The Minister for Revenue and Financial Services, Kelly O’Dwyer, is facing nine of the most important decisions she will make in her ministerial career. There is only one chance to get these decisions right, and getting them wrong could set back the cause of financial planning professionalism – and consumer protection – by years. O’Dwyer must choose nine people to sit on the board of the proposed financial planning standards body.
The standards body will be established as part of legislation setting new education, ethical and professional standards for financial planners. It is expected the legislation will be introduced into the House of Representatives before the end of the year. Since it apparently enjoys bipartisan support, it is one of perhaps only a handful of pieces of non-contentious legislation that could be expected to reasonably easily pass through the senate.
Earlier drafts of the legislation required the minister to appoint only the chair of the body, and other appointments would flow on from that. But a revised draft of the legislation requires the minister to directly appoint all nine directors. Who is selected – their fitness for the position, their relevant experience and, crucially, their credibility within the financial planning community – is absolutely pivotal to whether or not the standards body is able to operate effectively.
Appoint the wrong people and the chances of unequivocal and full-throated support for the resulting standards will be severely, perhaps fatally, compromised. For the standards body to effectively discharge its responsibilities effectively it needs to have the support across the spectrum of the financial planning community – from self-licensed firms right through to the financial planners sitting in the branches of the major banks. And it must also have the full-blooded support of the senior management of licenses, right across the board.
Body has lots to do
The body has to develop and set the proposed industry exam, develop an industry-wide code of ethics, and determine the education requirements for both new and existing advisers.
Let’s set to one side for a moment that degree-level standards already exist, thanks to the work of the Financial Planning Education Council, and that financial planning degree courses are already being offered by 17 universities across the country. And let’s also set to one side for a moment the fact that a robust code of ethics is already in force for an estimated 12,000 members of the FPA. The standards body does not necessarily have to reinvent the wheel on these issues, if its board can be satisfied that both have already been adequately addressed.
A start date for the standards body has not formally been announced, but the recent Financial Planning Association roadshows heard that July 1, 2017, would be appropriate, given the vast amount of work it has to do and the time it has to do it in. It will require significant resources (irrespective of whether it’s funded by the taxpayer or by industry), and a committee structure to match. All of these things take time to set up, and the clock is ticking.
From 2019, all new entrants to the profession must hold a relevant degree, pass the exam, complete a professional year and commit to continuing professional development (CPD). From 2020 all planners must be subject to the code of ethics. By 2021 all existing planners must have passed the exam (or have received an exemption, approved by the body). And from 2024 all existing planners must hold a degree or degree-equivalent qualification. If they don’t, they’ll be removed from the Australian Securities and Investments Commission (ASIC) financial advisers register, and barred from practising.
It’s getting serious
It’s serious stuff, and it has to be if it’s to create a foundation on which a true profession can then potentially be developed. That’s why the minister’s decisions are so important – because a shaky foundation simply will not last. It will be undermined, and chipped away at buy those who do not support the standards body, and its directors. Its effectiveness will be hampered if the individuals at the top of the standards body lack gravitas or do not have the credibility to lead the financial planning community to where it must go.
The appointments do not necessarily have to be the most popular people. Populism is best avoided in this situation, but they must be the right people. Perhaps the last thing the standards body needs is – to borrow a phrase from a senior industry figure – a “narcissistic demagogue” hell-bent on “fixing” the profession but unable to win the hearts and minds of those who’ll be subject to the new standards. Raising standards can’t be seen as something being “done to” the profession. It must be something being “done by” the profession, with the standards body at the centre of that process and fully supported by all participants.
The appointments issue is complicated further by prescriptions on who can be appointed. The legislation says that the board must include a consumer representative and an ethicist. But it cannot include anyone working for an organisation that offers education courses to financial planners. And it cannot include anyone who is an office bearer of an association or representative body. That structure means it will be seen as independent from the industry itself, but it raises some questions about where the necessary expertise and skills will be found to fill the nine board positions.
Very few voices are seriously arguing that higher standards are not needed. They clearly are, and forward-thinking participants in the financial planning community should embrace them. But this is a once-in-a-generation opportunity to finally get the foundations right.
Blowing it up by making unwise and unsuitable appointments could trash that opportunity and would represent a very real failure on the part of the minister to implement long-term, meaningful change and to raise standards for an industry that, once its foundations are right, can play a very significant part in addressing issues of financial security and dignity in retirement for a great number of Australians.
