To many people, FoFA was a revelation. Until then, it had not dawned on them that a financial planner didn’t have to place a client’s interests ahead of their own.
The Future of Financial Advice reforms made it clear that clients’ interests would rank first, and by doing that the reforms created a new basis on which the industry could begin to build relationships and trust with the approximately 60 to 70 per cent of people who could benefit from using a planners’ services but who choose not to, due to mistrust or other misperceptions.
But just before Christmas, and after Professional Planner had closed for the year, the government announced it would drastically dilute key consumer protection provisions of FoFA.
Presumably, in announcing the changes it did, the government responded to lobbying by sections of the industry. Those responsible should hang their heads in shame.
A message has gone out loud and clear: It’ll be planners’ interests first, thanks. The cause of professionalism has been set back, possibly profoundly. A potential foundation for trust and respect has been severely undermined, maybe irredeemably. Perceptions have been reinforced of planners willing – indeed, preferring – to put their own financial well-being ahead of that of their clients.
How else can the changes be interpreted?
The industry hasn’t just shot itself in the foot, it may have shot itself in the head. It was given a chance to look the public in the eye and say: we are professionals; we deserve your trust and respect; we’ll place your wellbeing above all else; and you don’t even have to take our word for it, it’s what the law says we must do. You know, like other professions do.
It had that chance and, frankly, it squibbed it. It looked at the hard yards that it would take to transform the public’s perception and it said, no, sorry, that’s not for us. It’s too hard. We’d rather look after ourselves. We’d rather be regarded as fund management distributors and salespeople than as professional service providers.
The impact of this capitulation could be felt for years if the amendments are not loudly and effectively opposed.
“What is proposed is not a minor tweak,” says Robbie Campo, deputy chief executive of Industry Super Australia.
“It effectively repeals the best interests duty, leaving in place just a hollow heading. Under the proposed changes a planner could meet the best interests duty without needing to consider their client’s best interests.”
(Campo’s full views and her reasoning will be published in the February 2014 edition of Professional Planner.)
CHOICE chief executive officer Alan Kirkland says: “Professional financial advice requires professional advisers, and the FoFA reforms were an important step towards creating an industry that puts consumers’ interests first.”
“We are concerned that this progress will be reversed if these changes proceed as announced, and that the problems that CHOICE and others have identified in the financial advice industry over two decades will be perpetuated,” Kirkland says.
Various institutions, which not coincidentally operate both funds management and financial planning divisions, came out and gave the changes the thumbs up.
The minister responsible, Senator Arthur Sinodinos, said the changes will reduce “significant burdens on industry”. Note that the senator didn’t describe financial planning as a profession. Being a profession inevitably and unavoidably imposes a significant burden on its members. You don’t get to be a professional for nothing. The “burden” of placing clients’ interests ahead of your own – and of serving the public interest above all else – is simply the price of being granted the privilege of being a profession, and all that it entails. Don’t misunderstand this: being a professional is a privilege, not a right.
The industry now has to contend with the ramifications of the FoFA backdown. This is how the media works. From now on, articles about financial planners will include a statement warning consumers to beware, because financial planners can quite legally put their own financial interests ahead of yours. Another generation of potential customers will be put off engaging with financial planners. Every criticism levelled at the industry over the years will be justified in the public mind.
And all because of the fears and the short-sightedness of a few. Or was it only a few?
Are there still good men and women out there who understand not only why regulatory reform of the industry’s fundamentals is necessary, but also the massive good it can do?
Are there any financial planners who still believe that putting the clients’ best interests first, explicitly and unequivocally, is the only way to ensure financial planning has a viable, long-term future as a profession?
Are there any financial planners still willing to stand up for what it really takes to be a professional, and for what it takes to transform their occupation in to a profession?
Are there? Where are you?
And what are you doing about it?