractice and breaches of the public interest. And professions spend quite a lot of time developing standards to empower their members to stand up for what is ethically and professionally right.
Just last Friday, the International Ethics Standards Board for Accountants (IESBA) issued a new standard entitled Responding to Non-Compliance with Laws and Regulations.
“The standard sets out a first-of-its-kind framework to guide professional accountants in what actions to take in the public interest when they become aware of a potential illegal act, known as non-compliance with laws and regulations, or NOCLAR, committed by a client or employer,” IESBA said when it released the standard.
IESBA says this standard applies to “all categories of professional accountants, including auditors, other professional accountants in public practice, and professional accountants in organisations, including those in businesses, government, education, and the not-for-profit sector”.
“It addresses breaches of laws and regulations that deal with matters such as fraud, corruption and bribery, money laundering, tax payments, financial products and services, environmental protection, and public health and safety,” it says.
Who cares if a professional body has among its members financial planners who work in institutionally owned or affiliated licensees? Who cares if they are bank employees? Professional obligations must take precedence, irrespective of where they work. That’s a seismic cultural shift – but it’s absolutely intrinsic to financial planning becoming a profession.
Upholding ethical responsibilities
An important piece in the professionalism jigsaw is the ability of a professional body to sanction its own members in instances where they have failed to uphold their professional and ethical responsibilities.
That piece is still missing in financial planning, but will likely drop into place when education and professional standards legislation comes into effect. The legislation requires anyone who gives personal financial advice and calls themselves a “financial planner” or “financial adviser” will have to comply with an approved code of ethics. Part of the approval process will be making sure the body responsible for monitoring compliance with the code has the resources to do that.
The association mentioned at the outset of this article doesn’t have its own code of ethics and it’s debatable whether it is structured and resourced to administer one for its members. That’s why its call to resign memberships of other associations is puzzling.
The association might not have realised it, but its very own members will be banned from working as financial planners and advisers if they renounce their membership of one association and only later find out that by being in the other one they are not covered by an approved code of ethics.
