Competency, high standards of conduct, ethics and accountability are the hallmarks of a profession.
Based on that criteria, many advisers already pass the professional test yet they still can’t officially claim the title and associated privileges.
Admittedly, there are still some who do not possess the requisite criteria but a profession can’t be held back by lowest common denominator thinking.
Under FASEA, advisers must demonstrate competency, comply with standards and values set out in the Code of Conduct and, by 2026, all must hold a qualification equivalent to an approved degree. Many already do.
Advice is also entering a new era of accountability with changes to breach reporting coming into effect on 1 October 2021. Under this regime, AFSLs are obligated to report to ASIC serious compliance concerns about financial advisers, mortgage brokers and other AFSLs.
This will significantly increase the reporting obligations on licensees.
Yet, as discussed in a previous article, advisers do not yet enjoy professional privileges like the ability to form educated views and use their professional judgement when advising clients.
Under the Best Interest Duty (BID), they must consider a client’s personal situation, needs and goals. In addition to meeting BID, they must prove it too by investigating and documenting multiple strategies, stress testing them against multiple scenarios, and detailing the basis of their advice.
This expensive, time-consuming process is behind the rising cost of advice. BID also prohibits systems and tools that may help reduce costs, such as house views.
Isn’t it time advisers had access to the same benefits bestowed on other professions?
Within a professional framework, personal advice and house views should not be mutually exclusive.
Take the perennial debate about stepped versus level premium. Theoretically, a level premium option should be cheaper in the long run.
Stepped premiums start off cheaper and increase with age (sometimes significantly), reflecting the higher probability of a potential claim as people get older.
Level premiums are not age-linked. They start off more expensive because premiums are averaged out over a number of years but they aim to offer a smoother, more stable ride.
However, in recent years, level premiums have acted like stepped premiums, rising steadily year-on-year and providing no obvious financial benefit.
If an adviser’s analysis is that level premium arrangements are no longer appropriate, then their analysis should inform their recommendations and act like a house view.
A client still needs tailored personal advice to ensure they have the right type and level of cover to meet their specific circumstances, objectives and budget but advisers should be able to rely on a house view to recommend a premium structure, given recent trends.
It’s still the client’s choice.
A medical analogy is a doctor who diagnoses an infection and tells the patient to take a course of antibiotics to get better. That patient may be given a choice between a brand-name drug and a generic option, and the doctor may have a general opinion on that matter, but their original diagnosis is personal.
As Matt Smith rightly pointed out in his May 16 editorial Principles-based tilt, the industry still has a lot of work to do to prepare for a purely principles-based approach.
Inevitably though, advisers will receive the same privileges as other professionals. Unfortunately, for those who have already earned such privileges, they still have to wait.
Profession or not, licensees will still have an extremely valuable role to play when it comes to forming educated views, enforcing standards, and effective monitoring and supervision.
Even professionals must be diligent about managing bias and conflicts of interest.
However, in attempting to eliminate the conflicts inherent in the vertically-integrated model, the self-licensing trend has created new conflicts.
Imminent changes to breach reporting may see some own-AFSLs shirk their reporting obligations.
Self-reporting is akin to speeding and then calling the police on yourself. In reality, it doesn’t happen.
The ability of AFSLs to hold themselves to account will be tested over the next few years.
If the industry can pass the accountability test, as many licensees and advisory firms already do, collectively we will enjoy the privileges of being a profession including credibility, trust and the ability to exercise professional judgement.
This will go some way towards improving advice affordability.