During Bill Clinton’s 1992 US presidential campaign, political strategist James Carville famously coined the slogan “It’s the economy, stupid!”. These simple words are credited with playing an influential role in winning the election for Clinton because they so powerfully encapsulated the obvious concerns of most voters at that time (and probably at all times).
A similar analysis can be applied to the world of financial advice in which the need for reform of the costly and complex regulatory regime is so obvious. But it hasn’t happened. Why not? Because there is a widespread belief that conflicts of interest continue to drive the industry, causing a deficit of trust. It’s as simple as that.
A rare comment about this was made at the recent Professional Planner Advice Policy Summit by industry leader, Koda Capital CEO Paul Heath. His words (reported by Professional Planner editor Chris Dastoor on 12 March 2026) were: “we can’t expect policy makers to set policy on the assumption that we will do the right thing… if you actually genuinely want to build a trusted relationship with the community, advisers can’t have conflicts of interest. Over time, we know if there is a conflict of interest, it’s the consumer who ends up being at the worst end of that”.
I could not agree more. I commend the speaker for making the point so forcefully and clearly. It is a subject on which I have touched in nearly all of the 69 articles (this one makes 70) that I’ve authored in this learned journal since its inception.
The industry’s longstanding failure to deal honestly and transparently with this issue is (as always) the main reason why governments talk a lot about the importance of removing complex, costly and often ineffective regulatory controls over financial advisers, but hesitate to do it.
Push comes to shove
Reforms are delayed or binned because when push comes to shove, the industry isn’t really trusted by government to act in the public interest. All the high-principled rhetoric in the world about “the profession’s commitment to the highest ethical standards” can’t overcome this deeply held suspicion in the Australian community that all is not well.
Avoidance of conflicts of interest should not be a controversial subject in a genuine profession. In fact, it’s the key point in clearly distinguishing a profession from other forms of business activity. And that’s why there’s a fundamental principle (Standard 3) in the mandatory Code of Ethics for financial advisers that conflicts must be avoided, not just disclosed.
In response to Heath’s quotes, readers made three main points which deserve some commentary. The first point is that conflicts of interest exist in every profession. True. The reader made the point that hourly rates are conflicted, sometimes giving rise to “inept and inefficient” practices, causing unnecessarily high fees to be charged. Ineptitude and inefficiency per se are not conflicted, but certainly there may be a temptation to charge too much.
Most importantly, however, hourly rates do not create a conflicted incentive leading to inappropriate product selling or the imperative to accumulate funds under management. Surely, that is the principal conflicted practice we must overcome in the financial advice industry. Hourly rates do not encourage it. And of course, to overcome “inept and inefficient” practices referred to by the reader, financial advisers could consider using a flat fee for service model instead of hourly rates.
The second point made by a reader is that Standard 3 of the Code of Ethics “is a joke” and “… is rendered utterly redundant by Standard 2 (you must act with integrity and in the best interests of each of your clients)”. Furthermore, the reader claims that Standard 2 is “principles-based”, whereas Standard 3 is unworthy of a profession because it is “prescriptive and removes professional discretion”.
On the contrary, these standards are complementary. Two sides of the same coin, if you like. The way they work together is that an adviser is required to act with integrity (Standard 2), but must not act or advise where a conflict of interest exists (Standard 3). That’s because to do so brings an adviser’s integrity into doubt, thereby raising reasonable questions about whether the adviser can be trusted to have offered the advice in the client’s best interests.
Think carefully
Far from removing “professional discretion”, Standard 3 requires advisers to think carefully about their actions and advice on a case-by-case basis and decide whether, for example, the use of life insurance commissions or percentage-based asset fees create conflicts of interest. If they do, advisers must not use them because doing so would create mistrust in the profession. Importantly, there is no prescription, just a requirement to exercise professional judgment.
Having said that, the official Financial Planners & Advisers Code of Ethics 2019 Guide (October 2020) states that advisers “should remain open to the possibility that certain forms of remuneration will always fail to meet the requirements of the Code of Ethics” (page 17). Does this mean that life insurance commissions and percentage-based asset fees are never acceptable? I would have thought so, but that’s your call. But if you decide they are acceptable under the code, you should be prepared to defend your position, should the need arise. That’s Ethics 101.
Surely, as professional advisers, we wouldn’t want it any other way. Or would we? On reflection, would we rather just be told what to do and how to think within a complex, costly and prescriptive regulatory regime? Or would we prefer a much simpler regulatory regime in which advisers were given the freedom to make judgements for which they must take personal responsibility, as other professionals are required to do?
The third point made by a reader (my summary) is that “crooks will always be with us”. Given that reality, the argument is we should go ahead and simplify the regulatory regime in the interests of advisers and their clients because most of the industry can be trusted to act properly.
I accept that crooks will always be with us, but this misses the point. The issue isn’t really about the presence of crooks, although I agree that they should be dealt with proactively and strongly. It’s about how to grow widespread public trust. Certainly, the removal of crooks will help the cause, but the long term and permanent solution is the removal of deeply embedded conflicts of interest from the structure and culture of the industry as a whole.
As a result, the likelihood of regulatory simplification will substantially increase. However, if we persist with the rhetorical smokescreens and commercially convenient interpretations designed to avoid the issue, very little will change.
Perhaps the uncomfortable truth is that much of the industry would really prefer not to achieve regulatory simplification and reform after all, if the price has to be a significant disturbance in the conflicted status quo. But the industry can’t have it both ways. Of course, attitudes can change. However, I sadly acknowledge that I may still be writing about this issue from the comfort of my aged care home.
