Absolute power corrupts absolutely

I am always suspicious of any enterprise, idea or person when they cannot simply explain their purpose for being at the table in a transaction that affects my wellbeing.

Hypothetical question: Do the proposed FASEA rules around professional education fall short of other laws?

As far back from 1960, the then-governor general William Morrison commented that "the development of tendencies to monopoly and restrictive practices in commerce and industry has engaged the attention of the government which will give consideration to legislation to protect and strengthen free enterprise".

This marked the beginning of a revived interest in competition law in Australia, eventually resulting in the 1974 Trade Practices Act and what we now know this piece of legislation as: the Australian Consumer Law. 

Less attention has been paid to market participation by governments, although a number of subsequent inquiries and amendments did ultimately lay out the circumstances in which a government agency could be considered as operating 'in business'. 

Fast forward to 2017 and the Australian Parliament passes a Bill into law creating a body with almost unlimited powers to oversee an entire profession: FASEA.

Since its birth, we’ve all seen the uncertainty rise and read apparent lies about former qualifications older than a decade being disregarded. The rule, if it is true, would in effect wipe away a person’s entire education, formal knowledge base and toil, for which they paid dearly.

Certain sections of the legislation should send shivers down the spine of every senior adviser who is captured by term “existing relevant provider” under the amendments to the Corporations Act 2001.

Yes, FASEA may fail to actually undertake proper consultation, but it matters naught. Subsection 8 appears to be their free-pass to immunity for breaching their duty to all stakeholders that will be adversely affected by the changes that eventuate in law.

Of course all this is so far academic (pardon my pun), because we are all awaiting the sermon from the mount by FASEA chief executive Deen Sanders and crew, which we are told is “coming”.

Well so is Easter and so is the deadline date where no further stakeholder engagement can happen, 29 June 2018.

What might we see in financial services come 2024?

One possible view is that these proposals are an extension of what many of the banks started bringing in a few years ago – degree minimum entry for financial planners. If that is the case then we can question the motivation behind the new laws.

Similar to the Life Insurance Framework (LIF) changes that commenced only six weeks ago, the proposed higher education changes will assist the large end of town gain more digital footprint where customers can be sold products without advice as part of the overall institutional shopping experience.

Direct distribution and sales channels are the only way of the future for banks. We have seen them extracting themselves from the mess they created for the past number of years now. Much of the bank’s FUM sits under individual planners who won’t meet the requirements under the proposed FASEA rules.

We will also see the continued rise of fintech and robo-advice from the proposed education standards as the cost to deliver personal advice is potentially pushed higher by the simple cost of doing business.

With the above in mind, a curious mind turns its attention to what conflicts of interest are embedded in the decision makers – not only those who preside over the rules but those who make them!

And yes, we have already done some digging and question the ethics and motives of some who are party to these new laws.

A few arguments to consider

Depending on your legal interpretation of a number of different pieces of legislation, the government body FASEA may be not only ‘reducing competition’ for consumers of financial service advice and products, but it [may] also be by its conduct falling short of Section 18 of the Australian Consumer Law in that it has failed so far or omitted to provide any formal guidance to industry stakeholders on matters such as education courses, final subject requirements and exemptions for prior learning or formal qualifications held.

In fact for such as body to have [seemingly] unlimited and unchecked powers, the way it is conducting itself thus falls short of the Murray report’s recommendation that says industry participants should act with fairness, transparency and respect.

Finally, the introduction of the new education rules will have an impact on competition – you cannot argue that it won’t.

Experienced older advisers who are within three to five years from what would have been their retirement goal age will exit. We have seen recently that one major bank is reducing its workforce by 1,000 while at the same time foreshadowing an increase to its IT job intake over the next few years.

This follows the theme of direct sales channel and robo-advice where higher profits will make happy shareholders, not happy customers.

These measures will also potentially place downward pressure on client book values if enough advisers start exiting in a short space of time – supply and demand.

In my view, this is once again knee jerk legislation to a problem that may be resolved by organic transition within the industry. Banks are exiting and the IFA market is rising.

I’d like to see the modelling that Treasury did before allowing these rules to be imposed on real life people – I bet there was very little done (if any).

I am too old, too tired of tilting at windmills by myself – sure it’s fun dropping $50,000 to take down a bank subsidiary and prove a point, but it’s not exactly ‘wealth creation’ 101 at its finest!

But this one isn’t my fight really, not in a huge way anyway. but I do feel for others.

I spent an absolute fortune educating myself mostly before ever making the decision to invest another person’s hard earned money or tell them how to plan the final 15 working years of their life.

I’ve done all the subjects that the sketchy media releases suggest I may have to do to escape going back to school for two years of my adult life.

So why am I even giving a hoot?

Well I believe in fairness, I believe in equality and I believe awareness of all the facts empowers people to make better choices in life.

I am not one to simply let FASEA tell me that red is now blue and that what I learned, retained and have put into practice must now be relearned again just so the education and training fraternity can experience an uplift in enrolment, fees and board members can get a consultancy fee and pat on the back from [ABA CEO] Anna Bligh and co. when their pays and share prices go up!

Stay tuned as I’m sure the “best is yet to come”, as Ol' Blue Eyes Sinatra would say.

Adam Kennedy is managing director of Ethical Financial Advice, an authorised representative of Shartru Wealth and a Global Goodwill Ambassador.