Reflection: Professionalism is each individual’s responsibility

Simon Hoyle


June 30, 2017

An eruption of activity this week around the use of the term “independently owned” highlights the folly of trying to ensure the delivery of professional services by regulating businesses.

All of the confusion – and the pointlessness of an exercise that allows disclaimers to be used to facilitate the use of the term anyway – could be avoided if responsibility and accountability for advice resided with the individual adviser, and if advisers were required to operate to strict professional and ethical standards.

Then it would not matter if the adviser was a bank employee, a sole-trader own-AFSL adviser or anything in between. They would be required to act first in the public interest. Conflicts, including conflicted remuneration, would have to be avoided, not merely disclosed. An adviser’s professional obligations would push back against the demands of employers or licensees – and the public could begin to gain confidence that their interests are being well looked after.

You can get a sense of how this might look by examining Accounting Professional and Ethical Standard (APES) 230, which deals with the provision of financial planning services by accountants – the version before it got neutered, that is. We might see a more ballsy requirement emerge from the Accounting Professional and Ethical Standards Board (APESB) as it reviews the standard, and something similarly demanding could even emerge from the Financial Adviser Standards and Ethics Authority (FASEA) in due course. Miracles can happen.

A big grey area

The big problem with trying to use legislation to define which advice practices are and which are not “independent” is that financial planning is just a big, messy, grey area – there’s such a wide range of business structures, of interrelated connections and conflicts, of product-pushing arrangements masquerading as advice that what’s independent in the eyes of one practitioner may appear to be fatally conflicted to another. A business that’s independently owned may be just as conflicted as one that’s institutionally owned.

It would be much easier to say to every practitioner that you’ve got individual, personal responsibility and accountability to make sure the advice you provide is not only technically bulletproof but delivered in a thoroughly professional and non-conflicted manner, as defined by your profession’s code of ethics and standards.

By definition, of course, a profession would hold its practitioners to a standard that exceeds the law. And if you didn’t measure up to your professional duty, you’d be held accountable and penalised – by your peers, no less, who could see straight through you and know exactly what you were really getting up to. You might even be kicked out of the profession, if what you were doing was deemed bad enough.

It’s considerably simpler when you approach it this way. Whether an individual receives high-quality, professional advice shouldn’t be a crapshoot. If they walk into a bank branch they should be confident of the same level of professionalism and non-conflicted advice as if they walk into any other advice business.

It follows from this that the licensee as we know it today has no long-term future. The licensing role must be taken away and given to another body. Licensees can continue to provide things – buying power, business support, education programs, and so on – but determining who is and who is not fit to call themselves a financial planner is not an appropriate role for a commercial entity. It’s the job of an independent body. It might even naturally fall to FASEA, eventually.

Then, if a licensee insisted an adviser do something contrary to the adviser’s professional or ethical standards, the adviser would have a choice to make. They could refuse the licensee’s demand, just as they can do now, and run the risk of being fired. Or they could comply with the demand, in the hope of keeping their job, but run the risk of being pinged by the independent body and de-registered, and therefore rendered unemployable anywhere. If they refused the demand, as a professional upholding professional obligations, they’d be backed by their professional community, but it’s still possible things could get pretty hairy. Such is the price of professionalism.

This brings us neatly back to the role of professional associations, which we covered last week, flushing out a range of views and opinions about the roles and responsibilities of such associations.

A professional association serves the public interest as its first priority. The public interest is served by the provision of services that meet the highest professional and ethical standards, are free from conflicts and therefore are unambiguously in the client’s best interests.

Eliminating conflicts might not be in the commercial interests of the association’s members – who doesn’t want a stream of commissions from a legacy book of business? But that’s simply too bad.

And that’s a neat encapsulation of a difference between a professional association and an industry association or lobby group.

The article last week prompted a response from the Association of Independently Owned Financial Professionals (AIOFP) after we used it as an example to distinguish between a professional association and an industry association or lobby group. The response has been appended to the original article and appears again, in full, below.

To be fair, we did refer in the article to only one of AIOFP’s six stated objectives.

Its full objectives, as set out on its website, are as follows:

  1. Political representation with government and regulators.
  2. Protection of members from unfair treatment within the industry.
  3. Promotion of independently owned and independent advisers directly with consumers.
  4. Provide an inclusive networking environment for adviser members.
  5. Provide an inclusive networking environment for practice principles.
  6. Furthering the commercial interests of members and their clients.

Five and a half of the six objectives talk about representing its members and promoting their interests, and the interests of clients are mentioned once. The public interest is not mentioned – and at the risk of sounding like a broken record, there’s an important difference between clients’ interests and the public interest.

The public interest might be covered in the scope of the AIOFP’s first objective, but only if the association’s representation to government and regulators is in pursuit of the public interest, not its members’ interests. But the objective doesn’t explicitly say that.

As we stated last week, let’s be clear: there is absolutely nothing wrong with the objective of representing members as a highest priority. There are all sorts of associations that do that well. But that’s the role of an industry bod or a lobby group not a professional association. And advisers need to be keenly aware of the difference.

Compare the objectives above with the objectives the FPA sets out:

  1. Represent interests of the public.
  2. Represent interests of members.
  3. Foster high professional standards.
  4. Facilitate world-class education.
  5. Provide professional development.

Again, member-focused, but right at the top of the list is the public interest. One objective is to represent members. One relates to facilitating education, and two relate to professional standards and professional development.

Professional Planner isn’t trying to play favourites. We have long held the view that any association or body, properly constituted and run, can serve as a professional association for financial planners. The corollary is that any organisation not properly constituted and run cannot be a professional association.

We’re not arbitrarily determining any of this, either – there is a pile of literature that sets out the roles, responsibilities and structures of professional communities and the bodies that represent them. There are precedents all over the place. We know what professional communities and professional associations look like, because we see them in other places. And we know when an organisation isn’t a professional association.

Advisers need to know the difference, too, because there’s a risk that not being in the right place at the right time could be occupationally fatal.

Response from the AIOFP

Simon, just in case you misread our website, we state we will act in the BEST INTERESTS of our members and their clients [ie the public]. With issues not directly related to consumers, ie LIF manipulations, we act in the best interests of our members unlike others who sort their views and literally shafted them.

The spirit of FOFA demands everyone should be acting in the best interests of the public, this theme transgresses into the operation of an Association. But it should also be noted that not all activities of an Association are consumer related. With issues that are not related to consumers, we will unashamedly act in our members’ best interests, that will not change.

We are requesting you print this response to add balance to your article.


TOPICS:   AIOFP,  professionalisation

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