The financial planning industry is under siege on many fronts. There is an understandable desire to point the finger of blame at ignorant politicians, over-zealous regulators, biased media, latte-sipping consumer advocates, left-leaning industry superannuation funds or a combination of all five.
In reality, the responsibility for the current state of affairs lies in an abject failure of leadership within the financial planning industry.
Over many decades, most of the industry’s leaders have talked the talk, but haven’t walked it. They have used the rhetoric of “profession”, but have deliberately – or sometimes ignorantly – failed to acknowledge the price that planners must pay to achieve that status. These leaders have lobbied government and regulators, with considerable success over at least 40 years, to avoid the inevitable. It’s taken a long time, but the chickens have come home to roost.
Many financial planners express emotions over their plight ranging from anxiety to anger. Rarely, is a voice of optimism heard above the general sentiment of doom and gloom about issues such the unfairness of compulsory tertiary education, the excessive burden of compliance and the lack of acceptance that most planners are honourable people who care about their clients. The Abbott government’s promise in 2014 to slash regulatory red tape seems like a distant memory.
Then there’s the plummeting value of commission-based financial planning practices in the light of the proposed legislative ban on grandfathering. That’s not to mention what’s yet to come as a result of the remaining 70-odd recommendations of the Hayne Royal Commission. Surely, that can only be more legislation and more bad news for an industry which is already reeling from regulatory overload. It’s only a matter of time before the focus of unpleasant regulation falls on asset fees and life insurance commissions. It would be a truly brave person who suggested otherwise, given Hayne’s conclusions about conflicts of interest and the plain English words in the new FASEA Code of Ethics.
Most of the industry’s leaders continue to take the view that their role and that of so-called professional associations is to act as lobbyists to defend and protect the commercial interests of the industry’s participants. That also seems to be the view of many members of those associations. Wrong. The proper role of associations and leaders in a true profession must always be to defend and protect the best interests of consumers of financial planning services. In so doing, they are obliged to articulate the highest ethical standards to which financial planners must adhere if they are to remain in the profession. And they must discipline and remove members of the profession who fail to adopt those standards.
These leaders fail to understand that it’s not their role to continue to support financial planners to practice in a “free market” under the protection of the discredited regime of disclosure. The fact is that there has been systemic failure in the financial planning market over many decades (no, it’s not just a few bad apples). This has led to a widespread lack of trust and unpleasant government intervention.
Much of that intervention – for example, FoFA – has been ineffective because the industry’s leaders have lobbied hard to make sure of that outcome. As a result, the bad behaviour has continued, leading inevitably to even more government regulation, most recently, the Hayne Royal Commission and the establishment of FASEA.
Yet here we are…
All of these government interventions were totally avoidable, but totally understandable, caused by the industry’s leaders failing in their duty of leadership. They should have known better.
Many of them did know better, but they have failed because they have told financial planners what they wanted to hear, rather than telling them what they should be doing to gain the true professional status to which they aspire. When criticised, they often employ the language of the journey – “we’re on a journey towards professionalism” – but that’s principally a disingenuous deflection and delaying tactic to avoid the truth.
Whether by act of commission or omission, the industry’s leaders have failed to properly explain to financial planners that they are acting in a professional environment and not in a conventional product selling market in which the fittest survive.
In a true professional market, the client’s interests must always come first even if that results in financial detriment for the planner. In order to create the trust and the certainty that planners are acting in their clients’ best interests, a professional must act in a conflict-free zone, or not at all, not one in which conflicts are disclosed and clients are conveniently assumed to understand the consequences of that disclosure in a voluminous statement of advice.
Lead by example
In any conversation about failures of leadership, my own profession of accounting must always receive a dishonourable mention. That once proud profession’s failure to endorse and support its own independent standard setter in 2012 remains the most prominent example of leadership failure by people who actually did know better. Instead, the leaders of the accounting bodies preferred to support certain powerful commercial interests in the financial services industry who had lobbied for accountants to have the right to receive conflicted remuneration in contradiction of the profession’s fundamental ethical principles.
I submit that the accounting profession’s failure to address these ethical issues in 2012 has contributed to the financial planning industry’s woes – if the accounting profession had shown genuine leadership and confronted issues like conflicts of interest head on, then the rest of the financial planning industry would have been forced to follow. The industry’s behaviour as a result would have improved, FASEA would never have been established and the industry would not now be facing the existential threat which many of its participants bemoan.
As always, what the future holds for the financial planning industry depends to a great extent on its leaders.
Should these so called leaders continue to defend the indefensible and attempt to compromise and dilute laws and regulations in the commercial interests of certain of their influential members, then the industry’s future looks bleak. However, if they were to lead the discussion by articulating a vision which is free of conflicts and based on a truly independent profession, then the future that they have always spoken of in much of their hollow rhetoric could become a genuine reality. This would align the interests of consumers, government and financial planners alike. The new profession’s future would be assured.