Keep pushing for reform, whether legislation keeps up or not

The recently enacted Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 threatens to change the financial advice industry profoundly.

The act aspires to change the industry and restore public confidence in financial advisers.

Whether you consider this to be a “landmark reform” or an “ill-formed, illogical and untested” proposal may simply be a matter of perspective and self-interest. Legislative reform creates both winners and losers and some advisers will fall into both categories.

But the act does not address the elephant in the room: vertical integration and the insidious impact it has on advice quality.

Financial advisers need to look beyond this legislation and address the real challenges to the emergence of an advice profession – conflicts, capability and confidence.

Unfortunately, the act focuses on agents, rather than principals, and the focus is deliberate. In fact, its emphasis on professional standards is an implicit acceptance of the ‘bad apples’ theory too often used to normalise cultural failures.

Will the Professional Standards Act deliver the desired change or simply entrench existing interests? The act is transformative. It outlines restrictions on entry and new requirements for formal tertiary qualifications. It imposes a period of supervised practice on new advisers. These are laudable initiatives, modelled on those in existing professions, but will they address, and improve, adviser capability or will they simply entrench existing interests?

Is the government focusing too much attention on “bad apples” and too little on those packing the barrels? Three key risks could undermine the effectiveness of the Professional Standards Act:

1. Time: The compressed timeframe and ambitious agenda increases the likelihood that Standards Body decisions will be driven by their timetable and not allow for adequate consideration and analysis
2. Consultation requirements: The obligation to consult with the industry on the proposed changes is undermined by the act’s recognition that a failure to consult does not invalidate any legislative instruments made by the standards body
3. The composition of the standards body board: the standards body board will probably be stacked with the usual suspects, predictable players with entirely predictable views and entrenched partisan positions.

Financial advisers may have limited capacity to influence the standards body but we do have both the opportunity and obligation to shape the future of continuing professional development.

We should not be too critical of legislation that attempts to drive an often recalcitrant industry towards being an advice profession. We should, however, be frustrated by reforms that may do little more than apply a veneer of professionalism over a model riddled by conflicts, bad incentives and poor accountability measures.

The solution to these problems, and many others, may not be “professional standards” but an accountability regime for licensee management.

Even if an accountability regime is unlikely, now is our chance to help guide the future of our industry. Lobby the government to focus on the real issues, talk with your association and discuss the challenge of professionalism with your peers.