When Professional Planner was conceived in 2007, we could not have foretold how far the financial planning industry would come in the following decade. That said, even before 2007, the need for radical change in the industry was obvious to most – though not necessarily for all those most deeply embedded within. It could not continue as an industry with conflicts of interest baked into its structure at many levels and lacking clear and stringent education requirements. It was, in many respects, little more than a glorified product distribution mechanism for fund managers.
Some of its shortcomings were brutally exposed during the global financial crisis, which spurred regulators and government into action and kick-started a process that continues even today. The legislated overhaul of financial planning has mirrored in many fundamental and critical aspects the very changes Professional Planner called for from day one.
There is no doubt that regulation and legislation have exacted changes that would otherwise have taken far longer in the face of such deep-rooted and powerful vested interests.
But change would not have happened at all if not for the sheer energy and intellect applied to the issue by a number of individuals – far too many to name – who, over many years, have led the industry into uncharted territory, either as individual advisers, licensee heads or association representatives.
Over the course of the last decade, it has become abundantly clear that the resolve and collective will of the financial planning community to change for the better has strengthened and attained unstoppable momentum. Many of the critical changes to the industry as it strives to become a profession have come from within.
So here we are, 10 years and 102 editions later, looking back over some of the milestone topics that Professional Planner has covered in the first decade of its existence. Lists such as this are almost impossible to compile. What to choose – and, more problematically, what to omit – from the literally thousands of articles that have been published since October 2007? And that’s even before considering articles that have been published online, and also before
the dozens and dozens of profiles of individual advisers, their businesses and their clients.
Here, though, is a selection (compiled with an attempt to avoid recency bias) that broadly represents what Professional Planner has covered, stood for and advocated in financial planning. They are selected because they were fun to write, because they generated discussion among readers, and because they tried to bring a different perspective to some perennial issues. The list is by no means exhaustive, but compiling it has been exhausting. Enjoy.
Professional Planner launches with a clear explanation of its position on
ethics, professional standards and education. Right from the start, the
focus was on conflicted remuneration and structural conflicts within the
“When one thinks of professions, doctors and lawyers come to mind,”
the issue states. “If financial advisers wish to be viewed by society in the same way, education and fee principals must meet similar standards.
“Product commissions, volume rebates, fee-for-service remuneration based on assets under advice none of the former allow for unbiased, full, holistic advice, which may not even prescribe a product.”
These themes remain relevant today, even if legislative reform has cleaned
out much of the conflict that existed in 2009.
There was no messing around when Jo-Anne Bloch took the stage to address the Financial Planning Association (FPA) national conference in November 2017. No “Good morning”. No “Nice to see you”.
No “Welcome to Sydney”. Just straight into it with a blunt statement: “Last Saturday marked the start of a new era for Australia.”
“Last Saturday” had been the date of the federal election, when a Rudd Labor Government had been returned to office. The FPA’s chief executive says the date also marks the dawn of a new era for financial planning. It is the first of a few false “new dawns” for financial planning over the past 10 years, but Bloch’s blunt advice to her membership succinctly lays out the challenges that will characterise the debate over standards and conflicts for the next decade.
Bloch is one of only three people to helm the FPA during Professional Planner’s lifetime, and her tenure marks a period when the realisation gradually dawns on the association’s membership that professionalism requires quite a lot more than wearing a good suit, working in a nice office and not actively ripping off clients.
Labor MP Bernie Ripoll drops into the Professional Planner offices to take part in a roundtable with industry representatives. As chair of the Parliamentary Joint Committee (PJC) on Corporations and Financial Services, Ripoll has been briefed to look at financial products and services in the wake of the collapse of Storm Financial and other advice and product failures.
While his work and that of the committee will lay the foundation for the Future of Financial Advice (FoFA) laws, he tells the roundtable that “regulation is not ‘the’ solution; nothing is ‘the’ solution”, and he urges the industry to strive for higher education and professional standards. Ripoll is keen to canvass as many views as he can.
Pressed on why financial planners get such bad press compared with accountants, for example, he makes the telling comment: “When the accountant goes bad it’s on the front page, ‘Accountant rips off …’ and everyone goes, ‘Bad individual.’ When a financial planner does it, they go ‘Bad sector and industry.’ ”
The man responsible for launching the PJC inquiry into financial products and services, the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, faces the industry to explain the government’s thinking and to face questions from a range of industry representatives.
Over the course of a lengthy discussion, Bowen says the government recognises the value of financial planning and wants it to be professional and trusted, and that means it needs not only to be free of conflicts of interest but also to be perceived to be free of conflicts of interest. But that’s not how the public perceives it, he says, so a review of the regulation and structure of the sector is necessary.
“So how do I see financial planning and the financial advice industry working?” Bowen says. “It’s quite simple. It works on a basis that the advice is given with no view to the remuneration of the financial planner, and it can’t be perceived to have any view to the remuneration of the financial planner. That might sound like it’s a generality, but it’s what it all boils down to at the end of the day.”
Shadow assistant treasurer and shadow minister for financial services and superannuation, Mathias Cormann, says the government has “taken the opportunity of the issues that arose out of Storm and Westpoint to come up with a whole range of proposed changes that have got nothing to do with the problems that arose in the context of Storm or Westpoint”.
The FoFA provisions will add to red tape, cost and complexity, and the consumer protection benefits are unclear, Cormann says.
Shadow treasurer Joe Hockey says financial planners faced a choice – either be a profession or be an industry – and “to their great credit” chose to be a profession. “The financial planners did a lot of damn hard yards and they lost a lot of skin, a lot of skin, and I’m forever grateful to the financial planners” for the work they did in lifting their game, Hockey says.
Cormann says enshrining the terms “financial planner” and “financial adviser” in law is a good idea in principle.
“It’s one of the steps towards increased professionalisation of the financial advice industry,” he says. “It’s a good journey that the industry’s on, and it’s one that should continue. That could be one of the steps.”
As the argument over the details of FoFA rages, Mark Rantall from the Financial Planning Association (FPA) and David Whiteley from Industry Super Network (ISN) take a break from hostilities to sit down in the Professional Planner office for a discussion of the points of agreement and difference that remain between the financial planning industry and the industry superannuation movement.
While not quite a “peace in our time” moment, as the discussion progresses, it becomes clear the two “sides” are in agreement on more issues than either realise, and that they’re coming at similar issues from different directions, which gives rise to different attitudes towards regulation.
Reflecting on the discussion, Professional Planner writes: “The FPA believes that its members should be held to higher standards of behaviour and ethics than non-members; ISN knows that more than half of all financial planners aren’t members of the FPA, so the only standards those planners will be held to are those enshrined in law.”
And on one thing they are in furious agreement: both firmly but politely decline Conexus Financial chief executive Colin Tate’s request to be photographed for the article wearing boxing gloves.
FPA chair Matthew Rowe and chief executive Mark Rantall reflect on the 20th anniversary of the creation of the Financial Planning Association from the merger of the International Association for Financial Planning and the Australian Society of Investment and Financial Advisers. Both are quick to credit the great work of former FPA chief executives and chairs in navigating the merger and development of the association.
After 94 per cent of FPA members vote in favour of restructuring to become a practitioner-only association, Rowe says the FPA has “moved from being an industry association to being a professional body. Some people may not understand the gravity of that, but it is significant.”
Rantall adds: “Part of a profession is around financial planner behaviour, and the proof point of when we’ve reached that end of the professional journey – if there is such a thing – is that the public bestows that privilege on us.”
In the most comprehensive review of financial regulation (since the last one, and before the next one) the head of the Financial System Inquiry (FSI), former chief executive and chair of Commonwealth Bank, David Murray, discusses some of the implications for financial planners.
Murray raises the concept of self-regulation or co-regulation by a financial planning profession as a way to improve trust and protect clients’ interests.
“You wouldn’t rule it out,” he says. “Some professions do a great job. Disclosure and financial literacy are not of themselves sufficient in [establishing] the client’s best interest”, and “you need something more”.
That might involve the forcible separation of product from advice, a concept that doesn’t faze Murray.
“They’d have to sell their businesses or do something,” he says. “That wouldn’t worry us.” Murray touches on the (hypothetical) concept of dismantling the current licensee-authorised representative structure as a way of focusing vertically integrated institutions more closely on the behaviour of their advisers.
And he hints at the establishment of a body that would later emerge in the form of the Financial Adviser Standards and Ethics Authority (FASEA): “You can pick up what’s done in other professional systems, where there’s a body that figures out what are the entry requirements in terms of formal qualifications and other tests,” he says.
Simon Longstaff, executive director of the St James Ethics Centre, explains that only by understanding ethics at its most basic level can it become part of the new normal that the industry so desperately needs.
Behaving ethically “is not to say that everyone should throw themselves onto the funeral pyre of integrity, because all you end up doing is making a few brief, beautiful sparks and you’re gone,” he says. “I think some people think being ethical is like being this little fluffy rabbit that people like to pat, and you sit on the roadway of life and the big truck called reality is bearing down on you, and your last pat is just before you’re destined to become roadkill. It’s not like that at all.”
Longstaff says there’s a clear hierarchy of duties that a professional owes: first to society, “then there’s a duty to your client, then there’s a duty perhaps to your profession, and on the bottom rung is your duty to yourself”. He adds: “The transition from being a member of a market guild or union, or some group, into the professions is a major, major change, because all of the world in which we live, for the most part, is operating according to the market ideology of ‘pursue your self-interest, leave it to the invisible hand, satisfy wants, and you’ll be fine.’ ”
A former chief justice of the High Court of Australia, Anthony Mason, says he has no doubt that financial planners ought to aspire to professional status. Pursuing the “professional ideal” would stand the industry and its practitioners in good stead, he says. And other professions serve to demonstrate both how that can be achieved, and why it’s desirable.
An obvious parallel between financial planning and Mason’s own profession, the law, is that “the public, the consumer, is dependent upon their expertise”. Mason says it takes a commitment to “high personal standards and hard work” to achieve the status of a professional, and to maintain it.
“It seems to me these days everyone calls himself a professional, but that wouldn’t be my justification for saying a financial planner ought to aspire to professional status,” Mason says. “It seems to me it’s a very important activity; it seems to me it involves very serious responsibilities; and it seems to me the clients of financial planners are in a situation of dependence upon expert, competent advice.”
The chief executive of the Association of Financial Advisers, Brad Fox, reflects on a period of turmoil during which he and the AFA board faced down a revolt from a small but vocal group of their own members opposed to the Life Insurance Framework (LIF) regulatory changes.
Fox says the AFA drew on previous experiences, particularly the FoFA debate, and avoided playing the man, instead keeping its eye on the ball. And it also drew on what it had learned about how to play nicely with others.
“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.”
The ultimate test of raising standards in financial planning is in how well practitioners meet the needs of clients. The largest-ever shadow-shopping exercise, conducted by CoreData, reveals a financial planning industry struggling to deliver a consistent client experience. Some advice networks perform strongly, while others continue to get even simple things wrong – take, for example, the client who books an appointment with a bank planner at 4pm and arrives at the branch only to find it closed.
On the other hand, CoreData finds that some licensees achieve a high level of engagement and deliver a strong customer experience consistently across all of the practices in the network. The problem for the industry is that a customer’s experience is still very much down to luck, and which branch, practice or individual adviser they happen to contact first.
If the leader of the opposition, Bill Shorten, becomes prime minister at the next election, one of the first commitments he’ll keep is to launch a royal commission inquiry into banks.
“We’ve tried just about everything else, haven’t we?” Shorten says, in an interview in his Parliament House office in Canberra. Such a powerful inquiry is needed to address “a pathology in elements of the banking sector and the financial services industry of a lack of accountability”, he says. “Too many problems occur too often. And every time it does, we all get the mea culpas and they say it won’t happen again, until the next time.”
Shorten, a former minister for financial services and superannuation, says the FoFA reforms, and higher education, professional and ethical standards for financial planners, are OK as far as they go, but shouldn’t have been so difficult to enact and should not have taken so long. “I feel bad for the people who’ve been ripped off. Historically, in the meantime, and even now,” he says.
Even though both sides of politics say they’re committed to agreeing on what
the purpose of superannuation should be, a definition remains elusive. But one thing is for sure, Shorten says and that is “it wasn’t created to make the banks rich”.
Shorten pledges to address shortcomings in the superannuation system for women, and to ensure the separate policy issues of retirement savings adequacy and home ownership don’t become confused and intermingled.
The one that got away: Professions in society
Referencing a 2000 journal article, “Professions in Society”, written by Claire Bellis and presented to the Institute of Actuaries in the UK in 2000, the then-managing director of Count Financial Group, Andrew Gale, sets out in clear and unambiguous terms what a profession looks like.
He outlines how and why a profession is in a better position to co-regulate or self-regulate than an industry, and the specific structure and role of a professional association. Gale’s presentation becomes a touchstone for Professional Planner over the following years, and a benchmark to measure associations against. It is why we could – and still can – say with confidence that there is no professional association for financial planners, and also how we know which associations are closest (and which are furthest away) from achieving this status.
Unfortunately, technical gremlins struck during a migration of the Professional Planner website to a new server, and the article – part of a four-part series on elevating advice into a profession – has been lost.
Editor’s note: Looking back on the issues these articles come from, a horrible fact becomes obvious: the covers are dominated by men. In an industry that boasts such a significant number of skilled, professional and capable women, that’s inexcusable. Professional Planner and Conexus Financial are committed to gender balance in our publications and events; we pledge to our readers – especially our female readers – to do better
in the coming 10 years.