Here’s one thing the AIOFP might be right about

There are not many things the AIOFP and its predecessor organisations have said over the years that I’ve agreed with, so imagine my surprise – discombobulation, even – to find myself on board with at least one of them: the need for an adviser-led disciplinary body to deal with members who transgress conduct rules and professional standards.

This proposal is one of more than a dozen in AIOFP’s five-year outlook, and it’s the one that caught my eye. Even if the AIOFP had not raised it, the issue should be resurfaced now, while the newly minted Shadow Minister for Financial Services, Kevin Hogan, is doing the rounds saying on-the-job training is more important than all that fancy book-learnin’ academic qualification stuff (I’m paraphrasing, obviously), and while he’s still apparently formulating potential Coalition policy by saying these things out loud.

Giving advisers themselves the power over who gets in, who stays in, and who gets kicked out is a critical element of a profession. Of all the advances financial advice has made over two decades or more, this remains the glaring omission, and the number one reason advice still can’t credibly lay claim to being a profession.

Professional Planner was created precisely to prosecute this case. From the beginning, in late 2007, we tried to set out what it would actually take for financial advice to become a profession. We said it would not be easy. We said there would be massive disruption. We said that not all advisers would make it to the end of the process. But a profession was what advisers said they wanted, and we wanted them to understand what it was going to take.

The framework we kept coming back to involves three pillars. The “cognitive” pillar covers the qualifications needed to get in and the ongoing professional development required to stay. The “normative” pillar covers behavioural standards: a code of ethics, best interests obligations, not being a crook. And the “structural” (or “organisational”) pillar includes a professional body with the power, in extreme cases, to expel practitioners and end their careers. Right now an adviser can be booted from any of the associations to which they belong, with no effect on their continuing to practice. That’s the one that still looks pretty shaky.

The place and privilege of professions

Sociologists and academics have been writing about the place and purpose of professions for ages, and the core argument has not changed: society grants professions a bundle of privileges, and in return professions accept a bundle of obligations.

Many of the privileges are substantial, including a legally enforced monopoly over performing a defined kind of work, and would rightly be decried in other situations. In the case of financial advice, of course, the very terms “financial adviser” and “financial planner” are enshrined in legislation.

Professions are granted autonomy, which means they have not only the right but also the obligation to exercise independent judgement free from direction by employers, governments, or even clients.

They have the right (if not currently, in the case of financial advice, the capacity) to self-regulate, and to set entry standards, conduct rules, and disciplinary processes. Professionals are granted social status, enjoy deep public trust, and reap significant financial rewards that other occupations, even if they’re doing comparable work, cannot command.

The price for all of that is the obligations professionals owe to society. The public must be assured that professionals are competent and ethical and that they place their clients’ and the public interest ahead of their own. You can’t attain a position where your income is boosted by the fact you can effectively control who can and can’t compete with you if you then use that position to rip off your clients.

And there is a collective professional responsibility to discipline peers and colleagues who breach standards defined by the profession itself.

Trapped in a paradigm

A profession that fails to honour its obligations risks losing its privileges. And an industry that can’t credibly demonstrate that it could uphold those obligations if it were to be granted professional status is doomed to remain trapped in a paradigm of external regulation and a lack of true autonomy and self-determination. Perhaps that sounds familiar.

Right now, there is nothing the body of financial advisers can do to police its own members. A licensee might terminate an adviser’s authorisation if the behaviour is sufficiently egregious as to be impossible to ignore, but it’s more likely they’ll quietly encourage the adviser to go elsewhere. 

And as history has shown, there’s almost always another licensee prepared to take that person on, either unwilling to look too hard at the circumstances, or simply not caring. The regulator has issued too many licences, often to entities that plainly lack the resources and less plainly lack the will for effective compliance. ASIC cannot be everywhere. In fact, it doesn’t really want to be anywhere when it comes to supervising advisers.

A peer, though, might see what’s happening. If an adviser processes 6000 statements of advice in three years and channels hundreds of millions of dollars of client money into a single managed investment scheme, the platforms enabling it might not say anything, and the regulator almost certainly won’t not notice in time, but the professional community should. That’s what professionalism actually means: not only holding yourself to a standard, but also holding your colleagues to it.

Two questions

Which raises two simple questions every adviser should ask themselves. First: if you know or suspect a colleague is doing something they shouldn’t, have you raised it with them? Second: if a colleague comes to you with the same concern about your conduct, are you prepared to hear them out?

If the answer to either is “no”, then perhaps you’re not quite ready to really be a professional. And if you’re not prepared to be a professional, then maybe financial advice isn’t the right career choice.

The AIOFP document also recommends that the current 12 associations trying to represent financial advisers in Canberra be reduced to three. The paper argues, not unreasonably, that 12 different bodies with 12 different agendas muddies the waters, dilutes the collective voice, and plays into the hands of those who have historically exploited division within the advice community.

All of that is true. The AIOFP says the three associations it thinks should survive are the SMSFA for SMSF advisers, the SIAA for stockbrokers, and, as it happens, itself for financial and risk advisers. The FAAA, the paper concludes, would be better off among the consumer groups.

What a remarkable piece of analysis. The AIOFP is itself one of the 12 associations it says is too many. Having identified the problem it has helped create, it then proposes itself as part of the solution. Funny how no association is ever quite bold enough to recommend a reform that would abolish itself. And in any case, each of the three associations the AIOFP designates as survivors all lack the structural pillar necessary to support a profession.

Financial advice has moved a long way since Professional Planner first made the case for an advice profession, and it has fallen short at the final and most important hurdle. Education standards have improved. A code of ethics exists. The normative and cognitive pillars are in reasonable shape. But the structural pillar remains weak. 

Until financial advisers have a professional body with genuine power over their careers, the profession will remain a work in progress.

Whether that body ends up sitting within the AIOFP’s architecture or somewhere else isn’t really the question. The question is whether advisers actually want to be professionals, with everything that entails, or whether they really still prefer the designation without the obligations, just like many of them did 20 years ago.