On the road to being recognised as a profession, have we turned the corner?

But defining a profession is a bit of a movable feast, changing as the world, and the professions themselves, change.

Writing on the topic in an article published by The Professional Standards Council (Australia), Dimity Kingsford Smith and Justine Rogers say the word “profession”, at its core, “is an indicator of trust and expertise”.

Generally speaking, a profession could be considered to be made up of occupational groups of people who (among other things):

• Have special knowledge, skills, and experience derived from formal education at a high (tertiary) level, with ongoing training and experience
• Apply their knowledge, skills, and experience in the interests of others
• Are accountable and held accountable for their professional behaviour
• Are governed by a code of ethics, which requires them to have an absolute commitment to ethical conduct, which is enforced by the profession itself

By this description, the financial advice industry has become increasingly more professional every year since the introduction of the Future of Financial Advice (FoFA) reforms.

We have high minimum education entry standards for advisers, and only highly experienced advisers with a problem-free history will be able to practise without attaining the mandatory degree qualification from January 2026.

All advisers must keep up with their continuing professional development obligations, and a professional year enables new entrants to be supervised and gain experience at the coalface.

Following the introduction of the Quality of Advice Review (QAR) recommendations, advisers will have a fiduciary obligation and provide good advice, replacing their current best interests duty. This means they are accountable.

The profession has not only had a dispute resolution scheme in the form of the Australian Financial Complaints Authority (AFCA) since 2018, (and AFCA’s predecessors before that date), it will also be contributing to a compensation scheme of last resort. The profession is therefore not only accountable for the behaviour of its members, it is held accountable for all financial advice.

We therefore believe that financial advice is already a profession, but here’s the thing…

The Australian Council of Professions’ definition of a profession, dated 2003 but still standing today, includes these words: “A Profession is a disciplined group of individuals who adhere to ethical standards and who hold themselves out as, and are accepted by the public as possessing special knowledge and skills…”

And furthermore, that professions are governed by codes of ethics which are often “enforced by the Profession and are acknowledged and accepted by the community”.

This gives rise to the question: Does the public accept, acknowledge, and therefore recognise financial advice as a profession?

Being recognised as a profession is more linked to how people perceive and/or experience advisers, rather than how advisers operate in reality, and that perception or experience is influenced by adviser reputation more broadly.

We think it’s fair to say that the reputation of the whole financial advice industry took what we still believe was an unfair hammering when the banking royal commission focused on misconduct, rather than conduct. But it’s been more than four years since then, and four years since the introduction of the FASEA Code of Ethics.

That was then

The Australian Securities and Investments Commission (ASIC) Report 627 Financial advice: What consumers really think, released in August 2019, gave some alarming statistics in relation to consumer trust in financial advisers.

Almost half (49 per cent) of survey participants agreed that financial advisers were more interested in making themselves rich than in helping their customers, and more than a third (37 per cent) agreed that financial advisers did not generally have the customer’s best interests at heart.

However, those who had recently received financial advice had more positive attitudes towards financial advisers than those who had not, and even limited knowledge of recent reforms appeared to improve perceptions of the industry.

But did the overall poor perception of advisers back then match reality?

We are still of the opinion that, broadly speaking, it didn’t, that is, we believe most advisers in 2019–20 could be trusted, they did have their clients’ best interests at heart, and they were professional – but to borrow a phrase, perception was reality.

This is now

Fast forward to today.

A University of Southern Queensland study authored by Ben Neilson, a financial adviser and researcher, published in the International Journal of Economics and Financial Issues in August 2022, found that when compared to the results of a similar study in 2009, financial planning has made significant strides towards professionalism. This is compelling evidence which should ultimately go towards improving the perception of the industry.

More encouraging news is that a global CFA Institute report, released last year, indicates that trust in the financial services industry among surveyed Australian retail investors has almost doubled from 24 per cent in 2020, to 45 per cent, and trust in financial advisers sits at 42 per cent. Further evidence that perception is actually improving.

Despite that, while there is still an undercurrent from the mainstream media that seems to blame advisers for systemic issues that led to poor advice, there is at last recognition of the need for advice.

There is also a pervading tone running through commentary, which suggests that if/when implemented, Michelle Levy’s QAR recommendations will do what they are intended to do – allow more Australians better access to good advice.

Most importantly, the government and the regulators now recognise that there is a need for financial advice, that we do need more financial advisers, and that their advice will benefit Australians.

This collective recognition, however grudging, means that on the road to being accepted as a profession, we have well and truly turned the corner.

Neil Macdonald is CEO of The Advisers Association