Graham McDonald knows only too well that there are two sides to every story. The newly appointed chair of the Financial Planning Association’s Conduct Review Commission says that whenever there is a disciplinary matter to be heard, it’s not always only clients who may have lost money who are affected.
McDonald is a former presidential member of the Administrative Appeals Tribunal (AAT). He was also the first banking ombudsman and a former chair of the Superannuation Complaints Tribunal (SCT). He says it’s not the role of the CRC to expel every financial planner who comes before it, but rather to ensure that ethical and professional standards are maintained.
Sanctions available to the CRC include directing FPA members to undertake further education or training, reprimands, fines and suspension of designations (including Certified Financial Planner). The FPA publishes a list of CRC actions and determinations against members. McDonald says expulsion is, and must be, a last resort.
“The last thing I want it to be seen as is a punishment thing,” McDonald says. “That’s not what it is. It is there to support the industry, rather than to be something that’s judgemental of the industry.”
McDonald says that in his role at the AAT he heard a number of cases of financial planners appealing decisions against them by the Australian Securities and Investments Commission (ASIC)
He says a particularly memorable case concerned a financial planner whose clients had lost money in the collapse of Westpoint, and who had been disqualified by ASIC as a result. The planner lived and worked in a regional area, and his clients, which included farmers and local businesses, were inevitably also his friends, as well as members of his own family.
“So it wasn’t just an entirely professional relationship,” McDonald says. “When Westpoint went under, they lost their investments, including their homes, and he had put his own money into it as well. He felt really bad about this.”
McDonald says that as the appeal hearing progressed, it became clear that the financial planner had been contemplating suicide. He says timely intervention ensured that the financial planner was looked after. But he adds that it is “something that stuck with me”.
Higher stakes for the industry
“There are two sides to the coin,” he says. “One is the investors who lose their money, and the other is the effect on the planners who are giving advice.”
McDonald says a number of cases before the AAT made it clear that financial planners needed to be held to higher standards “to better understand what they were recommending”.
He says the sheer volume of money now invested in superannuation funds and the demand for professional financial advice means the development and enforcement of education, professional and ethical standards “clearly has become more important”.
“It’s in those cases where financial planners have not complied with basic principles [that] there’s a question of how they are to be dealt with in something that’s an emerging profession,” McDonald says. “When you look at all the other professions, they have strong self-regulatory bodies, and it’s essential that financial planning have that as well.
“That’s not to say [the CRC’s] role is to punish people. It’s to see that education and professional standards are protected and maintained.”
McDonald says he expects the CRC to have a close working relationship with the new Financial Adviser Standards and Ethics Authority (FASEA) to ensure the standards that FASEA sets are observed in practice and in principle by FPA members.
McDonald will serve as independent code administrator, to oversee compliance with the FPA’s Professional Ongoing Fees Code by those FPA members who choose to comply with the code instead of the opt-in provisions of the Future of Financial Advice (FoFA) legislation.
McDonald’s appointment was announced jointly with that of deputy CRC chair Dale Boucher, who is a former chairman of the Tax Practitioners Board and a former Australian Government solicitor.
Both appointments are part of the FPA’s push to be approved under new legislation as a code monitoring body, with responsibility for ensuring its members’ compliance with the industry-wide code of ethics to be developed by FASEA under the Corporations Amendment (Professional Standards of Financial Advisers) legislation.
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