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Self-Regulation In The Financial Advice Industry – A Right Or A Privilege

Air Commodore Robert M.C. Brown
7th February, 2016

This article is based on a speech given in late 2015 to financial services industry participants by the Centre’s Chairman, Air Commodore Robert Brown AM. Since its delivery, the government has announced a proposal to establish an industry-funded statutory Standards body. The success and credibility of that body will depend on the adoption of the principles in this article.

As an aspiring profession, we often chant the mantra of self-regulation as though it’s our God-given right to run our own race free from government interference and red tape. Ideologically, we support this position on the basis that “free markets” should be preferred as a matter of principle and that government regulation of business should be kept to a minimum.

This position may be arguable for the economy in general; however, applying ‘free market’ ideology to financial planning demonstrates a fundamental misunderstanding of the nature of ‘profession’ and of the important obligations which must follow a claim of professional status. Accordingly, we must always conclude that self-regulation in a profession is a privilege which must be earned. We can earn that privilege by behaving in a manner that convinces society we’re willing to support the public interest above all other interests, including our own commercial interests and even above the interests of our clients (where those interests are inconsistent with the public interest).

Poor behaviour by the financial planning industry since its inception (and not just by a few bad apples within it) has led the community to the conclusion that we cannot be trusted to act in the public interest. As a result, we’ve been subjected to layer upon layer of complex legislation designed to control the behaviour of which we’ve been accused. To make matters worse, that legislation has never worked, principally because of political compromises which have been embedded in successive reform attempts, including FOFA (‘Future of Financial Advice’ legislative changes). These compromises have been promoted by financial services industry lobbyists, determined to ensure that the relevant legislation doesn’t eliminate the conflicted product selling culture which lies at the heart of the problem.

Thankfully, there is a growing understanding amongst people of goodwill in the financial planning industry that if we are to legitimately lay claim to recognition as a trusted profession and to win the privilege of self-regulation, we must voluntarily lift our educational, professional and ethical standards across the board. This can be best achieved by the establishment of self-regulatory processes and bodies, the role of which is to make independent and binding decisions on industry participants. Many of these decisions, particularly in the area of ethics, will be difficult and unpopular because they must be set well above the level of the compromised laws to which I referred above. This is something that any profession worthy of the description must be willing to do, failing which we can look forward to more complex and costly regulation by government.

In achieving a genuine self-regulatory outcome for our aspiring profession, it will be important that certain safeguards are stringently applied, including:

  • Financial product manufacturers (or bodies closely aligned thereto, such as dealer groups) must not be represented, directly or indirectly, on any standard setting body. Product manufacturers may certainly make their views known by submissions during the development of standards, but they must never be involved in the final decisions.
  • Standards setters must be genuinely independent of any associated member-based body and they must be properly funded.
  • The processes of standards setters must be clear and public, their decisions must be final, and they must not be able to be manipulated or subverted by commercial interests, especially after a decision has been publicly announced. Regrettably, we have seen the latter occur in recent years in the accounting profession’s development of its financial planning standard, APES230, an outcome which has left that profession with minimal claim to moral leadership in the financial planning industry.
  • Several independent members should be appointed to standard setting bodies in support of an Independent Chair. These members should be appropriately qualified and experienced in consumer protection issues as it is the best interests of the public (not the commercial interests of association members) that a profession should defend and protect.

The fundamental message here is that as we evolve our discipline of financial planning, we must unreservedly defend the foundational principles on which a genuine profession must be built, namely, integrity, objectivity, independence, due care, conflict avoidance, technical competence, confidentiality, trust and uncompromised support of the public interest. And we must never allow commercially motivated pressure from vested interests to dictate our conclusions. I accept that avoiding these pressures is not always easy, especially when they are sourced from within our own aspiring profession; however, unless we do so, government, the media and most importantly, the public whose interests we claim to serve, will devalue or ignore our advice and contributions to important public policy debates in which our voices should be heard, respected and trusted.

Robert M.C. Brown AM BEc FCA
Air Commodore
Chairman
ADF Financial Services Consumer Centre

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