Advisers urged to support global planning standard

Advisers have been urged to back a new world standard on financial planning in order to improve the image of the profession in Australia.

James Thomson, a project manager for Standards Australia, says the standard will empower consumers who seek financial advice, as well as improve the credibility of the financial planners who provide it.

“Because the standard allows consumers to go in and understand what they are getting from the process of financial planning, they can determine how much control they want and how much control the financial planners have. I think that is a very big step forward,” Thomson says.

As reported by Money Management last week, the International Standards Organisation (ISO) — the global equivalent of Standards Australia — has released a draft world standard for ‘Personal financial planning’ for comment in Australia.

Another 17 countries, including the US, UK, Japan, Korea, Hong Kong and France are also considering the draft standard.

The standard requires advisers to live up to a set of ethical principles. It says advisers must “behave with integrity”, “put clients’ interests first”, “exercise due diligence and care”, “work within regulatory and legislative frameworks”, “carefully manage conflicting interests”, “provide suitable and objective recommendations” and “protect client confidentiality”.

In order to attain the standard, advisers must also have at least three years experience of “face-to-face relationships and ongoing communications with clients”. Alternatively, advisers could have two years experience and two years of other supporting activities, such as training.

The standard also attempts to define the financial planning process into “six steps that can be repeated throughout the client and financial planner relationship” (see box).

“It is not a prescriptive standard but a holistic approach to the whole financial planning process, and that puts powerful tools in the hands of consumers and at the same time, tries to lift the standard of financial planning,” Thomson says.

The standard is set to be finalised by February 2005 after comments are collected in Australia and in the other 17 countries.

A committee made up of financial planning industry representatives will then decide if the final version of the standard is adopted in Australia.

The chair of the committee, Diversified Portfolio Managers general manager David Williams, says the standard will help to raise the quality of financial advice provided in Australia.

“I think it will bring everybody up to a public level of good practice,” he says.

“At the moment, we have a minimum standard set by ASIC.”

Williams says the standard will not be adopted if it’s not supported by the majority of the financial planning profession in Australia.

“A standard does not become an Australian standard unless a significant proportion of a profession thinks it should,” he says.

If the standard is adopted in Australia, individual advisers and dealer groups would choose whether they wanted to be certified against it.

It would be up to the profession to decide how closely it would police those who did take up the standard, but Thomson says a heavy handed approach could be counterproductive.

“If the industry forces it on them, it could be viewed as another burden. But if the industry takes the view that it is a very neutral framework that has been established by a body that has no particular bias, then we can actually get some commonalities and enhance the practice of advice rather than focus on conformance,” he says.