Daniel Brammall, PIFA president

In November in Canberra, the Profession of Independent Financial Advisers (PIFA) held its 2019 symposium, attended by the principals of around 30 financial advice firms that conform to the Corporations Act Section 923A definition of “independent”.

These are firms that do not receive commissions (or rebate them in full to the client), including on life insurance; do not charge asset- or volume-based fees; and have “no ties to product manufacturers” which may influence their actions or advice.

There aren’t many advice firms or licensees that meet this definition. Most fall foul of one or more of the forms of remuneration or structure that disqualify them from legally using the term “independent” to describe themselves or their services. The definition of independence is interesting and has been the subject of debate in the industry before. The government has agreed with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that advisers must give retail clients a statement explaining why the adviser is not independent, impartial and unbiased, before the adviser provides personal financial advice, unless the they are allowed to use those terms under s923A.

Characteristics of independence, impartiality and lack of bias are among those that consumers say they want in financial advisers (see chart below). But this is only one of the interesting things about PIFA and its members, and not even the most interesting one. In May this tiny association, headed by its president Daniel Brammall (pictured), formally lodged an application to establish a professional standards scheme.

Among other things, but the one most often spoken about, a professional standards scheme allows members to cap their civil legal liability. But it is so much more than that. It would establish, beyond reasonable question, financial advice as a profession.

The Professional Standards Councils (PSC), a group of independent statutory bodies which through the Professional Standards Authority (PSA) assess and approve applications for professional standards schemes, says schemes are “legal instruments that bind associations to monitor, enforce and improve the professional standards of their members, and protect consumers of professional services”.

That’s what a professional association does

The PSC’s statement is a clear articulation of what a professional association should be set up to do, and it reflects what the financial planning industry has been craving for so long. That PIFA has even made an application is testament to the unwavering commitment of the leadership and members of PIFA (formerly the Independent Financial Advisers Association of Australia), or IFAAA.

Daniel Brammall, PIFA’s president at the group’s symposium in November.

It’s not by coincidence that you’re reading this article in a publication called Professional Planner. It’s the first word that’s the important part of the name, and the publication was created because not all that long ago the idea of establishing financial advice as a profession was thought of as a terrific idea.

Professional Planner thought it was a good idea, too, but also recognised that not everyone (in fact, hardly anyone) in the industry really understood what creating a profession would require. It would take more than just nice offices, nice clothes and even behaving professionally (whatever that actually meant) towards clients. It would entail restructuring the industry, including setting higher education and ethical standards. It would require the the nexus between product and advice to be dismantled, leaving advice as a professional service as distinct from being a distribution function; and it would require a mechanism to enable members of the profession to monitor and police their own members (some call this self-regulation).

To use the jargon, financial advice would need to conform to the same cognitive, normative and organisational conventions that other professions conform to. This could not be fudged, and a profession could not be created just by claiming loudly enough and often enough that financial planning was one. It plainly was not, and it had work to do.

Hate to say ‘we told you so’, but …

A decade down the track what’s taking place within the advice industry is almost exactly what Professional Planner said would need to happen before a profession could be established. There was no particular genius to the insight; frankly, if a bunch of journalists and publishers understood it then it ought to have been painfully obvious to everyone in the industry. And since financial advice is not the first occupation to start the trek down the path to professionalism there was already a trail to follow, with easy-to-read signposts along the way, and a clear destination. In that respect it wasn’t a difficult publication to edit.

But along the way the profession lost its way. For every two steps forward, there was one step back. Some of the vital changes needed to create an environment where a profession could take hold had to be pushed onto the industry from outside – that is, by legislation and regulation – rather than emerging organically.

The industry couldn’t wean itself off product commissions or demonstrate unequivocally that it acted in the best interests of clients, so the Future of Financial Advice (FoFA) laws were introduced. It remained far too easy for individuals without the necessary education and ethical standards to get into the industry, and so the Financial Adviser Standards and Ethics Authority (FASEA) was born. And the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry drew an unimpeachable picture of the shoddy practices the industry continued to engage in, even as it claimed to be a profession. All of these things could and should have been tackled by the industry itself. But they weren’t.

And now, some are starting to question whether the goal of professionalism is still worth it at all. That’s what we infer they are doing, because it really can be nothing else when the creation of a profession hinges on successfully achieving the very changes they want to stop, circumvent or scale back.

The advisers in the box seat

So while the industry and its various associations continue to circle the drain on professionalism, PIFA has done a Bradbury (Olympic speed skating gold medalist Stephen Bradbury was MC at the PIFA November event). If PIFA is successful in establishing a professional standards scheme – and there is considerable work still to be done to get there – it will transform the nature of financial advice. Its members will be recognised as being in the vanguard of professionalising an industry that for decades seemed immune to being professionalised.

But it’s not going to be easy. PIFA will need to demonstrate to the PSC that it has the resources and infrastructure to operate effectively and discharge its obligations under the scheme, which are many and onerous. And this brings us to the issue of scale: PIFA is tiny. Its website lists 52 members (although other independent advisers exist who are not members). It is dwarfed by the Financial Planning Association of Australia (FPA) and even by the Association of Financial Advisers (AFA). How it funds what it needs to do with such a small membership base remains to be seen.

The key criteria for becoming a member of PIFA revolves around independence, and so few practices meet the legal definition that membership will inevitably remain small.

Recognising this, PIFA has introduced a new membership category. An adviser can join PIFA as an associate member, making a statement of intent to transform their advice business to comply with the Corporations Act definition of independent. Even though PIFA has developed resources and guidance on how to do that, it will continue to be a slow build.

Perhaps its lack of scale will be an advantage at this early stage, allowing PIFA to retain a commitment to the ideals and principles of independence and professionalism. A tougher test of its focus may arise when or if its membership expands significantly, and more divergent views and priorities come to the fore.

After all, it’s the perceived need to cater to all manner of views, opinions and vested interests, often espoused by a minority of members who are out-of-touch with the changing environment, that has played such a large part in holding other associations back from pursuing a full-on professionalisation agenda.

6 comments on “The pointy end of professionalism”
  1. Avatar
    Craig Prosser

    I agreed with all the comments above especially Paul’s. Having just completed my masters and having the topic of independance of advice as the subject for my research project I fully concur with Paul. Conflicts of interest cannot be avoided for anyone in business. Many independent claimed advisers seam to have very close links with accountants, some even share office space. This is a clear conflict.

    I would suggest anyone who would like to read more on this area, conflicts – have a look at Dr Sunita Sah, her papers cover this area heavily and she also submitted a very good paper to the RC.

    A very interesting point I uncovered about the PIFA and specifically its president, Daniel Brammall is he must still be a member of one association he regularly criticises, the FPA. If you look up the ASIC adviser register it clearly states he is a CFP (TM). To hold or use this trademark one must be a member of the FPA, if you leave the FPA and stop payment you can no longer use this mark.

    Finally the PIFA may in fact gain significant funding via its newly released course to become independent, its discount now to $4K but will go back up to the full $8K cost soon. I have been unable to find any RTO linked to this so assume its just a conference/seminar with no formal AQF qualification at the end.

    Not a fan of people trashing others to big note themselves when they are just as guilty.

  2. Avatar

    The evolution of financial advice has been going on since the late 80’s and it still has a way to go. To Peter Kell’s point in 2017, Financial Advice is not yet a profession but there are professionals in it.
    Being a member of PIFA does not mean you are professional, just as being outside of PIFA dos not mean you are not. An example is that if any of these PIFA members are running their own models with direct asset selection and doing SMSF administration then there is an argument they are inherently conflicted. If the models they recommend are owned by the licensees then this too can be a conflict. Conflicts, in many cases, are unavoidable, they should be, as the the Corps Act outlines – managed or avoided.
    I do not have a problem with it and the practices I know in PIFA are good practices run by good people. I just don’t see any value in this group or any other throwing mud at each other as this does not help us build trust at the consumer level.
    I agree with Simon that the push for education and higher ethical standards was obvious however, I am sorely disappointed by the Education standards as they have been introduced and the development of them over the last twelve months.
    In full disclosure, I have 34 years experience in the industry, a B.Bus, Grad Dip in Economics, GAICD and Dip FP. I have run two licenses and been an RM on three but will need to complete 4 subjects to appease our FASEA colleagues. I will do this if I have to but do not believe it is a useful cost of my time. Yes, I have already completed the FASEA exam.
    Our practice does earn commissions on risk insurance and I firmly believe the LIF framework has removed any conflict as there is no financial incentive to use one company over another.
    923A does not achieve its most basic objective, which is to provide consumers with a clear view of what advice practices are aligned with a product manufacturer and what practices have no incentive to use one product over another.

    I still think that we are in a great profession and we make positive meaningful differences in our clients’ lives. We need to get back to focusing on this. Banks and institutions are leaving the field and if the last bastion of their sales version of advice is removed via ASIC’s assertion that general advice is indeed personal advice, then we can make real progress and get back to what we all do best.

  3. Avatar
    Wayne Leggett

    We keep hearing about how the “industry” was calling itself professional and how the Royal Commission proved otherwise. It wasn’t the “industry” wanting to lay claim to the term “professional”, but advisers. Interestingly, with the notable exception of Sam Henderson, the vast majority of the unsavoury industry practices exposed by the RC were perpetrated by the executives in the major financial institutions. In spite of this, most of the 76 RC recommendations are aimed squarely at financial advisers. The cynic in me can’t help thinking the RC had a pre-determined outcome, given that the vast majority of those found “guilty” have escaped with little more than a “rap over the knuckles”, while, as usual, the adviser is painted as the villain.

  4. Avatar
    Jeremy Wright

    Like everything in life, there is good, bad and indifferent points with all aspects of financial advice.
    Professionalism is a goal and should be the ultimate destination for every profession, however if the goal does not allow some flexibility and does not look at the full implications objectively and the impacts to clients and the advice businesses who will service them, then it becomes a mirage of wishful thinking.

    The road blocks that now sit in front of Advisers due to Government and Regulator interference, is strangling advice Businesses.

    The sad reality for the advised Life Insurance sector, is that in it’s current structure, there will not be a Retail Life Industry left within 2 to 3 years and that is even if Commissions stay.

    The advice practices who charge a fee and take nil Life Insurance commissions, are either cross subsidising the real costs associated with providing full risk advise from the total Financial Planning fees charged, or are not doing the Life Insurance advice and implementation properly.
    We have specialised in Life Insurances advice for decades and the cost of providing advice and administration services has sky rocketed in the last 5 years.
    The legal, compliance and education Industries have seen an opportunity to make Billions of dollars at the expense of advice practice owners and for millions of Australians, they will be substantially worse off for the chaos and restriction of trade being imposed on practices.

  5. Avatar

    There is no nobility in having a business model that caters for the affluent and wealthy and then criticising those that don’t. Maybe if they sought to understand the situation of others in their industry instead of merely continually preaching on how they are a beacon of success they would have more credibility amongst their peers. Thats right I referred to their peers as they do what others in the industry do the only distinction is how they are remunerated from their affluent and wealthy clients.

  6. Avatar
    Christoph Schnelle

    PIFA is admirable. At 52 members (it is 52 people, not firms) it has 0.22% of all financial advisers and 99.78% of Australian financial advisers are not members.

    As far as I know Australia is either the only country in the world or one of a very few where you can’t call yourself independent if you take insurance commissions. Is it true that it was the banks who made sure that the word ‘independent’ was so narrowly defined in order that virtually nobody was allowed to call themselves independent, making it much harder to differentiate yourself from bank advisers?

    It seems to be very much in the interest of insurance companies – which are now mostly not bank owned – to lobby the government to adopt the standard world practice of the term independent to mean ‘Not aligned or influenced by a product provider, not taking commission except for risk life insurance’. Otherwise, if PIFA catches on, they may have to live with sharply reduced turnover.

    It would be fascinating to do a survey to find out how PIFA members differ from advisers that are ‘non-aligned or influenced by a product provider, and who don’t take commission except for risk life insurance’. Do they write much less life insurance? If they do write life insurance, do they only or mostly serve the upper end of the market or those who will be in the upper end, like young doctors? With 52 members, there are enough to come to some statistical conclusions. I’d be happy to put such a survey together if there is interest.

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