Why do professional bodies exist? After all, in most professions, a person can achieve the relevant qualifications to practise without being a member of any association. Many practitioners, especially in the financial planning industry, choose not to join one.
Pose that question to the average member and you’ll be told that the principal purpose of a professional body is to serve and defend the interests of the fee-paying membership through lobbying and advocacy. This will also be the response of many board directors of these bodies who believe that their role is to engage in a never-ending quest to remain relevant and that the principal way to do that is to defend and enhance the careers, reputations and interests of the base (rather like a politician).
We see this attitude playing out regularly in ‘Join the Conversation’ sections of financial services industry e-newsletters. A typical scenario goes something like this: A colourful opinion piece is published on a controversial issue such as education requirements for advisers. Reminiscent of talk-back radio, tirades of abuse follow from anonymous sources claiming incompetence by professional associations and demanding immediate action to act to stop whatever it is these commentators have decided is a conspiracy against their best interests. Threats of resignation and statements about the worthlessness of industry associations usually accompany these outbursts.
There are many problems with this “members’ interests” approach to the existence and purpose of professional bodies, not least of which is that the interests of members are varying and conflicting. As a result, associations are either inclined to say nothing about issues on which they should have a public position, or to say something that is mealy mouthed and meaningless to avoid offending some members. Worst of all, they sometimes feel obliged to adopt a line that the best-organised, most powerful and noisiest members support.
The saga of APES 230
An excellent example of the latter in recent decades is the extraordinary attitude of the professional accounting bodies towards the receipt of conflicted remuneration by their members (including commissions, asset fees and product sales incentives). Based on the profession’s overarching mandatory ethical standards requiring unqualified objectivity and independence (APES 110), a decision by the accounting bodies to oppose conflicted remuneration arrangements should have been a foregone conclusion. Instead, when the profession’s own independent standard-setter, the Accounting Professional and Ethical Standards Board (APESB), tried in 2012 to introduce what should have been an uncontroversial code of ethics for members offering financial planning services (APES 230), a small but well-organised and vocal group of members, backed by institutionally owned dealer groups, prevailed upon the professional accounting bodies to demand of the APESB that the draft code be withdrawn, diluted and re-issued. This was done in 2013 and caused the standard to be ethically compromised, ineffective and substantially ignored by the members of the profession. It remains so today.
Four years later, in 2017, the APESB commenced a review of APES 230, to re-examine the possibility of introducing a phased-in ban of all forms of conflicted remuneration, just as it had decided to do in 2012. Surely the professional accounting bodies would be “on board” this time, given the dreadful reputation of the financial planning industry, the prospect of a royal commission looming and the much wider acceptance in the industry that planners should operate only on a genuine fee-for-service basis. Regrettably, the accounting bodies opposed this reform once again, thereby openly repudiating basic ethical standards that all members (except, it seems, members offering financial planning services) are expected to follow on pain of severe disciplinary action. The lame justification the accounting bodies offered was that while they (unenthusiastically) accepted the principle that members should not receive conflicted remuneration, this was not the “right time” to mandate such a requirement. A classic case of having your cake and eating it, too, or to quote the words of a young St Augustine of Hippo: “Lord make me holy, but not yet.”
The saga of APES 230 is a case study in how a once trusted occupation has forgotten or marginalised the meaning and consequences of the word ‘profession’. The accounting bodies still widely use the rhetoric of ethics but their resolve to articulate and enforce ethical standards in the public interest, at least in the discipline of financial planning, has been substantially lost – especially when to do so might detrimentally affect members’ commercial interests.
Ethics matter more than ever
It has been suggested that the principal reason for this shift is the large number of accountants in the 21st century who are in commerce, as opposed to in practice. The argument is that traditional ethical standards are less relevant to employed members whose principal role is to accumulate funds under management, sell products, make profits and support the share price of their employer. I acknowledge that argument; however, I submit that traditional ethical standards are as important as ever, if not more so, in a ‘free market’ business environment in which trusted, independent and objective advice is highly prized. Failure to recognise this reality will cause professional designations to be gradually devalued in the minds of employers, clients and members, especially younger members, whose admirable idealism places a high value on the reputation of professional designations.
The recent history of the accounting profession offers important lessons for all aspiring professional bodies in the financial planning industry. The principal lesson is that a true professional body must understand the meaning and consequences of the term ‘profession’, including the fundamental significance of creating trust by removing (not just disclosing) conflicts of interest. Until that happens, members’ funds spent on marketing of professional designations and the building of professional reputations will amount to nothing more than expensive rhetorical flourishes.
Of course, I do not underestimate the challenge that comprehensive action against all forms of conflicted remuneration creates for the aspiring professional bodies in the financial planning industry. But unless they act decisively (or are forced to do so by law), the discipline they represent will never be accepted as an example of a true profession and members will increasingly ask themselves why they should bother to pay fees for a designation of limited and reducing value.
Given the recent, disappointing history of the accounting profession, I must admit to having found myself contemplating the value of its membership bodies, which continue to disavow their most basic ethical principles in order to support the commercial interests of a minority of members whose conflicted behaviour has diminished the value and reputation of their proud designations.