The ability of financial planners and the associations that represent them to shoot themselves (and one another) in the foot ceased to be surprising a long time ago. It has become one of the industry’s defining proficiencies. What remains entertaining is the creativity with which it continues to be applied.
Since last Friday’s quick quiz seemed to go down well, here’s another one. See how you go.
Question 2: Advice delivered in a client’s best interests should be:
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If the rounds fired off in the last week or so are a reliable guide, the answer is b).
The Australian Securities and Investments Commission (ASIC) set this particular rabbit running a week or two ago when it came out and said an adviser or firm can’t use the term “independently owned” anymore if it does not comply with Section 923A of the Corporations Act.
ASIC’s rationale was straightforward: terms that might make a consumer think the advice they’re getting is independent can’t be used if the adviser in question doesn’t meet the definition of independent.
So far so good, and so uncontroversial.
So how did the industry react? It took aim at the ASIC rabbit and … well, you get the picture.
First, it asserted that independent advice can’t be delivered profitably. Then it said the law should be changed to ease the definition of independent, presumably so that some conflict is OK and conflicted advice can be passed off as independent.
By early this week, it looked like the whole thing could be headed towards the courts, so it just kept getting better.
(The other thing the debate about independence has revealed is there should be a variation of Godwin’s Law stating that if a discussion goes on for long enough, the probability of someone raising a comparison involving President Donald Trump approaches 1. That might be a story for another time.)
This is one of the key quotes from the debate so far: “Section 923A of the legislation is unnecessarily restrictive as, in practice, there are very few licensees and financial advisers in Australia who would qualify under this strict definition.”
Few advisers fit the definition of independent, so the definition should be changed. You have to admire the chutzpah. It springs from the same mentality that says every kid running in the race should get a ribbon just for taking part. Not, ‘Yeah, that’s a good, stringent test, and let’s aspire to independence, impartiality and lack of bias.’ Instead, ‘Your advice is conflicted and you can’t call yourself independent – but it’s not your fault. It’s the big, nasty law’s fault. Let daddy fix it for you.’
Make no mistake about it, what’s going on at the moment is a test for an industry that has grown up on a diet of conflicts and the practice of turning a blind eye but now has pretensions of becoming a profession.
The world is watching
You’re kidding yourself if you don’t think how the industry responds is being watched by regulators, consumer groups, standard-setters and, yes, the media – and not only Professional Planner. If the industry fails this test, then it calls into question whether it’s fit to proclaim itself a profession or to be treated as one.
Consider the message it sends the public when an industry states, “We can only survive if the services we provide are conflicted. We can’t make a quid unless we receive commissions or volume-based payments, receive other gifts or benefits, and have conflicts of interest or are influenced by product issuers.”
In what alternate universe could such an occupation possibly be described as a profession?
And so, for the third week in a row, we find ourselves considering the first obligation of a profession – its paramount duty to act in the public interest. By extension, it is the first duty and obligation of a professional association to act in the public interest.
It is in the public interest that financial advice be independent, impartial and unbiased. It follows that it is not in the public interest that financial planning be conflicted.
So when faced with the question of whether advice should be independent and delivered in the public interest, the response of an association should be pretty simple: yes. When asked if the law should be changed to dilute the meaning of the term independent, and to allow conflicts to creep in, the answer should be just as simple: no.
A real professional association has no choice but to put the public interest ahead of the interests of its members.
Meanwhile, back at the shooting range, we heard the extraordinary claim that the only way S923A-complaint advice businesses can make a profit is essentially to circumvent the Future of Financial Advice (FoFA) laws and advise clients to set up self-managed super funds and invest in property.
Positive steps
Members of the Independent Financial Advisers Association of Australia (IFAAA), for one, understandably find that suggestion downright offensive, not to mention laughable. They are living, breathing proof that genuinely non-conflicted, independent advice businesses are viable. More than viable. They thrive.
A financial advice referral program set up by the Australian Defence Force (ADF) is stocked with advisers who must sign a statutory declaration that they will not receive conflicted remuneration in their dealings with ADF personnel. A stat dec is a serious thing on its own, but one imagines that you piss about with the Army, Navy and Air Force at your peril.
Meanwhile, the Accounting Professional and Ethical Standards Board (APESB) is in the process of reviewing Accounting Professional and Ethical Standard (APES) 230, covering members of CPA Australia (CPAA), Chartered Accountants Australia and New Zealand (CAANZ), and the Institute of Public Accountants (IPA) who provide financial planning services. While APESB backed off once before on a standard to eliminate conflicts, there’s growing optimism that the new board conducting the review might change that.
To suggest advice has no value in its own right is an extremely odd position for an adviser association to take. It does advisers themselves no service to tell the public the only way they can survive is by being conflicted. And it doesn’t serve the public interest to lobby to change the law to water down a definition of independence so advisers’ interests can be put ahead of the public interest and that of clients.
