While there has been strong conjecture over whether financial advice has earned the right to label itself a profession, it is still lacking approval of a professional standards scheme because of its inability to self-regulate.
A professional standards scheme is a legal instrument that obliges associations to monitor, enforce and improve the professional standards of their members.
It must be approved by the Professional Standards Councils which can help industries lower their civil liability by independently mandating and enforcing professional standards.
The Professional Standards Authority provides support for the PSC and is responsible for helping associations apply for a scheme.
Being accredited by the body is not purely a status symbol, it can help limit the civil liability of professionals who will have a cap on how much can be awarded for a legal claim against an advice firm.
The advice sector has seen a raft of reforms over the past decade, including the introduction of an education standard and code of ethics.
But while Professional Planner understands the advice industry applied to be recognised by the PSA, the application was ultimately withdrawn in the lead up the Hayne royal commission final report.
Deen Sanders, a Worimi man and indigenous cultural leader who is now current partner at Deloitte but previously chief executive of the PSA, says the council needs to be convinced a profession is sufficiently low risk enough to approve.
“In the case of financial planning, evidently that threshold hasn’t been met yet, in the eyes of the council,” Sanders tells Professional Planner.
“This boils down to the idea of professional indemnity insurance, because professional indemnity insurance is the main mechanism by which consumers get redress when somebody is negligent in their professional duties.”
In addition to leading the PSA from 2012 to 2017, Sanders was appointed the inaugural CEO of the polarising and now defunct Financial Adviser Standards and Ethics Authority when it launched in late 2017, a legally mandated government body brought in place to oversee the implementation of the education standard and code of ethics.
“The primary question that has to be answered, is this group of people worthy of reducing the liability that consumers might incur as a consequence of them being a profession,” Sanders says.
“Is this group sufficiently low risk to be able to give some benefits under than regime?”
Similar schemes are in place for other professions like for lawyers and accountants, and Professional Planner has previously argued gaining limited liability is the hallmark of a true profession. The topic will be explored at the Advice Policy Summit next February in a session about the pathway to professionalism post-QAR.
The Financial Advice Association has also outlined co-regulation as a strategic priority which is meant to be a step towards self-regulation.
Sanders says the FAAA or another body needs to undertake the role of regulating professional conduct.
“Is [the industry] prepared to take that step up to genuinely regulating the professional conduct of its own members, not ASIC, not any other body – is it prepared to do it itself?”
To become recognised by the PSA, organisations to meet a range of statutory obligations and provide extensive evidence.
Sanders explains the “five E’s” that essentially decide whether an industry should be recognised as a profession.
The industry must have ethics, sufficient education requirements, an appropriate set of examination processes in place, ongoing enforcement frameworks in terms of professional conduct.
Consequently, it will be difficult for the advice sector to qualify as a profession under the PSA.
“The fifth ‘E’ is the idea of is the organisation a sufficiently robust entity? Is that entity prepared to regulate its members?”
He poses a question to the advice industry: “are you prepared to boot people out for failing in their professional obligations?”
If financial advice wants to pursue its professionalisation agenda, self-regulation is the next essential step.
