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Welcome to the new decade. And in the financial services world, a decade of massive change that will finally see the establishment of a distinct and separate profession in Financial Planning, unprecedented structural change and a new paradigm of trust and reliability of advice for the Australian consumer.
For over 25 years, my Financial Planning Association and Hewison Private Wealth (HPW) colleagues have been agitating for change in the financial services sector and the uplifting of licencing standards for professional advisers.
The FPA launched the Certified Financial Planner professional standard in Australia in 1993 and in 1994, I spoke at the FPA Annual Convention on the issues of banning commissions, increasing professional planning standards and eliminating conflicts of interest.
In 1997 HPW introduced a graduate mentoring program that required our planners to hold an appropriate undergraduate degree. They were then required to undertake 4-5 years of mentoring and postgraduate study including a Graduate Diploma or Master’s degree in Financial Planning and attain the CFP professional designation. Only then would we recognise them as Senior Advisers and permit them to give advice.
Despite this long history of advocating appropriate standards for the Financial Planner profession, here we are more than 2 decades later, finally seeing the government and the regulator taking some real action. In the meantime, we have experienced a spate of disgraceful behaviour resulting in financial pain to thousands of consumers.
Over the past 5 years there have been some radical changes including the:
The outcomes from these changes are and will be dramatic.
From where we sit, the impact will be minor as all our advisers already exceed the education standard required but will still need to complete the compulsory exam and FASEA ethics courses.
But the impact will be enormous as the majority of Financial Planners do not hold an appropriate degree or alternative that will meet the standard. Many financial planning firms rely upon annual commission income to sustain their financial viability and have failed to take appropriate action to avoid the inevitability of a total ban of commissions.
Personally, I have little sympathy for those AFS licensees and financial planning practitioners who have chosen to ignore more than two decades of evolution of the profession and the drive to increase standards across the industry in general.
Over that period, we have witnessed countless scandals including rip-offs, product collapses and plain bad advice.
It’s time for change but I fear we will see a drop-out of anything up to 60% of the financial advice community as a result of their failure to embrace change and take appropriate action.
From the Australian consumer’s point of view, we will finally see growth in trust and reliability in the Financial Advice profession with measurable benchmarks and accountability.
FASEA Code of Ethics Standard 3 states that planners “must not advise, refer or act in any other manner where they could have a conflict of interest or duty”.
Under ‘Other sources of variable income’, the code states that advisers will breach Standard 3 “if a disinterested person, in possession of all the facts, might reasonably conclude that the form of variable income (e.g. brokerage fees, asset-based fees or commissions) could induce an adviser to act in a manner inconsistent with the best interests of the client or the other provisions of the code”.
In an industry that is heavily laced with conflict of interest, particularly in the institutional space, this standard is impossible to meet where a licensee organisation has a vested interest in their own products as well as the advice to clients. This is termed “Vertical Integration” and is a huge issue that needs resolution.
We have long argued that you cannot successfully “corporatise” professional advice as the motivation for success is diametrically opposed. Corporations are driven by profit whilst professional advisers are driven by providing quality advice and services to a client for which they are paid a fee. There is no room for corporate profit in the latter model.
There is also the issue of commissions applicable to insurance advice and mortgage broking which is yet to be resolved. As a provider of fee-based insurance advice by specialist advisers who meet the same education standards as our financial advisers, we see no justification for the continuation of insurance commissions and based on the attitude of the regulator, I expect that they too will be banned soon.
From a personal point of view, I feel a huge relief that the war we have been fighting for so long for a lift in standards has finally been won. My colleagues and I are extremely proud of our profession and the fine work we do in protecting the interests of our clients and helping them achieve their dreams.
Welcome to the birth of the Financial Planning profession after a long labour.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email firstname.lastname@example.org or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.