The Financial Advice Association has emerged from the merger of the Financial Planning Association of Australia and the Association of Financial Advisers last year as a strong and influential advocate for its practitioner members.
Having united the dominant but sometimes opposed voices in the advice space, the new association and its members need now to consider what sort of body they want to be in future, and what sort of association can most effectively advance the status of advice as a profession.
Members might want an association that advocates for its members, such as the FAAA does currently; or they might decide that they want a different kind of professional association, one that has power to bar members from the profession altogether, if they are proven to have engaged in sufficiently egregious misconduct.
FAAA chief executive Sarah Abood tells Professional Planner the issues of self-regulation and its consequences are contentious issues, and she stresses that she doesn’t see the FAAA necessarily and automatically becoming a body with power to expel individuals from the profession. In any case, the FAAA would not have to be the only organisation playing this role – consider the accounting profession, which is represented by multiple bodies.
But it’s a question the association is actively canvassing with its members as it develops its strategic priorities for the next five or six years.
“The question we’re asking, essentially, of our members, as we go through this process is should we be advocating for, in this case, the profession to take back disciplinary and conduct standards?” Abood says.
“What I’m trying to do is take FAAA out of that, so not saying it’s the FAAA [or] that we’re doing it. I don’t want people to say, oh, why should the FAAA be the one? Take that off the table.”
Right now, the FAAA is a sort of half-way house. It has a Code of Conduct that its members sign up to, and an independent Conduct Review Commission to determine whether a member’s actions breach the code and the appropriate sanctions, which can include being expelled from the association.
“Our current body is not structured, at the moment, to take on complaints across the whole profession, it is set up to take on complaints against [FAAA] members and assess them against the Code of Conduct of our association,” Abood says.
“A body that would run standards for the profession would be a slightly different body, I think. It would look different.”
Inconvenient, but not terminal
Currently, being expelled from the FAAA might be inconvenient for a member, but it doesn’t prevent anyone from practicing legally as a financial adviser – there are plenty of advisers who do that now.
To be expelled from the profession altogether still requires action by ASIC. It’s practically impossible for the corporate regulator to effectively police the entire adviser population.
Self-regulation is a hallmark of any established profession, and it requires the existence of a body appropriately structured to undertake that task. As things stand, advice is regulated almost exclusively by government, and it’s been this way for decades. The Quality of Advice Review is merely the latest example of legislative change that runs at least as far back as 2001, and the Financial Services Reform Act (FSRA) – the legislation that spawned licensees.
The best way to stop government constantly tinkering with financial advice regulation and introducing requirements that don’t work well for professionals is to take matters out of government’s hands – or at least, to be in a trusted position to tell government what to do or how to do it.
“I’m always worried about the shadow of FASEA, because I think you could say that it’s generally not considered to have been a successful experiment,” Abood says, referring to the now defunct adviser education and standards authority that was folded into Treasury and ASIC.
“But that doesn’t mean that that a profession shouldn’t control their own standards. The way that we do it might change. But the question is, should government be running that? Or should the profession be running it? And I’m saying the profession, I’m not saying the FAAA.”
Holding each other to account
Professionalism requires the industry to hold each other to standards of practice and behaviour that exceed the standards prescribed by law.
Those standards change over time to reflect evolving best practice and a profession will actively police its own members and even set the standards new members must reach to be admitted.
A profession should also expel members, if required, with the necessary consequence that they are barred from practicing and lose their livelihoods.
If it does all those things effectively, there’s much less need for government intervention.
Abood says the government will always have a role to play.
“It needs to step in when the profession has been unsuccessful in regulating itself; it needs to set minimum standards,” Abood says.
“It needs to support the confidence of consumers in a profession, but it shouldn’t be micromanaging the course content of degrees, and so on.”
She adds that we, as a profession, need to ask ourselves if we are ready for that.
“And how do we do that? I hasten to add that I’m not saying the FAAA should be the organisation that owns that, necessarily,” Abood says.
Whether advice is yet a profession remains debatable; those who believe that it is argue that entry-level education standards, ongoing professional education obligations, a code of ethics and professional standards are enough proof. Those who hold that is it not yet a profession point to self-regulation as the critical missing piece of the puzzle.
“I think you could say we are a profession; we meet the requirements for the definition of a profession,” Abood says.
“We deliver on those professional obligations, but we are also the world’s newest profession. We’ve created ourselves, and as part of what’s next, I think, is how do we drive the development of the profession? Do we continue to be closely regulated by government? Or are we, as a profession, ready to take control of what does good look like for financial advice?”
Before Abood assumed her current role, the FPA, AFA and other industry associations prepared to try their hand at a form of self regulation by creating a body called Code Monitoring Australia (CMA) to monitor advisers’ compliance with the code of ethics, and to report any breaches it found to ASIC. While a formal proposal was filed with ASIC, the idea ultimately never got off the ground when the government accepted a recommendation of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that a single disciplinary body be established instead.
“The timing [for CMA] perhaps wasn’t right,” Abood says now.
“And certainly the government of the time made a decision that it would be run by ASIC. Whether it’s time to look at that again yet, I don’t know.”
Growing the pool of advisers
Self-regulation and the development of financial advice as a profession is a fine ideal but a fundamental issue that remains unresolved so far is how to grow the profession and grow it considerably.
Abood says there could be 100,000 financial advisers in Australia and there would still be unmet demand for advice. The FAAA will focus in 2024 on ways to smooth the entry to the profession for newcomers, particularly career-changers, including pushing for greater flexibility in how the Professional Year is structured.
To get more people, in, Abood says “we need some more flexibility [in] the professional standards that we have”.
She says the Minister for Financial Services Stephen Jones has “acknowledged that the experience pathway legislation did include more discretion and more ability to recognise that someone essentially has the qualifications that they need”.
But she says there’s an opportunity to do more to “ensure that we are able to recognise more people who have relevant and related degrees”. They’ll still need to pass a financial advice degree, but Abood argues that “we can broaden the ability of universities to recognise prior learning, for example”.
“Right now, the professional year is very, very rigorous, but it’s also very inflexible,” she says.
“There’s a particular quarter, for example, in which you must do the exam, and the government has signalled that it’s intending to free that up a bit and add some much-needed flexibility.”
Abood is referring to impending changes under consultation for the adviser exam which will allow more candidates to sit. Currently only PY advisers can sit it later in their provisional year.
“That will help us a lot, because for a career-changer, you’ve got to go back to uni, maybe do a Masters of financial planning, but you’ve also got to do a Professional Year,” Abood said. “That’s odd. If you’re mid-career, you’re trying to support a family, you need to be earning money. We are looking at some initiatives there that will in particular focus on the Professional Year and help us bridge that gap between the university studies and the real-life situation that advisers will face when they complete that year. That’s a big focus for us in 2024.”