Professionalism and red tape

28 July 2017

Jayson Forrest

Jayson Forrest is the managing editor of Money & Life Magazine.

Which forms of regulation are impinging on the professionalisation of financial advice? What additional powers or rights do financial planners need to achieve professionalism in the community?

Cody Harmon AFP®

Financial Adviser and Managing Partner, Hard Line Wealth

Licensee: Fitzpatricks Private Wealth

Regulation is not preventing professionalism in financial advice. Professionalism is a choice, regardless of regulation, and for a financial adviser who has only seen an industry post FoFA, I have no complaints around regulation inhibiting my ability to be a great planner.

When you advise a client, you do whatever is in your power to put them in a better position. Increase their net worth with strategic advice, and don’t try and just capture FUM and use this as a measure of your success. If you work in your clients’ best interest and follow compliance basics, then regulation is no longer an issue.

Respect and professionalism of the advice profession has been challenged by past advice scandals. In my opinion, most of these scandals have been indirectly caused by improper ways of charging for advice and poor planner remuneration models, which have been phased out through regulation.

Many planners still charge percentage based fees and pretend to be fund managers. Many planners also fail to provide valuable strategic advice around direct property. In my opinion, this alienates the respect from most property loving Australians.

Instead, meet clients where they are and add value to their existing situation, then educate them over time about the importance of diversification. That is one of many ways we could increase professionalism and respect in the eyes of the community.

Let’s be more holistic than just superannuation and insurance.

Simon Podesta CFP®

Principal, Infinity Wealth Solutions

Licensee: Financial Wisdom

We now have a legal and prudential obligation to act in our client’s best interest, which is a great result for consumers and lifts the profession as a whole. With this, there is an expectation that under this duty, an adviser can provide advice covering a client’s entire financial situation. Where I see a problem is that this conflicts with some of the older regulations that set the basic controls on the provision of advice.

Under our licensing arrangements, we may provide personal advice on financial products and only on financial products to the exclusion of other factors in a client’s financial life. For example, personal advice cannot be provided in relation to specific direct property investments, however, throw it into an SMSF or a managed investment scheme, and it is classified as a financial product.

Narrowing the scope of a client’s finances that can be reviewed in this way prevents us from providing truly holistic and professional advice. I would also argue that limiting advice to ‘financial products’ promotes product-based advice only, rather than genuine professional advice that meets the best interest of the client.

Resolving this issue is critical and I would like to see additional options be made available to planners to undertake further education and obtain qualifications to broaden their scope and deliver advice that is both professional and well-regulated.

In stark contradiction to this is the lack of regulation whereby an uneducated and unqualified individual can provide property advice, as they are not licensed nor are they required to be.

Charles Badenach CFP®

Principal and Private Client Adviser, Main Street Financial Solutions

Licensee: Fitzpatricks Private Wealth

Whilst necessary in many areas, the regulation of financial advice has unfortunately created a significant administrative burden that businesses now need to absorb, which has in turn resulted in a number of unintended consequences including:

  • The cost of advice has increased;
  • Businesses are now more selective in the clients they deal with; and
  • Many Australians are missing out on advice as they represent an ‘unecomomic’ segment that financial planning businesses simply cannot afford to service.

One of the key drivers of this has been the requirement to provide a Statement of Advice whenever personal financial advice is given in all cases, irrespective of the client’s personal or financial circumstances.

In my view, there should be a limited exemption for clients with straight-forward circumstances and a low investment balance, where an adviser is able to provide verbal advice, provided this is documented in the file notes and signed by the client.

For every other profession (such as, doctors, lawyers and medical specialists), they are able to provide simple personal advice without the need to prepare a detailed report for each client.

The journey to professionalism is an evolving one and increasing the education requirements is one of the key drivers of this. To further increase the professionalism, we need to clearly distinguish between ‘aligned’ and ‘unaligned’ advisers, so the public is aware of any perceived bias in a product recommendation.

In my view, to ensure consistency across all industries, ASIC should next turn its attention to the real estate and mortgage broking sectors, as they also have a significant influence on the Australian public’s financial well-being.

Donna Picton CFP®

Manager Wide Bay, Elston

Licensee: EP Financial Services

Increasingly, we’re hearing of laws being introduced to better protect client outcomes. These laws can be loathed by professionals due to the resulting complexity and time spent in administering these laws, often at the cost of time spent with clients.

The teaching and medical professions are two clear examples of increased red tape taking away from students and patients alike. Our profession is no exception to this, following the introduction of FoFA’s opt-in legislation.

True professionals in our industry have an inherent set of values, a client aligned focus and an ethical framework to ensure clients can maintain trust and receive proactive service, cost transparency and long-term positive outcomes. These are integral requirements to building long-term client relationships, a sustainable business and underpinning the community belief in the profession at large.

There is no question that the opt-in laws have created an onerous rigidity in the way we advise clients. This is making it harder and more costly to undertake our true job as planners; looking after the long-term best interests of our clients.

It’s crucial for the future direction of our profession to continue the focus on protecting client outcomes. This means focusing more on stricter laws that create penalties for the wrong actions of a few, rather than penalising the right actions of the majority (such as opt-in).

Imposition of laws must continue, placing emphasis on the individual planner’s accountability, while removing the shielding once held by the licensee. We also need effective implementation of mandatory laws on minimum degree education requirements.

One would hope with these additional powers, and the industry’s Code of Professional Conduct, this will be sufficient to protect our professionalism in the community, whilst relaxing the processes created by the likes of opt-in.

Gil Gordon CFP® AEPS®

Proprietor and Senior Adviser, RI Lower Hunter

Licensee: RI Advice Group

Professionalisation: the process of transformation into a true “profession of the highest integrity and competence”. In one sense, the regulator’s retrospective reporting demands on the major licensees is creating pressure in this direction. In another sense, it is counterproductive by failing to define the standards to which the profession can be held.

The ‘fee for no advice’ mantra should be supplemented with ASIC guidelines about a minimum set of deliverables (e.g. investment manager research, portfolio review and reporting, objective capture and review against those objectives). This minimum bar should be defined in consultation with the industry and then lifted over time.

If the regulator is not careful, it will drive away the only participants with pockets deep enough to invest in this profession, thereby, leaving the second and third tier AFSLs who cannot afford to properly oversee their advisers. NAB has made a major move away from the financial advice business and ANZ is moving in the same direction. ASIC could well create the very opposite of what it seeks.

Materiality is another critical issue which is impeding the profession. A trivial disclosure error can be held as a breach of the Corporations Act and cost a practice thousands of dollars and a licensee, millions of dollars. The regulator’s habit of striking fear into the hearts of every advice assurance team within Australia over small issues such as:

  • failure to list a suicide exclusion period in
    a life insurance SOA;
  • a minor asset allocation observation when outside guidelines;
  • failure to list a buy sell spread in an investment switch; and
  • failure to allocate correctly a specified fee between licence, practice and adviser

which has created an environment where the advice industry is failing to focus on the client and their needs. In time, this environment will add cost and lose clients to alternatives, who lack our professionalism and commitment to the client.

Wayne Leggett CFP®

Principal, Paramount Financial Solutions

Licensee: Fortnum Financial Advisers

The Professional Standards Council defines ‘profession’ as: “A disciplined group of individuals who adhere to ethical standards. This group positions itself as possessing special knowledge and skills in a widely recognised body of learning derived from research, education and training at a high level, and is recognised by the public as such.”

Wikipedia defines a ‘professional’ as: “A member of a profession or any person who earns their living from a specified professional activity.”

If we accept these definitions, it’s hard to infer that regulation would have any effect on our professionalism. Therefore, the issuing of additional rights to us as practitioners will have no bearing on our ability to ‘achieve professionalism’.

Legislation may impose adherence to such conduct on a profession, but professionalism is a manner in which you voluntarily elect to deal with your clients; the automatic placement of their best interests ahead of yours.

I was somewhat amused when our ‘best interests’ duty’ became enshrined in legislation.

How could I tell a client that I am now required by law to put their interests ahead of mine without them thinking: “What the heck have you been doing up to now?”

If we need the force of law to make us adhere to a code of conduct, by definition, that’s not professionalism, whether we care to admit it or not.

Until we, as an industry, are recognised as behaving in this manner ‘without’ legislative compulsion, the public will never accept us as a profession.

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