Geographic areas with proportionately more advisers part of professional associations register lower cases of fraud and complaints, according to research.
Conducted by UNSW, the study measured the unintended consequences of the ongoing mass exodus of personnel from the financial planning industry.
The total amount of advisers on the ASIC Financial Adviser Register is under 17,500 with a loss of over 10,000 over the last few years.
The research found increasing ethics training may improve overall adviser quality. Specifically, the findings show advisers that received ethics training can better protect their communities from fraud.
“This increase in knowledge diffusion suggests a greater degree of trust being reciprocated by their clients, which potentially leads to greater transparency between them for a reduced concern of client expropriation,” the report, which was co-written by academics Jerry Parwada, Natalie Oh and Eugene Wang, stated
“Although our results do not show higher levels of education as allowing advisers to better protect their communities (or material impacts upon financial fraud and adviser complaints), the increased cost and time outlays required to satisfy new requirements may remove underperforming advisers from the industry.”
UNSW Business School professor Parwada tells Professional Planner the attrition in financial planning has left some communities exposed.
“When an area loses financial planners in the scale that we document in the paper, the communities become too susceptible to fraud,” he says. “Financial planners have an indirect role in holding the hands of households and people that would otherwise be susceptible to get rich quick schemes.”
Impact of education much more nuanced
While there is a clear-cut trend in the findings that professionalism created better consumer outcomes, the study found that the same didn’t apply to education. Parwada, however, says this finding needed to be viewed with nuance.
“[The findings are not] a direct criticism that education should not be considered as part of professionalism mechanisms. There are other factors, like the ethics requirement, where it could be argued you can’t have people being trained in ethics outside higher education so these factors are entwined.”
The conclusion of the research specified that there was nothing to substantiate the view that the education mandate was unnecessary.
“The raising of education standards in the industry is not necessarily a bad thing. We are not saying FASEA should not have come through or that the authority got it wrong, all we are saying is hopefully in the future numbers stabilise.”
The research relied on adviser complaints detailed by the Australian Financial Complaints Authority (AFCA), combined with adviser-specific data from Adviser Ratings.