Jerry Parwada, Natalie Oh and Eugene Wang

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.

3 comments on “Professional affiliation tied to reduced consumer complaints and fraud”
  1. Avatar
    Lyn HeaysmanMAppFin

    We have a two tiered authority system. Full authority and limited authority. Whilst we have this limited authority in our industry, we are always going to be faced with unethical advice. The very rules under which anyone operates under a limited authority conflicts the advice. Limiting to just SMSF advice assumes the consumer wants to be in the SMSF. My experience has been on many occasions they have been told that is what they need and they do not understand the complexity of SMSF. It is a great vehicle for the right investor, but a deathly expensive trap for the uninformed investors.
    I am also shocked at the fringe dwellers giving financial advice. There are businesses (not licensed) openly helping people to transition to retirement. I have seen accountant on facebook openly providing advice on BitCoin, ETF’s and Property Developments investment (an in house project) We talk about ethics for the financial adviser, but our authorities allow these fringe dwellers to flaunt their business openly on the internet and social media.
    How can we set such high bars of compliance and still try to attract advisor into the industry.

  2. Avatar
    Anthony Wolfenden

    Ethical behaviour comes from the standards set by your community. It is not related to the level of education received. The industry and regulators KNOW this. The regulators imposing education standards will not change behaviour. Telling advisers to go back to school….? Jeez!

    Try a google search of “Fostering Ethical Behaviour” . Education does not appear in the results. Culture, openness, transparency do.

    How about we focus on simplified advice standards, streamlined regulation, single level licensing, an association for planners the government will listen to and a regulatory agency focused on punishing actual client harm rather than technical breaches.

  3. Avatar
    Jeremy Wright

    Ethics is a word. Ethical behaviour is a standard.
    Where ethics and the standards of ethical behaviour are caught up in legalize and interpretation with vague assumptions that have difficulty in bringing theoretical analysis into the real world, then we have a problem.
    What on earth did I just write down and how do you interpret that?
    That is what most Advisers and people who have lived their lives with high levels of ethics find so difficult, in that if you are not ethical, then passing an ethics test, does not change who you are, though it does allow unethical people to continue in their nefarious ways.
    In the real world, time is a rare commodity and must be utilised efficiently. In other words, Advisers do not have time trying to interpret an endless sea of information, much of which has little bearing on what they do.
    Ethics and ethical behaviour MUST be linked to a product or advice that could cause damage.
    How can a Government or Regulator on the one hand allow money lenders to operate, who blatantly rip people off with outrageously high interest rates that destroy peoples lives, then lecture everyone else on ethics and their strategy to fix the world, is to create a maze of complexity that takes us back to where we started.
    If the rules are opaque, how are we supposed to understand them and if someone is unethical, an ethics test will not be a hindrance, rather another thing to step over and continue on their merry way ripping off people.
    Clear, concise guidelines and rules of behaviour when it comes to advice and the selling of products should be the number one priority and that is a big brother strategy the wokesters will take up with gusto, which, based on their past performances, we will end up with more utopian views, little practicality and a path to more mazes of hope, with no clear exit.
    Many years ago, churn was the perceived big issue which was portrayed as the end of civilization unless massive change was enacted.
    Advice was provided by practical folks AKA as Advisers, who said the vast majority of Advisers are ethical and do not churn, so the easiest way to fix this mole hill, is to remove the handful of churners so the rest can still provide great service to their clients.
    Instead a mountain was made that created total chaos and tarred all
    Advisers as churners, which was later proven to be a lie, though the damage was done and here we are today with the Industry in tatters.
    Theory based education has a place. When it becomes the only benchmark of Professionalism, we have a problem.

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