This article is based on one previously published in the financial services media.
Recent months of public criticism of proposed changes to the Future of Financial Advice legislation (FoFA) and of the activities of certain bank-based financial advisers should be heard by the financial services industry as a very loud wake-up call.
An early indicator of an industry in deep reputational trouble was when the ethics of financial planners was mocked by Shaun Micallef on his television show Mad as Hell. In a recent segment, a financial planner, looking remarkably like a sleazy used car salesman, including big blonde hair, pink shirt, white cuffs, shiny suit and cowboy boots, smugly informs Micallef that there’s been a misunderstanding about proposed changes to the FoFA legislation. Clients, he says, should accept that the best interests duty is not about their best interests. It’s about his best interests (“It’s all about me”).
Harsh satirical criticism of this kind reinforces what the community already suspects about an industry that spends a great deal of time trying to convince itself (and the public) that its participants really are the trusted professionals they claim to be. So how should the industry react to this kind of criticism? Should financial planners ride it out hoping that the issue will run out of steam? Should it be ignored as yet another evil conspiracy between the political Left and ignorant journalists? Those who believe it’s a conspiracy should remember that the criticism hasn’t just come from the Left. Even Alan Jones, king of conservative Sydney shock jocks, has been highly critical of the industry’s behaviour.
The industry must accept that what is actually happening is not a conspiracy; but a broadly-based negative public reaction to an industry that has an unfortunate reputation for saying one thing and doing another. In saying this, I’m not reflecting on the ethics of those financial planners who seek to do the right thing by their clients. How very sad this controversy is for those individuals. However, I am reflecting on an industry which so controlled by a deeply embedded product sales culture that it seems unable and unwilling to reform itself. Indeed, it is this very unwillingness to embrace fundamental change which explains why the industry has been involved in a multitude of scandals and controversies since its inception in the 1970s.
As a result, every time governments gets close to doing what needs to be done powerful vested interests have forced political compromises, mainly in the form of complex, costly and ineffective workarounds. Both political parties’ versions of FoFA suffer from this as does the accounting profession’s financial planning standard with its bizarre two tiers of ethics, the higher one based on removal of conflicts, the lower one based on the discredited concept of conflict disclosure.
What the financial planning industry should be doing, if it is truly the profession that it claims to be, is working with government to adopt a comprehensive self-regulation code which would be applied to all Australian Financial Services Licence holders and their representatives. This would appeal to a government that is committed to the removal of red tape. It would also appeal to consumers who could then be assured of receiving trusted advice which would also be affordable due to the removal of so much ineffective box-ticking bureaucracy. And it would appeal to the Australian Securities and Investments Commission because then it would only have to deal with the rogues, rather than with the constant ‘bushfires’ caused by a generally flawed industry structure.
But would it appeal to the financial planning industry? It should, because most industries (and certainly all professions) prefer to self-regulate, thereby removing red tape, cost and intrusive regulatory oversight. Sadly, however, for many of the financial planning industry’s participants, a comprehensive self-regulatory regime would not be supported because it would work to genuinely reform the industry in the public interest by removing all forms of conflicted remuneration, not just some of them.
It’s as though many participants in the industry would prefer an ineffective and avoidable regime of ‘box ticking’ compliance (reserving the right to criticise that regime as too complex and costly); while carefully ensuring that governments don’t get too close for comfort to the genuine, low cost and simple solution.
If there’s one positive outcome from all of this, it’s that the industry’s dark side has been laid bare for all to see. How the industry reacts will determine its ability to evolve into the trusted profession that the public has the right to demand and expect of those who claim to act in their clients’ best interests.
Air Commodore Robert M.C. Brown AM
ADF Financial Services Consumer Centre