Being a profession is different to being professional
I couldn’t help but think of what it is that is holding us back from becoming a profession. On face value we seem to be heading in the right direction, but there are current issues that I think will ultimately prevent us from getting there unless something is done about them.
The Australian Council of Professions defines what it is to be a profession –
“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 in a widely recognised body of learning derived from research, education and training at a high level, and who are prepared to apply this knowledge and exercise these skills in the interest of others. It is inherent in the definition of a Profession that a code of ethics governs the activities of each profession. Such codes require behaviour and practice beyond the personal moral obligations of an individual. They define and demand high standards of behaviour in respect to the services provided to the public and in dealing with professional colleagues. Further, these codes are enforced by the profession and are acknowledged and accepted by the community.”
This is a pretty long definition that, while a bit unwieldy, actually provides a pretty good framework of where financial planning needs to go to become a profession. Taking the definition apart there are a few key areas of focus that must be achieved:
- Adherence to ethical standards that go beyond the moral obligation of the individual
- Acceptance by the public of special knowledge and skills
- Learning derived from research and training at a high level
- An absolute acceptance of operating in the interest of others
- Self-determined standards of behaviour
- Self-regulation and enforcement of the ethical and applied knowledge standards
Adherence to ethical standards that go beyond the moral obligation of the individual
I think we are well on the way to the setting of ethical standards and while I have a few issues with the approach FASEA is taking to education, I’m certainly hopeful that they will come up with some ethical standards. Unfortunately, if all we get is ethics 101 where we get examples of right and wrong, this will be a lost opportunity. We need actual standards of ethical behaviour more than lessons about ethics and we certainly need more than establishing a paper trail of administrative procedures to show ethical behaviour.
So what do we need? Well a proper decision framework based on practical situations would be a great start, as would something of the calibre of Harvard’s Michael Sandel’s incredible lecture series on justice and ethics (actually available free on iTunes U) would be a great place to start. Interesting, engaging, thought-provoking and entertaining – almost everything financial planning education is not…
Acceptance by the public of special knowledge and skills
Practising financial planners all understand the special knowledge and skills required to be an effective adviser to their clients, and I would go so far to say that our existing clients understand that also. Unfortunately, the 90-odd percent of the population who don’t engage a professional financial adviser frequently don’t get it. Most still think we should have the secret to picking the right investments.
Probably this lack of understanding stems from us not wanting to step on the toes of the other ‘professions’. We don’t want to talk too much about our expert knowledge regarding taxation of investment structures and superannuation for fear of upsetting our accounting counterparts, or the integration of asset ownership, investment bonds and superannuation beneficiary nominations as they apply to estate planning for fear of over-stepping the mark with our legal friends. Often, we are unwilling to even engage with the fund managers and economists we work with to discuss the actual interface between the end-user (our clients) and their investment needs for fear of being told that we don’t really understand the nuances of investment markets.
But we do have special knowledge. We understand applied behavioural finance because we see it every day. We have expert knowledge in superannuation, life insurance, spending behaviours, financial goal-setting, debt management, investment structures and more. This doesn’t mean that we know everything – far from it – but we do have a breadth and level of expertise that few others have.
Learning derived from research and training at a high level
This is where I have a problem – and I am part of it. In Australia, we don’t have a single university that has a stand-alone school of financial planning. Plenty of universities teach units in financial planning and then cobble together a course and some of these courses offer practitioners as lecturers or tutors as I have been for more than 20 years. Yet none (to the best of my knowledge and I am happy to be corrected) really engage with experienced practitioners to develop research programs for the development of our professional body of knowledge.
As an example of what I mean: How much life insurance should someone have? What do we all agree should be the standardised asset allocation ranges for a balanced investment? What is an appropriate measure of an individual’s retirement income needs? How much debt should someone take on at different stages of their lives?
These are questions that should be appealing to academia but instead the focus remains on poor behaviours in the past. It is just too easy to research the low-hanging fruit of where financial advice has failed rather than where it could excel. We badly need academic support to develop better courses (especially at higher levels where there are simply not the educators available) and to help drive the development of the specialised knowledge base which will inevitably relate to the aforementioned applied behavioural finance.
An absolute acceptance of operating in the interest of others
We all understand the concept of operating in the client’s best interest, but this takes the concept further – not just our clients – but ‘others’. This means that there needs to be some higher purpose to what we do that exceeds the pursuit of profit for us and our clients. Pro Bono work is one way, but so is dealing with lower value clients for some of our time. It’s all very well for us to listen to the practice consultants about value and pricing, but if that excludes 80% of the population then we will never become a profession and the general perception of us will remain – you’ve got to have a lot of money to see a financial planner or they won’t be bothered to help you.
Of course, the practice and practitioner must be profitable or else there won’t be any financial planners, and certainly the regulatory burden has increased all our costs over recent years (see point below for a solution there…), but we still need to make some time to see some of those who really need our help. And yes, these people often cost us money but there are enough clients who pay our full fees to allow us to spend a little time with those less fortunate who need help. The ‘interests of others’ is a more comprehensive concept than ‘best interest’.
Self-determined standards of behaviour
When you leave regulation to the regulators you get rules based on the lowest common denominator. Not standards of actual behaviour but rather procedural rules and regulations such as forms being required to be filled in a particular way as this is easy to check – even if it makes no sense to the end user (the client) or they see little value in it.
Part of the problem here is that we are forced to accept the regulatory definition of financial advice – the recommendation to buy, hold or sell a financial product – rather than a definition that better describes what we do. We are forced to stand by while property spruikers pretend to provide what looks to us like financial advice without the regulatory framework we must adhere to because property is not defined as a financial product (but perhaps best not to get started on this).
If we controlled our own destiny, we would be in a position to define what it is we do and how we should do it; but here comes the rub – who would determine those standards? We have a number of competing membership bodies who I’m sure would put their hands up for this but the chasm between the various bodies is simply too deep to expect them to come together on this.
I have been advocating for a standards body for some time (I like to think of it as the Australian Financial Planning Standards Council) that would operate something like the AMA or similar where an elected group, supported by a professional team, was responsible for the oversight of the standards. Importantly, they should not set the standards, but rather enlist a large number of committees to focus on specialist areas so as to engage with as many interested professionals as possible. The committees themselves should engage with academia to generate the research needed to develop and constantly improve the standards they would set. We would need strong government support for this and I’m not sure that we would have that right now; but perhaps in the near future…
Self-regulation and enforcement of the ethical and applied knowledge standards
If we can achieve the standards body I have described above; it is not a stretch to suggest that this body should be responsible for enforcement and discipline of the standards they have developed. Disciplinary hearings would have professional standards on which to base their decisions which should simply then be a matter of determining if the ‘right thing’ had been done.
We already have the Financial Adviser Register as a tool to determine who is authorised to provide advice and while this a start in the process, it provides the public little confidence in the eyes of the general public as to who to trust. Our regulators treat financial planners and advisers as a homogenous group, all of whom need the same qualifications. Clearly, we began to specialise a few years ago, but the regulator has not kept up with this trend.
Even more significantly is the current move towards providing ‘financial coaching’ as a means of pretending not to be financial planners. By carefully avoiding making and financial product recommendations this group sees themselves as ‘above the law’ and not in need of even being qualified or registered financial planners or advisers. Apparently financial coach is not a prescribed term under Corporations Law but certainly would be considered as the provision of financial advice by a professional standards body not wholly defined by the Corporations Act as our current regulator is (not their fault).
So…where to from here?
Well, this is just a thought piece to stimulate some conversation. I truly hope that we can rise above the situation we have found ourselves in today – often considered untrustworthy and unprofessional. I’d like to think that after nearly 25 years for me we might start to be recognised for the progress we have made rather than continually being defined by the bad apples. Dame Onora O’Neill, a venerable Cambridge professor and expert on trust, said that it was impossible to “build trust…and you were wasting your time trying” – all you could do was to act in a trustworthy way. I think she knows what she is talking about.
Let’s put the in-fighting and the regulatory mess behind us and move forward towards a professional future.
Paul Moran is principal at Moran Partners Financial Planning
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