The mostly laudable proposals of the Quality of Advice Review in which the current prescriptive, complex and costly regulatory regime would be replaced by a shorter principles-based one offer some guidance as to where the discipline of financial advice might be headed.

However, the industry can’t have its cake and eat it too. If the industry is to be substantially deregulated and offered the freedoms, advantages and privileges proposed in the review, then it has an important decision to make. It must decide whether or not it is willing to act as a genuine and trusted profession with all the responsibilities, consequences, hard decisions and personal judgments that follow.

If the industry isn’t willing to do that, preferring instead to languish in a grey area, claiming professional status, but treated with doubt, even suspicion, by much of the public it claims to serve, then the review’s generous proposals must never be implemented.

However, if the industry is willing to commit to behaving as a genuine and trusted profession, including adherence to the principles in the mandatory Code of Ethics, I would be more than happy to support implementation of the proposals because the industry would have signalled that it has come of age. Even the controversial proposal establishing what amounts to a two-tiered industry (relevant and non-relevant providers) might then be worthy of further careful consideration.

Of course, it’s easy for the industry to make such a commitment, but it will be considerably harder, both commercially and culturally, for many of its participants to acknowledge and accept what needs to be done in practice. The principal point here is that the financial advice industry must accept the spirit, substance and plain English meaning of the professional and ethical principles in the mandatory Code of Ethics, especially the controversial Standard 3 covering conflicts of interest.

The industry must then voluntarily remove all remaining forms of conflicted remuneration and incentives, including asset-based fees, commissions (including on life insurance policies), profit shares on white label/in-house products and platforms and other forms of sales incentives, targets and budgets designed to encourage the sale of financial products or the accumulation of funds under management.

Do this and the implementation of the advice review’s proposals becomes logical, sensible and eminently supportable. That’s because the new regulatory regime will be aligned with the public interest, being the provision of more advice to more people at a much lower cost, without compromising quality, while concurrently creating trust in the industry’s participants. That is, we will have created a true profession.

Failure to comprehensively deal with this issue in the context of the implementation of the review’s proposals will undoubtedly lead to more advice being sold to more people at a much lower cost. But therein lies the rub. It will also lead to the distribution of a much greater amount of conflicted, poor and low quality advice. That would be a disaster for the public interest, thereby setting up the Australian community for more tragic scandals in years to come.

The question for the industry becomes just how enthusiastically would it support the proposals of the review were a condition of their implementation be genuine, in good faith, adherence to the mandatory Code of Ethics with all of its consequences, including those with respect to the removal of conflicts of interest?

I can already anticipate negative reaction from industry participants who will claim that going this far is unnecessary and unfair because most of the industry’s “bad apples” have been removed and that the vast majority of advisers are honest people offering financial advice in their clients’ best interests. That claim may well be true, but it misses the point.

I’m not suggesting that the industry is full of bad or unethical people (clearly it isn’t), but I am suggesting that it contains a large proportion of conflicted people, due to the ongoing impact of the many remaining forms of remuneration and incentives that encourage poor behaviour or create the perception of it.

Until that fundamental issue is addressed, worthy proposals such as those contained in the review must remain aspirational rather than reality. How sad is that, especially when the review’s proposals are so positive and the solution to the problem is simple, obvious, desirable and clearly in the public interest?