Chief executive of the Association of Financial Advisers, Brad Fox. Photo: supplied
It was the French politician Alexandre August Ledru-Rollin who, on seeing a mob of people in the streets of Paris, is said to have leapt from the table he was sitting at in a café and exclaimed: “There are the people – I must find out where they are going, for I am their leader.”
Leadership is not necessarily about taking people to where they want to go. Often is it about taking them to where they have to go, even if the destination may not be popular. For Brad Fox, chief executive officer of the Association of Financial Advisers (AFA), shaping a response to the so-called Life Insurance Framework (LIF) has been his biggest leadership test since his appointment in late 2012.
Fox found himself dealing with a small but vocal group of members dissatisfied with how the AFA had handled their concerns and misgivings over proposed changes to life insurance remuneration, contained in the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill, developed as part of the LIF.
The Life Insurance Customer Group (LICG) was formed to put pressure on the AFA board to reverse the association’s support for the remuneration proposals. And it succeeded in calling for an extraordinary general meeting to consider a proposal to amend the AFA constitution. The proposal was defeated on a vote of members, but had it succeeded, it would have put the AFA in the invidious position of opposing changes it had previously supported, and at a time when the process of formulating the reforms was approaching the point of no return.
John Trowbridge’s report, the Review of Retail Life Insurance Advice, based on the work of the Life Insurance Advice Working Goup, had been commissioned and delivered; the Financial System Inquiry, chaired by David Murray, had also made its recommendations; the government had consulted the industry and other stakeholders; and its legislative response was already well advanced. Any attempt from that point on to overturn the broad policy direction was always destined to be a desperate rear-guard action.
“Unfortunately, as we have seen happen right from the beginnings of FoFA, many advisers choose not to be across the detail of legislative reforms until that legislation hits parliament,” Fox says.
LICG ‘just appeared’ as website
This time was no different. The LICG came into being not long after an AFA annual general meeting in 2015, at which members gave support to the position the AFA board had taken on life insurance reforms.
Fox says that at the time there was “very strong push-back from a very small number of members in the room”, who believed that the AFA had failed to listen to their concerns over the proposed changes. The LICG then appeared, as a website.
“This is an important point for us to get our heads around,” Fox says. “The LICG didn’t have a board. It didn’t have members who vote. It didn’t have a constitution. It was a website to which people could subscribe and be counted as a petitioner.”
Fox says several members of the AFA, including himself and members of the AFA board, were surprised to find themselves named as “members” of the LICG.
Only about half of the dozen or so individuals behind the LICG are members of the AFA, Fox says. Some are members of the Financial Planning Association (FPA), and some are members of neither.
Fox says the LICG’s founders and constituents were not left out of the decision-making process and initially the relationship between the LICG and the AFA was consultative and cordial.
“In the early days we met with their representatives a few times and we swapped research notes and facts from within the marketplace and the industry more generally,” he says.
“What we found was they didn’t have access to any material that we didn’t already have and hadn’t used in our own lobbying up to that point.”
Fox says the AFA met the federal Liberal MP Bert van Manen, a member of the Parliamentary Joint Committee on Corporations and Financial Services, and handed over, among other things, the LICG’s research and material for consideration in the formulation of the government’s policy on life insurance remuneration reforms.
Fox says it’s important not to lose sight of the fact that the remuneration bill does not represent the entirety of the LIF, and the AFA has been active on several fronts.
He says another important part of the framework is the life insurance code of conduct, which was launched earlier this month by the Financial Services Council (FSC), and was in the AFA’s sights “right from our first discussions with the Life Insurance Advice Working Group”.
Fox says the first iteration of the code, released by the FSC in early October, is a good start but does not go far enough. For example, he says, it does not adequately address the role of financial advisers who, collectively, write more than half of all new life insurance business in Australia every year. He says the AFA has made 29 recommendations to the FSC that it says will give financial advice, and the role of financial advisers, appropriate prominence in the code.
Strong vein of empathy
Fox says the AFA board’s approach to handling the emergence of the LICG was informed by its experience with “the earlier parts of the FoFA debate, when Bill Shorten was minister [for financial services and superannuation], and the AFA – and that included myself at the time, as the new president – made mistakes in playing some of the FoFA issues personally against the minister”.
“It wasn’t an effective way to do things,” he says, and a lesson from that experience was to remain focused on issues, and leave personalities out of it.
“And that meant not ostracising those who had opposition to the framework,” he says.
As the legislative process continued, some advisers continued to feel their concerns had not been properly heard or acted upon by the AFA, and Fox says the board was very careful not to delegitimise that sense of disenfranchisement.
“Great advisers have a strong vein of empathy,” he says.
“Our board was very empathetic about whom it was going to affect, and how it was going to affect them. They were very cognisant of that. Rather than playing the man, or playing the people who were opposed to the framework, we chose to play the issue very, very straight.”
Fox says the board of the AFA was acutely aware that “this is a very challenging period of change for advisers, who may have had 20, 30 or 40 years of operating, within the law, on upfront commissions”, and who are now being told that what they do is no longer acceptable.
These are individuals whose success and standing in their communities has been built on a certain – and as Fox stresses, legal – way of doing things and he says it is easy to see how they may be “personally affronted by the reforms”.
“We just had to be very aware of that,” he says. “Change is not easy. It never is. And changes that feel like they are forced on you often lead you to want to blame someone. The board acknowledged that these are real emotions to have.”
But Fox says the board ultimately had to strike a balance between acting in the public interest and protecting the interests of the AFA itself. He says it would have been simple to oppose the reforms because they were not popular with sections of its membership, but that was neither in the public interest nor in the longer-term interests of preserving the AFA’s status and aspirations to be a professional association.
No ‘stick-wielding’ professional body
He says the balancing act is “likely to be tested again” in coming months as debate and consultation ramps up on the Corporations Amendment (Professional Standards of Financial Advisers) Bill.
“As people, when we are tested and we get through the toughest periods, we often come out stronger,” Fox says. The AFA has designs on becoming a professional association and, under the professional standards legislation, to be recognised as a body capable of monitoring its members’ compliance with the planned industry-wide code of ethics.
Fox says monitoring members’ compliance with a code of ethics will require “a big culture shift” for the association and its members.
“Not that we do not want to hold our members to account for high professional standards, but to become a proactive compliance monitoring body necessarily shifts how we interact with our members,” he says.
To date the relationships have been “collaborative and collegiate, and it’s good that we still have that in our makeup, because that peer-to-peer learning is the most effective learning you will ever get”.
“We won’t become a stick-wielding professional body,” he says.
“But there has to be a price you pay for failing in your duty to comply with high standards.”
And the AFA isn’t the only association that sees a role for itself in the new world of adviser education and ethics. Fox says it is likely there will be more than one association that represents financial planners in future, and says mergers are unlikely for reasons both pragmatic and philosophical.
Any such proposal would require a 75 per cent majority of the members of the associations involved, he says, and “I do not think we are in a position where that would even get close to being achieved”.
Not limited to one association
And he says there are philosophical reasons for having more than one professional association, in any profession. Choice is good; and so is “healthy competition” between associations, to avoid the problems of complacency that invariably arise within monopolies.
“[Competition] keeps us keen and keeps us competing for the hearts and minds of advisers,” Fox says.
And on issues that cross association boundaries and address bigger concerns of the public interest and consumer protection, associations can work together effectively.
“The AFA and the FPA have in the last 12 months worked very strongly together on the Life Insurance Framework and professional standards and some of the other issues that are bubbling along in the background,” he says.
“On the flipside, there are other bodies that want to divide and conquer the more professional associations to fuel their own growth. That isn’t professional competition and, from our point of view, isn’t healthy.”
