FPA reforms and their impact on financial planners

Ray Griffin looks at the recent changes made by the Financial Planning Association and considers the impact they will have on the financial planning community in Australia.

The recent announcement by the Financial Planning Association (FPA) of recommendations it will put to members to restructure the association is a most welcome step forward.

The organisation has been through quite turbulent times in recent years, with many members airing their grievances publicly, and the proposed changes should go a long way to ameliorating that situation.

Looking back at the FPA’s history, it is no surprise that the discontent of recent years began to arise. In short, at its birth in January 1992 the FPA was a combination of two key stakeholders in the then fledgling financial planning industry in Australia.

The FPA was the result of the merger of the Australian ‘chapter’ of the United States-based International Association of Financial Planners — a practitioner focused organisation — and the Australian Society of Investment and Financial Planners (ASIFA), which was generally more representative of the businesses in the financial planning sector.

While others will be able to better account for the efforts applied to bring the two organisations together, it was nevertheless a sizeable task underpinned by the recognition that there was strength in numbers and much more ‘firepower’ in building a single body to represent the organisation.

The hybrid structure — principals and practitioners — brought with it many benefits, not the least of which was the commercial viability to build and expand education and public policy divisions that were critical areas of need in the early 90s.

However, as early as the mid 90s there was tension between the two groups, which at one point almost culminated in a split.

It was a critical time and it has to be said that the people who held it together did great work, for it was way too early in the evolution of financial planning in Australia for the two groups to go their separate ways.

Even the harshest critics of the FPA would have to concede that the organisation mostly kicked goals up until the last few years.

Had a division occurred in the 90s, I seriously doubt the financial planning sector would have the station it holds in Australian commerce at the moment.

In 1996, at the precipice of that potential split, a review of the FPA's structure and governance by an external consultant recommended restructuring to enable national elections for practitioner and so-called large and small principal members for the board along with the election of four directors from the ‘general’ member division.

This was in contrast to the state based capital city centric elections that saw state council chairpersons sit on the association’s board.

The recommendations were accepted by members and in 1997 James Doogue from Perth and I had the privilege of being the first practitioners elected to the board from the practitioner division under that structure.

One of the changes saw independent directors seconded to the board, and this decision brought valuable experience and wisdom to the deliberations of the board, and still does to this day.

It’s fair to say that this board structure, with some modest ‘tweaking’ over the years, served the FPA well for the best part of a decade and enormous progress was made in various areas by the association — not the least of which was in the public policy arena.

The thing about trying to have influence on public policy is that numbers, in terms of members, opens the ears and eyes of politicians and their advisers. The FPA had this, and its numbers were growing each year.

In the early to mid 90s the FPA and its members could seemingly do no wrong.

There weren’t many bad news stories emerging from the media, and some of that credit must go to one of the association’s early chief executives, the late Jock Rankin, who used his vast media connections from his first career to push FPA and financial planning to the fore in the minds of many Australians.

By the latter part of that decade financial planning had endured the south east Asian currency crisis and a few years later the dot com bust. Generally speaking, these events came and went without lasting problems for planners.

Then came 2002, and a year of declining markets leading up to the Iraq War.

Almost concurrently, the media began to run many more negative stories about financial planners — about the advice they gave and the way most earned their living through commissions.

Problems were also brewing at the FPA internally, with members pleading for better representation along with an increase in calls to rid the organisation of so-called rotten eggs: people, it was deemed, who were besmirching the reputation of all financial planners.

At the same time, tensions between practitioners versus principals began to bubble again.

Practitioners were generally calling for tougher standards and for the FPA to become a tougher gatekeeper in regard to who could be admitted as members.

Again, generally speaking, principal members were perceived to be more interested in the FPA not making life too commercially difficult for them, and this perception was particularly directed at very large principal members. Whether this was true or not is irrelevant because the perception has existed since the start of financial planning in Australia and will continue indefinitely.

While all this was happening, on the back of a 2003 Australian Securities and Investments Commission shadow shopping exercise, the ABC’s Four Corners program aired what can only be described as a damning expose of financial planning.

Some who couldn’t wait for the FPA to evolve to the next stage broke away and formed comparatively small boutique groups, which have survived yet still lack the critical mass required to be recognised as the peak body.

Somewhere along the way in recent years, from an outsider’s perspective, it seemed the association had stopped looking forward; it seemed to have stopped casting its vision forward to scope the type of organisational structure that would best serve all stakeholders, especially the community, in the future.

Throughout the almost 19-year history of the FPA one thing has not changed, and it is that the community just wants to be able to trust financial planners, and financial planners want to be trusted both as individuals and as a sector of Australian professional services.

No matter how hard the FPA tries to argue that it is primarily about professional standards that just so happen to be administered by a member services association, this hybrid and conflicted structure will continue to be the Achilles heel of the organisation.

Whether a conflicted structure is real or is a perception matters not — the fact is that’s the way the mainstream media views it and the media has the greatest influence on community views.

So it was with great delight that I read FPA chief executive Mark Rantall’s media release about the proposed changes to the membership structure which, if approved by members, will commence from July 2013.

Tougher membership eligibility criteria, which include minimum approved degree qualifications, will more fully align the structure to that of a standards based organisation, and the proposed discontinuation of the principal member category will go a long way to eradicating arguments around commercial interests taking precedent over professional standards.

This really is great news for the FPA and the proposals deserve the wholehearted support of all members.

It’s been easy for critics of the FPA to fire shots across its bow when it hasn’t acted with the pace of change deemed necessary by some, and I include myself in that cohort.

But now is the time for all members to get behind the association as it attempts to take some major, very commendable, steps forward — steps that will advance efforts to build a good, trusted, name for financial planners in Australia.

Ray Griffin is the principal of ConsultGriffin and is a veteran financial planning observer.