Jenni Mack, chair of consumer advocacy group Choice, told the Financial Advice in Superannuation Symposium in Melbourne this week that transition to a profession will depend on “the quality of the professional associations, and that will be about professional associations that play a true role in leading the profession to attain higher standards and better manage the rump of their memberships”.
“How quickly you go down that path is really up to the individuals in the profession and the professional associations,” she said.
According to Mack, there is no formal definition of what a profession looks like, but “I would agree a profession has two key components”.
“One is around a high level of technical proficiency, and the other is around high ethical standards,” she said.
“Technical proficiency is really around a significant body of learning. It’s a high level of learning at entry level; additional accreditation through certification programs or higher learning… and finally, continuing professional development or lifelong learning.
“It’s fair to say that from where we sit, the bar is too low at all points of the continuum, from entry-level training right up to CPD. And a problem with the current framework is that the education is not consistently delivered. The quality of the education depends very much on the licensee or individual providers.”
The introduction of a national entry-level exam would at least deliver a consistent level of education, she said, even though there remain issues with any exam-based system – namely, that candidates can be “taught to the test” or they can cheat.
“But that’s where the second dimension comes in, which his about a strong ethical framework. Exams can’t assess ethics and that’s where codes of practice, mentoring programs and support from professional associations is really important.”
Restoring consumer confidence
Mack said the Future of Financial Advice (FoFA) changes remove much, but not all, of the conflict that has plagued the industry over the years and will help improve consumers’ confidence in its practitioners.
“They do that primarily by getting rid of the worst conflicts in the industry and that includes the commission-based remuneration,” she said.
Mack said that by building confidence in the industry and putting the industry on the path to professionalism, the FoFA reforms will “open up the industry to far more clients; people who have stayed away will more willing to come and get advice”.
However, Mack thinks some conflicts will continue to concern consumers.
“One is percentage-fee or asset-based-fee remuneration models,” she said.
“While asset-based charging remains a dominant remuneration model in the industry, I think consumers will have questions about the professionalism of the industry.
“There’s another issue that FoFA didn’t really fully deal with… and that’s increasing vertical integration of the industry.
“I think that over time, consumers, as they want advice, are going to demand the removal of all conflicts and a greater separation between product and ownership of product. They’re even going to demand a greater separation between product and advice in all its manifestations – not only in ownership, but in the quality of advice – and I can see implementation becoming a completely separate offering.
“Consumers won’t be prepared to pay higher advice fees where they want strategic advice for what they see as a routine administrative task, such as implementation.”
Key attributes of professionalism
Mack said that a truly professional industry would have a number of key attributes.
“It would have a highly educated workforce, both at the entry level, at accreditation and at the continuing professional development. Planners would firmly be in the advice-giving business, with product recommendations a secondary consideration and implementation a third consideration,” she said.
“Clients’ interests will be front and centre and residual conflicts will diminish over time.
“I think consumers really get the difference between strategic advice and implementation, and I can see that separating.
“And the fee regime will become increasingly transparent. We’ll see the end of days where fees are concealed by complicated formulas or charged in accordance with market movements that bear no relationship to the service delivered. And there will be formal consent – not this two-year business under opt-in, maybe not even annually, but whenever you see your adviser, there will be informed consent to pay the fees in that actual meeting.”
