Deen Sanders is nothing but complimentary about his ex-employer, but he says helping advisers meet new education and ethics guidelines means more to him than simply writing them.
When Sanders resigned as chief executive at the Financial Adviser Standards and Ethics Authority in April, after only eight months at the helm, there were questions about both his reasons for leaving and the fate of the new regulatory body. They remained unanswered for some time; FASEA worked on the standards in relative seclusion while Sanders adjusted to a new role as a partner in governance, regulation, conduct ethics and professionalism at Deloitte.
Sanders spoke for the first time since leaving FASEA at the Financial Services Council’s conference in July and has ramped up his engagements since. Last week, he published a paper, The Thick Edge of the Wedge, which charts a path for an industry on the brink of massive upheaval.
As for why he left FASEA, Sanders says he ultimately preferred shaping tools over making rules.
Compromises and challenges
In his short time running the standards body, Sanders quickly realised that setting professional standards and ethical expectations would only be the precursor to change.
“My job was to assist with the establishment of the framework, but it was very clear to me that the industry would need direct support in bringing that regime into place, and in making sure that it [became] not just a new regulatory problem but a potential professional solution,” he explains.
Deloitte offered Sanders the opportunity to lead a team dedicated to thought leadership and support for advisers, something linked to – but outside of – FASEA’s mandate.
“I wanted to go the organisation that could best help advisers to make the changes,” he says. “I wanted to build the best tools, and FASEA’s job isn’t to build those tools; FASEA’s job is just to write the standards.”
Sanders avoids any negativity towards FASEA or its new chief executive, Stephen Glenfield. He describes the FASEA board as “driven and committed”, and says that while there are clearly “compromises and challenges to navigate in the process”, he is “absolutely confident” they will get the job done.
He just wants to get a different job done.
“I didn’t want to become part of just another standard setting process,” Sanders explains. “I wanted to, instead, become part of the solution for the industry, to embrace the changes and move forward with a new opportunity.”
‘An aberration of capitalism’
In his new role, Sanders has been given a “fairly free hand” to open up new ways of thinking about how professionalism, ethics and financial services can fit together.
The new paper leans into this objective, mixing the topical – the Hayne royal commission’s interim report and the recently released FASEA Standards Summary – with more overarching themes such as truth and community.
“Through the confronting lens of victims, [Hayne’s interim report] draws conclusions about the standard of ‘community expectations’ and cuts through years of cascading scandals to shine a light on the state of the industry and expose the very bones of capitalism,” he writes.
Sanders believes capitalism – especially in financial services – works best when there is honesty behind it.
“Hayne hasn’t said that advice is wrong or financial products are wrong,” he says. “All of the anxiety comes when we as an industry have not been truthful, like when we’ve charged for services not delivered. That’s not an indictment of capitalism, that’s an aberration of capitalism.”
He believes Hayne won’t advocate new laws, and instead will push for existing ones to be enforced differently; however, a new government “may think very differently about whether the regulatory structures they have are the right ones for this new expectation of community standards”.
Sanders predicts these structures – inlcuding the Australian Competition and Consumer Commission and ASIC – will be in line for a shake-up.
“We’ll see an expansion of capabilities in the ACCC and a narrowing and focusing of activities in ASIC,” he says.
He says advisers are asked to compare too many products and advocates the concept of a “product safety regulator” to moderate provision of simple financial products. He also argues for a “therapeutic administration model”, which he describes as a “swim-between-the-flags safe zone for consumers to determine their products”.
On conflicts within advice, he refers to a paper submitted to the royal commission by US academic Sunita Sah, where she argues that disclosure is a poor defence against conflicted remuneration.
“Disclosure obscures the salient facts more often than not,” he says.
Sanders says that while the disclosure model is “a complete failure”, more nuanced versions like the stark disclosure model used in northern Europe “might apply a more useful lens”.
Best-interests duty, he says, is already being re-engineered by FASEA.
“The new code gets right away from the idea of best interests and takes it to a new level around the outcomes for the consumer,” Sanders explains. “That might mean wiping it out. It might be that the royal commission goes the whole hog and says this is a professional fiduciary relationship and, therefore, the 400 years of equity determination of what fiduciary means should apply in every instance.
“Frankly, I’ve got to say that there is something that appeals about that,” he continues. “If you are in the professional space, then you have more than a procedural duty under the Corporations Act – you should have a higher duty to the client.”
The thick end of the wedge
Sanders admits that his thoughts on professionalism present “quite a strong proposition”. This shouldn’t surprise, though, given his background as chief executive of the Professional Standards Authority of Australia.
He says that “re-architecting” best-interests duty would result in a much more professional environment for advisers and he is optimistic about this.
“I believe deeply that there is a pathway here for genuine professional financial advice, but it is likely to be for genuine professionals,” he says.
We’re at the thick end of the wedge, he says, and advisers need to get on board.
“You don’t need to wait; this is a consistent, considered, uniform message from regulators, from government, from the community, from Hayne and, really importantly, from the industry itself,” he says. “This isn’t the thin edge of the wedge, where there is a long game to play. If you’re not taking this into consideration right now, then you might not be able to climb over the walls of change that are required.”