For the future of the profession let’s have evolution, not revolution

Last year, the industry went through significant change, with the loss of grandfathered commissions, the move to annual opt-in, forward-looking fee disclosure statements and fee consent form requirements.

Then in October, we saw changes to complaints procedures and breach reporting requirements, as well as the introduction of design and distribution obligations and the change from a duty of disclosure to a duty to not make a misrepresentation.

The call for an exemption from the requirement to attain a relevant degree for advisers with 10 years’ experience and a clean record is something we welcome, given the profound negative effect that rushed-through changes have had on many advisers to date. Those who did not meet the FASEA exam benchmark lost their livelihoods, their businesses, their retirement aspirations, and in many cases, their feelings of self-worth, resulting in serious mental health issues.

We are concerned that if we do not provide this exemption, the industry may lose even more advisers and the knowledge and experience that are so necessary for mentoring the next generation of advisers will go with them. This loss will impact those entering the industry under the new terms seeking mentors for their professional year.

It is our view that, as time goes on and the current new entrant provisions are embedded – i.e. that they complete at minimum a relevant degree qualification and receive mentoring over a professional year – the professionalism of the financial services industry is assured. However, access to mentors with many years of experience plays a vital role in their future success. In this way, we believe the proposed education exemption best serves our industry.

We must also learn from the FASEA exam experience and not mistreat those longer-serving advisers who helped build the industry, and who have provided Australians with good quality advice that has helped them achieve their financial goals for creating wealth and protecting their families. Advisers in the twilight of their careers should be afforded respect and allowed to depart their businesses on their own terms. We should be celebrating their experience and taking it into account, not implementing change for the sake of change.

Welcoming the exemption doesn’t mean to say that we do not believe in the benefits of education for the profession. Having worked for many years on the FPA’s CFP certification assignment, I am a great believer in education – but let’s make any educational requirement appropriate to an adviser’s business so that it truly is development, not just education for education’s sake. There is nothing ethical in forcing a person to pay for and complete courses that have no relevance to the advice they give, or to their business, in areas they are not legally allowed to provide advice in.

A further question of ethics is the suggestion of a move to “principles-based regulation”. It is our belief that the Australian financial services industry is not fully ready for it. Instead, we should be seeking to evolve over time towards this kind of regulation.

Our thinking is that many (if not all) associations have had in place a Code of Ethics of some sort for some time, yet these have not been actively utilised. There has been minimal oversight and enforcement. It is only since the inception of the industry Code of Ethics and Professional Standards introduced by the FASEA board (the Code) just over two years ago that the advice industry has to a great extent included ethical concepts in the way in which it monitors and supervises those authorised.

Many in the industry are still grappling with using elements of the Code and how a principles basis applies in terms of oversight. Two examples demonstrate the confusion:

• The “black and white” interpretation that the Code’s Standard 3 meant that referral arrangements and payments were in fact banned. This was clearly not the case given the guidance by FASEA.
• Based on their interpretation of Standard 7 of the Code, some financial product providers are now imposing benchmarks for what they regard as an acceptable amount for an adviser to receive as a fee in reaction to “Fee Consent” requirements. These benchmarks make no allowance for an adviser to act on a principles basis.

We as an industry are in the infancy of operating with this type of regime and it will take many years before we operate effectively in this way, both ethically and commercially. Therefore, the current manner of operating in a “black letter law” market with ethical principles alongside to guide our actions should be allowed to evolve. Over time, as participants become more familiar with principles-based regulation, the balance between rules and principles can be adjusted.

In short, let’s have an evolution – not a revolution.

Phil Osborne, general manager – compliance, Synchron

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.