In 1960, infamous Ponzi scheme operator Bernie Madoff graduated from Long Island’s elite Hofstra University with a degree in political science, before going on to law school. He is now serving a 150-year sentence in a North Carolina federal prison.
Meanwhile, former Enron CEO Ken Lay was studying advanced economics during those same years in the early 1960s, eventually earning a PhD from the University of Houston. He died in 2006 after being found guilty of six counts of fraud and conspiracy.
True, Adolf Hitler famously failed the entrance exam of Vienna’s Academy of the Fine Arts. But do you really think had he passed and matriculated that the Third Reich and subsequent horrors would have been avoided?
Education might be important, but it has no causal relationship with ethical behaviour.
And yet, more education is consistently offered by politicians, executives and the industry associations as a panacaea to the industry’s perception problems, even though that reputational crisis has everything to do with ethics and almost nothing to do with lack of technical knowledge.
Let’s take a blunt stroll down memory lane. Of all the bans, scandals and crimes that have contributed to marring the reputation of the wider advice industry in recent decades, what percentage do we realistically think occurred because the adviser in question had insufficient knowledge of the derivatives market, or should have spent more nights studying for his next CFP assessment?
Maybe a few, but the vast majority were either out-and-out crooks or – more likely – acting in accordance with the in-house product flogging KPIs set by their dealer groups and owner-institutions.
Indeed, the industry largely finds itself in this unenviable position: where government and consumer advocacy groups feel they need to intervene with mandated standards – because of the sales-focused ‘boiler room’ culture that led to the major scandals in the major wealth managers.
Ironically, the institutional wealth management arm bosses are likely more educated (in the formal textbook sense) than many of the advisers under their control. It was a bunch of MBA graduates that developed the vertically integrated model that turned advisers into salesmen and clients into customers (and often ripped off customers at that).
So why then is education so readily agreed upon as the solution to this crisis of confidence?
Well, as all journalists are told from an early age, you just have to follow the money.
For the industry associations – sorry, make that ‘professional associations’ – education is the primary cash cow, with fees for some of the certifications in the market upwards of $1,000 per year in perpetuity.
Much of that education coin then flows on to the political party machines, either in direct donations or to third-party lobbyists to advocate on their behalf. Given the two major advice associations did a deal with the FSC over risk advice commissions, I’ll leave it to you to decide how well that money is being spent – but that is a rant for another day.
Moreover, education is a convenient PR tool. Mandating higher standards makes government look like it has consumer interests at heart without irking anyone except for a few veteran advisers. For the institutions, it briefly appeases a cynical news media, allowing them to pump out some positive spin on a band-aid solution that does nothing to address the incentives at their rotten core.
Don’t get me wrong, investing in further education may be wise for a financial adviser. It will give them a broader and deeper understanding of their clients’ financial lives and allow them to more critically engage with the sales pitches of BDMs and licensees. It could also possibly give them a competitive advantage over their peers.
But business owners should decide how educated they want their staff to be, and the quality of the services they offer – not politicians in Canberra or the boardroom bandits that caused the problems in the first place. These VIPs might be armed to the teeth with degrees and certifications but are hardly in a position to be lecturing anyone on ethical behaviour.
And we should be especially sceptical of pro-education solutions coming from the very organisations that make their money out of education fees. Talk about conflicted rem!
With new standards heading through the Parliament this coming sitting and due to apply from 2019, advisers will probably have no choice but to comply, with this just the latest aspect of their business they no longer control.
But next time you see a financial adviser banned, don’t be surprised if he has a higher degree.
Aleks Vickovich is contributing editor at ifa
I agree Scott. It’s really not too much to ask that people have a proper tertiary qualification before they are allowed to manage someone’s life-savings.
Once again, Aleks has raised the ifa reporting bar with a sensible, well written piece that addresses the real issues. Whilst I agree that higher education levels should be required, the main issue is that ethics are not impacted by degrees. So his points are correct. Address education levels, but do it for the right reasons, not to “fix” something that is not caused by education, but by other causes that are not being addressed, and are potentially being empowered by legislation such as LIF.
Indeed, what are the key performance indicators that licensees use to measure advisers’ performance. Licensee leaders manage what they measure. This would make for an interesting research project.
A refreshing read Aleks in a time where the “War on Common Sense” continues unabated.
Sometimes the best way to sum things up is with what has been said in the past:
“Education without values, as useful as it is, seems rather to make man a more clever devil.”
– CS Lewis
Great piece Aleks.
The Financial services industry is regulated by people with low EQ and high certification/credentialisation. Its what they understand and more importantly its what they can measure.
If your starting point is ignorant of the core fundamentals required for an integrated client/adviser relationship, then imposing a layer of irrelevant ‘measurables’ is the perfect response by the technocracy.
Well said, Scott.
Main issue with the industry is the sales culture…. Having a relevant (ideally financial planning) degree doesn’t make anyone immune to ‘product flogging’ however if the entry level into the industry was much higher it would deter those looking to enter ‘for a good time, not a long time’… Obviously also has knowledge advantages as there are countless ‘experienced’ practitioners with little by the way of qualifications who have a very low level of capability…
I think people would be far less likely to study for years to enter the industry if they weren’t serious about doing the right thing… I do however see people happy to do a 9 day course to ‘see how it goes’…
I agree with you whole-heartedly. What surprises me is that Accountants and Solicitors, degree qualified, still manage to get themselves in jail and yet tell us we are not professional and have no ethics. Ethics are learned from an early age and I would submit cannot be re-learned easily….and since when does knowledge translate into good sound ethics anyway? Behaviour is a personal thing and most advisers I know behave in a professional and ethical manner and are truly interested in their clients and also the standing of their business in their community as well as the industry. More legislation will not change things. I have no time for the FPA and rapidly losing faith in the AFA over the last few years as neither are clearly not up to speed in regards to the direction our industry needs to be going…. political alliances may be there (i have no first hand knowledge of this) and of course they are empires to be fed by the advice industry … so they want mandatory membership and higher education (provided by themselves) just to keep going. Sad that the adviser in small business who is not controlled by large institutions are being let down by just about everyone in the food chain. And as for pollies? well we have such a rabble in Cant-berra that we have no chance of ethical legislation let alone encouraging ethical behaviour in society. A great big clean out of the powerful elements in politics and financial services (and media) would be a good start to getting our nation and our industry back on track … serving our clients properly with fair practices and fair rules.
Whilst there is no causal link between education and poor advice, which I have heard from people who should know if this is correct, it needs to be addressed on the basis that the current educational requirements are a joke. I did my financial planning qualification in 9 days with a personal trainer and an accountant, neither of which should have passed and been able to provide financial advice based upon the evidence I saw during the course. The cynic in me viewed the fact that they paid a cheque as being a major factor in them being considered suitable to give financial advice after the 9 days.