This article is about opportunity and hope in an industry that could do with more of both.
The opportunity is immense because right now, in the midst of difficult economic circumstances for so many of our citizens, the community has a greater need for trusted financial planning advice than at any other time since the industry’s inception.
Consequently, the financial advice industry in 2020 should be booming and positive about the future. Some advisers are in that position. In that context, they are embracing the evolution to professionalism and the creative challenges that process entails. These advisers have never been busier, more enthusiastic or more profitable.
Others are despondent and negative, bemoaning unnecessary regulations they feel are engulfing them, along with the greatly increasing cost of delivering advice which they see as squeezing their profitability and diminishing their motivation to continue in practice. It’s a sad and frustrating situation, but substantially of the industry’s own making.
This circumstance has been caused by decades of leadership failures in the industry, especially a reticence to promote through self-regulation the much needed reform of a deeply embedded and conflicted culture. These failures, culminating in the 2019 revelations of the Hayne Royal Commission and the 2020 FASEA Code of Ethics, represent the archetypal example of reaping what you sow.
Many industry leaders, on hearing Hayne’s stories of systemically bad behaviour in areas such as conflicts of interest and fees-for-no-service responded with words along these lines: “Yes, it’s bad, but there’s nothing new here, everyone knew about that already”. Therefore, it’s hardly surprising that these responses raised the question: “If you already knew about the bad practices, why didn’t you do or say something about them publicly?”
Hence, my point about leadership failures, not just once but many times over the last 40 years. These failures are especially egregious when they come from the leadership of so-called professional bodies who appear to see their role as protecting the commercial interests of fee-paying members (rather like trade unions or medieval guilds), instead of self-regulating their members’ behaviour in the public interest. In so doing, they either misunderstand the role of a profession in society or they choose to misunderstand it.
As always, I reserve a dishonourable mention for the leadership of my own profession of accounting. In 2013, the leaders of the profession deliberately diluted our publicly stated ethical standard on professionalism in financial advice in favour of supporting the continuation of conflicted practices that were later heavily criticised in the royal commission. This was done in the face of intense lobbying from dealer groups and noisy members who were seeking to retain the industry’s conflicted status quo. Even now, in 2020, the accounting bodies defend that decision, while claiming to promote the highest ethical and professional standards.
I submit that if it were not for this failure of leadership in the accounting profession, the financial advice industry would by now have become the true profession that it should be. Furthermore, the bureaucratic and compliance nightmare which the industry has now become would never have happened, the FASEA education and ethical standards would never have seen the light of day and the royal commission would have had little to say about the profession of financial advice.
Throughout this time a small number of brave financial advisers realised what had to be done and quietly proceeded to demonstrate their professional leadership without the involvement or endorsement of their membership bodies. The rather lame response of those bodies was to make constant reference to the industry’s (never-ending) journey towards professionalism, but without a clearly articulated destination, and to claim that they did not wish to become involved in members’ business models when that is precisely what they should be doing.
This brave (and growing) minority of members have shown the leadership that their professional bodies have never been willing to show. These members seized an opportunity from which they have never looked back, both professionally and commercially. For these advisers, the FASEA Code of Ethics is not a major imposition because they’ve been complying with those principles for years, well before FASEA was even contemplated.
And now there’s another opportunity. This time, it’s for the wider industry and it arises out of the FASEA Code of Ethics. That is, if the leadership of the industry were to take a genuinely supportive and constructive position on the spirit and substance of the Code (especially on the controversial standard 3), a strong case could be mounted for the removal of most of the compliance regime that has caused the despondency, negativity and unnecessary cost to which I referred earlier.
If that could be achieved, the cost of advice would significantly drop, the enthusiasm of advisers would increase, young people would join the new profession knowing that they could make a difference to the lives of Australians and many more members of the public would seek out truly professional financial advice that they could both afford and trust.
Having dealt with the opportunity, let’s move to the hope. The scenario I’ve outlined here is not (as some commentators have said) an idealistic and impossible dream. On the contrary, it is practical, achievable, sensible and most of all, it’s in the public interest. Other solutions, typically involving retaining existing regulations, simply won’t work. They’re like fitting square pegs into round holes.
How I would love to be in the privileged position of leadership within our professional bodies to promote this idea to policy makers. I believe they would be most receptive to any serious, workable and practical recommendations about cutting bureaucratic impediments to economic activity while concurrently improving the industry’s behaviour and the lot of consumers. That would be a “win/win/win” outcome for the financial advice industry, for consumers and for government. No unpleasant political compromises would be required by any stakeholders. That would be a truly remarkable and unprecedented result.
I’m not standing for office, just expressing the sincere hope that others who are in those influential positions of leadership will use their time in office to show the vision and courage to grasp the opportunity created by the FASEA Code of Ethics to evolve the financial advice industry into the profession it should be.