Sarah Abood speaking at FAAA Congress last year.

The reputations of financial advisers and of the associations that represent them took a pounding during an excruciating and very public deep dive into the advice industry’s shortcomings, during the Hayne royal commission.

Officially known as the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, it took years for those reputations to recover and it’s only recently, and after a merger of the two largest associations, that the peak adviser body has again begin publicly discussing how advisers can take back more control and responsibility for setting and enforcing their own standards.

The Anzac Day public holiday in 2018 cut the commission’s public hearings into financial advice mercifully short of a full fortnight of laying bare the conflicts of interest inherent in advice, the misconduct of key players (particularly institutions) and the conflicts faced by industry associations.

In the months before the commission launched its public hearings, CoreData Research measured the level of public trust in financial advice and found that around 60 per cent of Australian adults rated their trust in financial advisers as a six or greater, on a scale from zero to 10 where zero meant “no trust” and 10 meant “total trust”.

Right after the public hearings in April of 2018, that figure cratered, falling to just 35 per cent. While it has improved since, it has never regained those pre-commission levels.

But just like the recession of 1990 was “a recession Australia had to have”, the Hayne royal commission was the inquiry the advice industry had to have. It was a painful process for many, but it represented a chance to reset, to put advice on a sounder footing and to help shore-up the foundations on which to build a profession.

Critical to any profession is its ability to set its own standards, monitor adherence to those standards, and take action against practitioners when they breach those standards.

The final report of the royal commission noted that at that time, disciplinary processes for advisers were fragmented, being shared by three different bodies: ASIC, licensees, and industry associations – then, principally, the Financial Planning Association and the Association of Financial Advisers.

In addition, there was a proposal for the formation of so-called code-monitoring bodies, which would be tasked with monitoring advisers’ compliance with the industry-wide code of ethics that at the time was still nearly two years away from coming into force.

The FPA and five other associations (the AFA, the Boutique Financial Planners, Financial Services Institute of Australasia (FINSIA), the SMSF Association, and Stockbrokers and Financial Advisers Association (who have since changed their name) – had taken significant steps towards establishing a body called the Code Monitoring Australia to fulfil this role. It was established as a wholly-owned subsidiary of the FPA and was pretty much ready to go, but all that work came to nought and the application to establish CMA was withdrawn after the royal commission recommended that responsibility for advisers’ compliance with the code of ethics be monitored by a single disciplinary body. That body, the Financial Services and Credit Panel, today resides within ASIC.

That the profession missed the opportunity to monitor its own practitioners’ compliance with the code was a setback on the road to professionalism.

During the inquiry both the FPA and the AFA were blasted for being ineffective at taking action against their own members, and unable to reconcile the contradictory demands if, on the one hand, they rely on membership fees for their financial viability and, on the other hand, also want to be relied on to take disciplinary action against those same members, including expelling them, in extreme cases.

The final report noted: “the evidence before the commission did not show that either the FPA or the AFA currently plays any significant role in maintaining or enforcing proper standards of conduct by financial advisers”.

“Both the FPA and the AFA find out about members under ASIC investigation from media releases and news stories,” it said.