Squeezing out the charlatans in the financial planning industry

Given the number of charlatans operating on the periphery of the financial planning industry, there is much to recommend the proposal by the international Financial Planning Standards Board to push for global regulatory and legislative restrictions on the use of the title ‘financial planner’.

If financial planning is ever to become a respected profession then there are two crucial starting points that actually amount to barriers to entry: the establishment of a universally-agreed academic qualification entitling people to call themselves financial planners and the establishment, maintenance and enforcement of high ethical standards.

Three things have happened in the past 10 days underlining the problems confronting the industry and the answers that must be pursued.

The first was the Financial Planning Association’s (FPA’s) decision to expel the chairman of Storm Financial, Emmanuel Cassimatis, the second was the signal by the chair of the Financial Planning Association, Julie Berry, that she would be confirming the push to become a professional association and the third was the announcement by the Financial Planning Standards Board.

The ejection of Cassimatis from the FPA represented the ultimate sanction the organisation could impose, but its impact will depend entirely upon how highly he might have valued his membership in circumstances where he is not precluded from re-entering the industry.

Which brings us to the headland speech Julie Berry will deliver to next week’s FPA conference on the Gold Coast.

While there is much to be said for the FPA evolving from an industry body to become a professional association, how can it ensure its members act professionally in the absence of enforceable industry-wide sanctions?

The only body in Australia capable of excluding people from operating in the financial planning industry is the regulator, the Australian Securities and Investments Commission (ASIC).

However, ASIC chairman Tony D’Aloisio and his predecessors have acknowledged that it tends to turn up after the accident has occurred.

“Accidents happen. We turn up at the scene of an accident. We clear the mess, care for the injured, punish wrongdoers. We examine the intersection and make or recommend changes in width of road or safety barriers,” the ASIC chairman said.

In circumstances where ASIC tends to punish people only after wrongdoing has been identified and when any action by the FPA or similar organisations cannot guarantee those people can be excluded from practicing as financial planners, it is clear that change is both necessary and overdue.

Confining the use of the title ‘financial planner’ to those who are appropriately qualified and ethically committed represent necessary steps in the creation of a profession.

The third and most important step is having all the participants accept and value the higher standards.