Financial advisers must treat their clients in the same way licenced aircraft engineers work to protect passengers on a plane, says University of NSW Business School associate professor Tracy Wilcox.
“If you think about the (FASEA) standards a lot of it is about putting the client first and recognising you are in a power relationship with a client where you have more information, more knowledge and more power and so there are some responsibilities that come with that power,’’ Wilcox says.
The same stands for licenced aircraft engineers, who have responsibility to ensure passenger safety through rules and regulations, the business ethics academic tells Professional Planner’s Ethics for Advisers podcast.
The emerging profession’s new strict rules ask advisers to provide evidence that those standards are being followed, but there will be a point where the profession embraces the spirit of those standards in a more self-regulated way, Wilcox says.
“I think that’s where we’ll end up with those standards and it’s a journey. The devil is in the details but those points need to be debated out,’’ she continues. “I suspect in a few years’ time when we have even more experience of those standards, there will be less explicit rules on what you need to do and much more about the spirit of the law.
“But it has to start at that point so it forms an education piece within the profession.”
Moran Partners Financial Planning principal Paul Moran says the high base standard for financial advisers could be solved with a two-tier regulatory system, allowing higher-level advisers more freedom to self-regulate.
“I have a really strong view that there shouldn’t be a homogenous group called financial advisers, there should be two groups; one that is prepared to meet a higher standard that requires less regulation and one that’s not prepared to meet that standard,’’ Moran says.
The 30-year industry veteran says no one wants the Financial Adviser Exam, which has been a catalyst for 9000 advisers exiting the industry since 2018, and it is harder for advisers to meet a generic standard.
“The degree requirement of the profession is hard. It’s hard to get people in that way and there’s no way of bringing people in on the lower standard to get started and let them progress up to the higher standard,’’ he says.
“If we had a two-level system; one where if I can prove that I don’t have an agency issue, I can prove I’m not biased I can prove I’m charging explicit fees to clients and understand my regulatory need, then I should have standard one and if I don’t want to do that and drive people into a particular product and have product focus, then that’s standard two.
“I’m a higher level and I’ve reached a higher standard and I don’t need to be regulated as vigorously.
Moran, whose 20-year practice looks after $200 million in assets for clients and their families, says advisers need to “move strongly forward” to their own self-regulation rather than getting direction from the “top down”.
He suggested an elected committee to oversee self-regulation of the industry, similar to the structure of the Australian Medical Association.
“I’m hoping in the next few years we get more bottom up and that will help to inform the broader community,’’ Moran says.
“I have a strong view that regulators prefer not to regulate but they’re forced to regulate when the industry or profession does not establish their own standards.
“We haven’t really been good enough at this point in setting our own standards of operation. Our own safe harbours.”
On self-regulation, Wilcox says a profession needs the capacity to sanction advisers that don’t follow the guidelines.
“I think that’s an important part of being a profession as well that client-centeredness, which is what you need in a good self-regulating system,’’ she says.