There was a time when a black swan was presumed not to exist, indeed it was deemed impossible.
When a black swan was found in Western Australia, people were forced to rethink the logic of the impossible. The idea of a “black swan event” is one that is a surprise as nothing in the past points to its possibility, it has a major impact and afterwards is rationalised by hindsight as though it could have been expected.
There have been numerous commentators arguing that a “profession” of financial planning is a “black swan” — in that it does not or cannot exist. These commentators may be compelled to rethink their logic in light of the recommendations of the Australian Parliamentary Joint Committee Report into lifting the professional, ethical and education standards amongst financial planners.
This report was handed down on 19 December 2014 amid little fanfare, with almost no media attention, was bi-partisan and frankly caught many by surprise. Nothing leading up to the report could have predicted the far reaching implications of these recommendations. With the benefit of hindsight we should have all seen this report coming.
Of course these are only recommendations from the PJC Inquiry, but if the Government does implement them they will be remembered for building a statutory approved profession of financial planning and changing the game forever.
This game changer will mean the days of financial planners holding themselves out as a “professional” without commitment to ethical standards, education and membership of a recognised professional association are coming to a close. Indeed, the meaning of what is a profession becomes very clear when you consider the view of the Professional Standards Council;
“A profession is a disciplined group of individuals who adhere to ethical standards. This group positions itself as possessing special knowledge and skills in a widely recognised body of learning derived from research, education and training at a high level, and is recognised by the public as such. A profession is also prepared to apply this knowledge and exercise these skills in the interest of others”.
Those financial planners, lobby groups and industry executives that have been stubbornly sceptical of the role of professional bodies in financial planning should consider the following key PJC recommendations;
- The term general advice is to be replaced with “product sales information”
- The term personal advice will be replaced with financial advice
- An individual must be registered as a financial adviser to provide financial advice and the government will protect the terms “financial planner” or “financial adviser”. In order to use the term financial adviser or financial planner an individual must be registered.
- Any individual wishing to provide financial advice and be registered will be required to be a member of a professional association that is operating under a Professional Standards scheme approved by the Professional Standards Council. Individuals must meet the professional association educational, professional year and registration exam requirements.
- An Independent body will be established to set and monitor the educational framework that applies to financial planners. This body must have an agreed number of academics, a consumer advocate, an ethicist and representatives of approved professional bodies. This body will be controlled and funded by approved professional associations, an approved professional association is one approved by the Professional Standards Council. Product manufacturers and licensees by their nature will not sit on this education council.
- By January 2019 Financial Planners must have a mandatory minimum AQF7 degree, it is very important to note that the report specifically does not say “degree equivalent”. Australian Universities, as distinct from commercial providers, will play an increasingly important role in educating and shaping future financial planners.
- There will be mandatory professional development for financial planners and advisers that is set by their professional association in accordance with Professional Standards council requirements.
- Professional Associations must have a code of ethics compliant with a Professional Standards Scheme and approved under the Professional Standards Council.
- If the professional association sanctions or bans a member then ASIC would act to suspend or ban a financial adviser on the advice of the professional association. Further, this sanction or banning would stay on the register highlighting to consumers and future employers any potential “bad apples”.
Senator David Fawcett and his colleagues should be congratulated on delivering courageous, considered and robust recommendations that will establish financial planning as a statutory recognised profession in Australia. The PJC committee have had the conviction to ignore powerful vested interests within the financial services eco-system and have put forward recommendations that serve the public interest.
It is now up to financial planners to accept that both sides of politics have agreed upon a framework for our recognition as a profession. This is the start of the heavy lifting needed if we are to rebuild the trust and respect of the Australian public.
Matthew Rowe is the immediate past chairman of the Financial Planning Associatio of Australia.
