Recently, I wrote about the path to a profession and introduced the concept of a scorecard for measuring progress along this path. The scorecard focused on three key measures:
Like finding your way through an orienteering course, for each of these measures of success, there are a number of specific markers that will show you are on the right path. This article speaks to the first of these critical factors, community, and discusses these markers in a little more detail.
Firstly, let’s consider why the community is important in terms of our path to a profession.
Community standards have evolved rapidly in the last 10 years. This has been driven by numerous well-documented product, advice and governance failures since the collapse of Storm Financial in 2009, resulting in major reforms including Future of Financial Advice, the Life Insurance Framework, Stronger Super, minimum adviser education standards and introduction of a self-funding regulatory model.
The community now expects financial advisers to be highly qualified professionals who can be trusted always to act in their best interest.
There are other important trends in play. Information arbitrage is rapidly disappearing and consumers are becoming more empowered to understand their wealth, through technology. In short, consumers are more knowledgeable and have more purchasing power, and thus have higher expectations of their advisers (in whatever context) than ever before. As technology continues to evolve and information remains available anywhere, anytime to inform consumer decision-making, the landscape keeps shifting.
Taking all this into account, how can the industry respond in order to build and sustain community trust?
This is a question of governance and leadership. Directors and senior executives of organisations that choose to participate in the wealth-management sector must turn their minds to the key issues that enable their organisations to build and sustain this trust.
I’ve written about this previously, introducing the concept of social licence – our implicit licence to operate. This is what we are talking about in the context of community trust.
Infocus’ ‘Path to a Profession’ model identifies the following questions related to building community trust:
- What is the company’s approach to ethics, risk management and compliance? How does this take into account community expectations (as expressed by community, government and regulators)?
This question goes to culture in the context of ‘how we do things around here’.
Firstly, ensuring relevant and contemporary policies and procedures are clearly documented and understood right across the organisation is critical. This includes having these policies and procedures in place, supported by training in ethics, risk management and compliance as part of the organisation’s employee induction and ongoing professional development processes.
Having said that, this goes well beyond what I would call structural elements, as described above. It is all very well to ensure that the right statements are being made in key documents such as annual reports and the like but what matters is what happens on the ground.
Setting the tone from the top is key to demonstrating what it expected in terms of ethical, compliant behaviour that meets an organisation’s defined risk tolerance. The behaviour of senior executives (and boards of directors) delivers a powerful example for how team members will behave right across an organisation.
Thus, how the organisation responds to the words in its formal statements of ethics, risk management and compliance will dictate its true view of these critical factors. Putting it simply, it’s what you do, not what you say, that matters.
- What reporting is in place to measure and monitor ethics, risk and compliance? Who owns these within the company?
This question is about accountability as essential to creating and sustaining a positive and inclusive culture of professionalism.
People from right across the spectrum of an organisation will be working with clients and peers in the advice process. Senior executives must ensure that appropriate reporting is in place to identify and escalate any underlying issues of concern quickly. As the old adage says, “What’s measured is managed.” Ensuring that executives and team members have a balanced performance assessment scorecard that takes into account ethical, compliance and risk-management factors is critical to creating and sustaining the right culture. Ideally, performance in these areas will have implications for executive remuneration, just to keep people focused!
The organisation’s governance model must provide the opportunity for team members to blow the whistle without fear of negative ramifications. This includes access to directors to share feedback, preferably with independent non-executive directors who have no material interest in the matters being raised. Appropriate separation of duties is another important piece in the puzzle for ensuring good governance.
By way of example, Infocus has adopted the ASX Corporate Governance Principles in its governance model. Having an independent non-executive chairman of the board, and independent non-executive chairs of each board committee, and a majority of independent non-executive directors on each of these bodies, provides valuable checks and balances to ensure the right culture is being developed.
- What is the company’s approach to stakeholder engagement? How does the company engage the communities in which it works?
How an organisation engages with the communities in which it works is another important indicator of culture. Proactive community engagement can take many forms; for example, pro-bono professional advice and staff giving programs. The key is understanding whether there is something deeper than simply a profit motive at play within the organisation, which gives a powerful insight into how the organisation views its role within the community.
Providing financial advice that empowers clients to live their best life is an honour and a privilege, as well as a responsibility. Infocus’ path to a profession scorecard allows us to measure progress towards our ultimate goal. This also allows us to adjust course along the way in response to outcomes our key stakeholders experience.