The advice industry’s professional associations have received a poor review from Commissioner Kenneth Hayne in his interim report.

The report notes that while both the Financial Planning Association and the Association of Financial Advisers “seek to advance the cause of financial planners generally”, the evidence brought before the commission “did not show that either the FPA or the AFA now plays any significant role in maintaining or enforcing proper standards of conduct by financial advisers”.

Hayne particularly singled out the FPA for its treatment of the Sam Henderson case.

Hayne seemed to take the view that the associations have the right intentions, saying that “each seeks to promote the creation and growth of financial planning and advice as a profession”. However, if “promoting the profession” is the core function of the associations, it sits “uncomfortably with [characteristics] of effective discipline that include objectivity, consistency, and compulsion”, Hayne wrote.

This finding is consistent with the reaction of AFA chief executive Philip Kewin during the royal commission hearings, who admitted on the stand that there was “tension” between the twin functions of representing members and wielding discipline against them.

Hayne devoted the largest portion of his breakdown of industry representation to the FPA’s handling of the Sam Henderson case, concluding that the treatment of the complaint made against the disgraced adviser “did not encourage great confidence in [the] FPA’s disciplinary arrangements”. Further, Hayne noted that the disciplinary process was “prolonged, opaque and directed more to settling an agreed outcome to the complaint than imposing proper standards of conduct by members”.

Again, despite chastising the associations for their lack of disciplinary vigour, Hayne was careful to note the reasons behind it. “The only compulsory sanction available to the FPA is to expel members,” he wrote, or to “threaten to publicly name them as the subject of its proceedings”.

The AFA is in a similar position and has “only two disciplinary matters since 2013, both of which resulted in a reprimand”.

Hayne even went so far as to mention ways the associations had made their disciplinary function more robust, saying that “both FPA and AFA now have processes and systems for disciplining members”.

He also pointed out, however, that while advisers are generally not required to hold membership in any association and are free to switch between them, memberships are the chief source of revenue for the associations, the implication being that actively disciplining members would be at cross-purposes with the associations’ commercial viability.

Hayne concluded the section by confirming – for the first time publicly – that both the FPA and the AFA have applied to be ethics monitoring bodies under the Corporations Act.

“The monitoring bodies will play an important part in setting the tone and the culture of those who act as financial planners,” he wrote. “Much will depend on how they perform those tasks.”

 

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Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.