Here are four propositions with which nearly everyone in the financial advice industry will (or should) agree:

Proposition 1: Financial advisers should be trusted to act at all times in the best interests of their clients;

Proposition 2: The occupation of financial advice should be accepted as a genuine profession which voluntarily acts in the public interest;

Proposition 3: Financial advice should be cost-effective and accessible to the vast majority of Australians, not just to the minority who currently receive it; and

Proposition 4: The compliance requirements imposed on financial advisers is complex, costly, confusing, bureaucratic, demoralising, unnecessary and substantially ineffective.

Agreed? At least there’s some significant common ground between us (maybe more than many readers may have thought?).

So how can we move to a position in which financial advisers are always trusted, the occupation of financial advice is accepted as a genuine profession, the services of the new profession are cost-effective and widely accessible and the compliance burden on advisers is substantially removed?

It’s simple really. We should enthusiastically embrace the substance and spirit of the FASEA Code of Ethics.

Unfortunately, however, instead of supporting the code, many of the industry’s leaders have chosen to complain about it, especially about its alleged uncertainties. Standard 3 (the imperative to avoid, not just to disclose, conflicts of interest) has received particular attention from the complainants.

In so doing, they appear either to not understand the underpinning ethical obligations of a true profession or they don’t want to understand them. Therefore, it’s hardly surprising that so many of the industry’s participants are uncertain about the code and what it really means to be a professional.

Kicking it down the road 

Much of the limited public discussion about this subject has been emotional and lacking in rigour. Perhaps the price of professionalism is judged by some to be too high or commercially inconvenient. Could a better alternative be to fudge and obfuscate with tried and tested claims about ‘technical uncertainties’ and ‘unintended consequences’?

Alongside the complaining, there’s been no shortage of rhetoric about the industry’s strong commitment to professional ethics. This includes regular references to financial advisers being on a ‘professional journey’ which seems more like a mystery tour because the destination is rarely articulated. And to make the journey more interesting, there have been diversions along the way, including the need for education of advisers and the importance of individual licensing, both of which are worthy causes, but don’t get to the core of the problem.

All of this colour and movement has acted to kick the can down the road. Over many decades this approach has been shown to be an effective strategy to cause delays and dilution of urgent ethical reforms, especially with respect to conflicted remuneration. In fact, there isn’t an argument against reform in financial advice that hasn’t been heard and rebutted on countless occasions since the industry’s inception in the 1970s (yes, I remember).

The positive approach suggested here of embracing the substance and spirit of ethical principles in the FASEA Code will create unqualified trust in financial advisers, principally by removing the conflicted remuneration arrangements that have driven so much of the industry’s poor behaviour (as identified by the Hayne Royal Commission).

This will immediately cause the complex, costly, confusing, unnecessary and substantially ineffective compliance requirements to recede, thereby significantly lowering the cost of financial advice to many more Australians who will then be happy to seek out advice because they can both trust and afford it.

This solution is elegant, practical and simple. And most importantly, it will work in the interests of advisers and their clients, delivering a new profession akin to law, medicine and accounting.

Lateral thinking

In order to be assured of this outcome, the industry must be fully on board with the clear intentions of the code. Instead of complaining about its uncertainties, the industry should recognise that it is deliberately not a technically prescriptive compliance-style laundry list of what’s in and what’s out.

Instead, it is a principles-based document offering financial advisers the considerable privilege of engaging in an unfamiliar and professionally liberating mode of thinking about ethical principles and their consequences. This new personal, thoughtful and analytical approach to ethics is the hallmark of a true profession.

No longer would advisers have to stress about trivial and pointless details in a costly, suffocating, box-ticking compliance regime which they’ve grown to intensely dislike. Thinking about the Code of Ethics as black letter law that smart financial advisers and their creative lawyers may interpret, dilute and dismantle in their commercial interests, completely misses the point. That is an old, discredited and unprofessional approach to ethical standards and their behavioural consequences.

Having said that, the industry’s evolution into a profession is completely in our hands. We don’t need prescriptive laws, regulations, compliance rules, industry associations, lobbyists, enquiries, marketing consultants and spin doctors. We never did.

All that’s needed is the FASEA Code of Ethics and our voluntary compliance with its plain English words and clear intent. In that regard, I’m reminded of a longstanding professional standards expert in the accounting profession who often said to members seeking rulings on ethical issues: “If you need to ask the question, you already know the answer.”

Provided the industry acts with goodwill and in good faith, the discipline of financial advice can be readily and quickly transformed into the trusted, respected, independent, accessible profession that all advisers and the public of Australia want, need and deserve. The FASEA Code of Ethics presents a practical and realistic possibility of a new beginning.

Robert MC Brown AM is a chartered accountant with more than 30 years’ experience in taxation, superannuation and financial planning. He is independent chairman of the ADF Financial Services Council, and a member of the government’s Financial Literacy Board.
9 comments on “Remember that thing called the Code of Ethics?”
  1. Great thought leadership Robert, thankyou
    The financial planning industry is so entwined with the stifling compliance regime that, for too long, lawyers have overlaid and, as pointed out, the strong resistance to reform that has been an enduring feature promulgated by those prioritising self-interest over best interest. The Code is a radical break through but its spirit needs to be embraced for it to truly unleash its power. It is an avenue to reclaiming control back from the compliance suffocation and empower advisers to use their professional judgement. The white noise around Standard 3 is another demonstration of the same old same old. Until it is widely understood, and accepted, that the Code is about behaviour, and black letter law checklist ticking can’t be applied, the much needed change (on the path to professionalism) will be hard trod.

  2. Avatar Jeremy Wright

    The four propositions are sound and articulate what can be and also what is the current situation.

    The plain truth in Australia and most Western Countries, is that the Legal Industry has infiltrated into mainstream Business and even our personal lives, by convincing everyone including Government, that unless there is a Lawyer on hand to guide everything we do, then the implications can be a terrible thing.

    The regulations and laws that we all must abide by, have been deliberately structured so the door is left open to “Legal Interpretation,”
    or in plain language, the ability for Lawyers to charge between $350 and $1,000 an hour to “Interpret” the opaque wording, which even they cannot agree on.

    Australia is on track to hit a Trillion dollar deficit, Business is stymied by rules and regulations that create uncertainty and a simple code of ethics is not going to change that.

    The only way Australia can dig itself out of the massive hole it is in, is to simplify laws and regulations, then remove Lawyers from their positions of power and allow Business to get on with building up again without the lengthy chain and anchor that is the current Legal system.

  3. Avatar Craig Meldrum

    Accepting your arguments, and accepting that the industry needs structural change, from a practical perspective, what needs to change first for the industry to accept a new reality and move to the promised land? Why does the industry persist with costly and complex compliance structures? Governance, compliance and professional standards are tools to manage risk (real and perceived) from government, the regulators, AFCA, PI insurers and bottom-feeding ambulance-chasing lawyers (there’s a great example of a profession). Licensees and their compliance teams are part of a regulatory-driven ecosystem that has created and maintained these dependencies for many decades as a reaction to the litigious world we operate in.

    What do you think needs to be introduced or removed from that ecosystem to effect change? I love science fiction so I’ll channel Frank Herbert and include a quote; “Key log: a truly ancient concept from the days when lumbermen sent their fallen timber rushing down rivers to central mill sites. Sometimes the logs jammed up in the river and an expert was brought in to find the one log, the key log, which would free the jam when removed.” (Herbert F., Heretics of Dune, 1984).

    Dependencies and key logs. Risk management and business sustainability. Insurance. Review and rethink costly and complex PI and EDR and the looming cost and complexity of a compensation scheme of last resort, allow access to a limited liability scheme as accountants are afforded and you will give confidence to an emerging profession that it can rethink risk management.

  4. Avatar Nobby Kleinman - Money Mentor

    Goodwill, Faith and Trust are nowhere to be found in a court of law with an aggrieved client and egregious lawyer!

  5. Avatar Christoph Schnelle

    This is a good article – a bit hopeful but the approach is sound.

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