Happy New Year! Welcome to 2024. For some, it’s the first working day of a new year (Professional Planner will be on the beach for another fortnight). It’s also the first day of a new era for financial planning.*
It’s a new era because from today financial planning can hold up its head and legitimately claim to have risen to the status befitting a true profession. In fact, given the hurdles that existing planners have had to get over to still be here today, and the hurdles that all new entrants have been facing for the past several years, some continue to argue that its entry-level requirements exceed those of other, more established professions.
It hasn’t been all plain sailing, as we know, and some good planners have fallen along the way. But it’s been a salutary reminder that belonging to a profession means committing to something larger than oneself; occasionally the interests of the individual will be secondary to the interests of the broader community and the public interest. But that’s how it is – that’s how the profession has to view the world from now on anyway, so it’s been a useful learning experience.
Back in 2016 the financial planning industry was reeling from the rate and pace of regulatory and legislative reform. It narrowly dodged being caught up in a royal commission inquiry into the banks – but up to that point it had already experienced seven years of near-constant change and 54 inquiries or reports that in one way or another touched on financial planning. Five big pieces of legislative and regulatory reform had been created and were at varying stages of implementation, so policymakers thankfully realised that enough was enough – even if a former Reserve Bank board member did think “some kind of inquiry would be helpful” and there was a need to do “a lot more work on the quality of financial advice being offered by banks”.
Nothing stays the same forever, though, and now we’ve passed through the rocky transition phase it’s well worth pondering what might be done next to cement the reputation and status of financial planning as a profession, on a par with the law, engineering, medicine and so on (there are many others).
Part self-regulation better than zero self-regulation
Professionalism per se is no guarantee there will never be another shonky planner. No profession is immune from individuals who do the wrong thing. But what has set other professions apart from financial planning up until now is the willingness they have to deal with malpractice within their own ranks.
It was probably around 2012 when the big idea for financial planning was self-regulation – as if a polity whose constituents were being fleeced by the members of an industry would willingly hand over responsibility for regulation to that same industry. Analogies involving foxes, henhouses, Dracula and the Blood Bank were freely bandied about, and with good reason.
But if a week is a long time in politics, then seven years is an eternity and now the transition period has passed it’s a good time to think again about charging the profession itself with greater responsibility for regulating its own.
We know we can’t go as far as self-regulation (see above). The government should still manage and meet public expectations by setting out broad parameters in legislation and regulation. But why can’t some regulation be delegated to the profession, via its professional bodies?
After all, who is better placed to know what practitioners are up to than other practitioners? If there’s a sharp practice or a dodgy move than can be pulled, who do you think is going to spot it first – another financial planner or the regulator? Here’s a hint: It’s not the regulator.
How about a form of regulation that stops short of full self-regulation, but which involves government less than the standard regulatory approach? Government determines policy and meets public expectations through legislation as a high-level first step. But it delegates responsibility for specific aspects of regulation to the profession, via its professional bodies.
No longer the profession that dare not speak its name
The community of practitioners obviously must be properly organised into bodies or associations that have the willingness and resources to ensure members are meeting their professional obligations, and to apply sanctions where appropriate. That includes booting them out of the association.
And since being kicked out of a professional association now means an individual loses the ability to practice as a financial planner, the associations at last have the teeth to do the job of a watchdog.
Naturally, the government can yank the powers delegated to that body at any time if the body fails to do its duty. But the regulator monitors the associations and their actions and resourcing.
This kind of “delegated regulation” would draw on the knowledge and expertise of professionals who are better placed than government or market-based regulators to really know what is going on in a particular area. But can you see the hurdle in this path?
That’s right – it’s those banks and institutions again. This approach requires professional employees to fulfill their professional duties, fully and without obstruction or fear of victimisation or of being penalised. From time to time a professional will have to put those duties ahead of the corporation’s immediate interests.
But if that is the case across the board, and if individual professionals have the unequivocal backing of their professional colleagues and associations, then it will happen.
This suddenly opens up the possibility of a career in financial planning being the appealing thing to new entrants, rather than a career with Company XYZ. An individual is a financial planner first and foremost; they happen at any moment in time to be an employee or an authorised representative of any particular entity.
“I am a financial planner,” not “I work for Big Bank.” Imagine that.
* Professional Planner has high hopes for the financial planning profession, but a very cloudy crystal ball.
