Imagine for a few minutes that you are not involved in a financial services business.
Instead, imagine you are part of a group of Australians who have just decided to develop a new profession in the hope that you can promulgate the awareness and growth of the profession throughout the Australian community.
Note that the type of profession is entirely irrelevant, it matters only that you begin to think about how — with the proverbial clean sheet of paper — you and your colleagues would go about creating and growing the new profession.
In 2009, you and your colleagues would instinctively know that consumers are far more aware of their basic rights to information than those who many decades ago first engaged the services of what we now call ‘traditional’ professionals — medicos, lawyers and accountants to name a few.
You would also be aware that clients of such professionals have always paid for services rendered, not the suppliers of goods and services to the professionals. This key delineator would, on reasonable analysis, have a substantial influence on how the new profession would be structured.
Roll back the calendar 20-something years to the mid-1980s and you are at the birth of what was hoped to be a new profession — financial planning.
Those early visionaries were operating in a much different environment than today’s financial planners.
The actions of those who established financial planning in Australia in time led to the establishment of the Financial Planning Association of Australia (FPA) and there can be no question that the FPA has made an enormous — I need to say it again — an enormous contribution to the promulgation of financial planning in this country.
Added to that is the stark reality that the FPA has been the primary driver of lifting minimum education and professional standards.
Indeed, it has also had, and continues to have, a very prominent role in the development of financial planning standards throughout the world via its presence on the Financial Planning Standards Board for many years.
The FPA has two key planks to its operations, namely member services and professional standards. Both are critical to members and the community at large and in many respects it has been fortuitous that both have lived under the one roof since 1992; fortuitous in that there has been an economy of scope and scale benefit.
From holding numerous conferences across the country to lobbying politicians in Canberra when policy drafters drift wide of commercial reality, the FPA has done an outstanding job.
Similarly, for all of its 17-year history, the FPA has set the professional standards of its members substantially ahead of the prevailing regulator’s minimum requirements. This latter point should never be forgotten.
However this dual, otherwise entirely beneficial and appropriate, role of member services and professional standards is also the organisation’s Achilles’ heel.
At one extreme, its member services function forces the FPA to defend a member’s right to charge up-front commission/fees of up to 7 per cent as per one recent prominent example, while simultaneously it understandably proclaims its professional standards setting and monitoring functions.
These are conflicting messages in the public relations arena, with the underlying interpretation by those who influence the community’s expectations — the mainstream media — that the organisation is actually more about member services than standards.
Having been closely associated with the FPA for many years, I can confidently say this is most definitely not reality. However, it is also true to say that for many people, perception is reality. And it is this perception that continues to dog the organisation.
While the FPA cannot roll back the clock to its formation in 1992, it can and must keep undertaking a review of its raison d’être — its reason for existing as it currently does.
I have long held the view that the FPA needs to evolve to another level that takes account of a vastly different operating environment to that which existed at the birth of financial planning in Australia.
The next evolutionary phase for the FPA should aim to nullify the conflict — real or perceived — around member services and professional standards living under the one roof.
While other professional bodies such as accounting organisations can comfortably co-accommodate member services and professional standards, the key differential between them and the FPA is that in the provision of accounting advice, their members’ service offerings are not based on the provision of a product manufactured by a third party that then remunerates the accountant.
It is the potential for advice on investment products, which generate commissions, to influence a financial planner’s recommendations that differentiates the role the FPA fulfils to that of, say, the Institute of Chartered Accountants.
So how to evolve further for an organisation that on the whole continues to do outstanding work for its members?
The starting point is that professional standards are sacrosanct — they are the foundation on which a community can begin to trust practitioners of any profession. They are standards that should be able to stand alone unblemished by speculation and innuendo.
Failure to comply with professional standards is simply that: a failure, and should be addressed according to the prevailing rules and regulations of the relevant organisation.
With this in mind, there is a strong case for the FPA to carve out its professional standards function and re-establish it as a stand-alone body with a sole function to set and manage professional standards for individual financial planners and their employer firms.
The immediate cost of such a decision is that the economies of scale currently resident in the FPA’s structure would be lost.
That may or may not result in increased costs to ‘members’ of the professional standards body.
Either way, it is the greater good of protecting and enhancing the integrity of financial planning professional standards in the eyes of the community that must drive such a decision.
This would leave the traditional member services function of the FPA to continue in much the same way as it has for 17 years.
One of the FPA’s most under-recognised strengths is its capacity to lobby on behalf of members in the corridors of Canberra.
A major benefit of establishing professional standards functions as an entirely independent body is that the FPA could unashamedly lobby for member benefits.
Devoid of a professional standards function, it could never again be falsely accused of going light on standards functions for the sake of its members.
The bottom line is that a strategic decision to completely separate functions would remove the cloud of perception, real or otherwise, that the FPA is conflicted in its role of being the setter and monitor of financial planning professional standards in this country.
While the current economic climate will one day reverse, and headline events such as the Storm Financial Group collapse will move out of the lead news stories of the day, unless there is some alternative thinking about how the FPA should continue to evolve, the organisation will forever be hounded by questions of who it is really serving — its members or the Australian community?
Such strategic decisions require the vision and strength to lead all stakeholders to accepting a new approach.
A major change such as this would not be without its initial problems, but careful planning would limit the negative aspects.
In Australia, there is an enormous tailwind of demographic and economic additives dictating that the growth of financial planning should be a fait a compli. The only impediment to that are the constant attacks on financial planners; attacks that are unceasingly underwritten with questions as to the trustworthiness of practitioners, many of whom are largely paid by product manufacturers.
A decision by the FPA to detour professional standards and designations such as Certified Financial Planner (CFP) into an entirely separate body would not, in isolation, solve the problems of whether or not a typical Australian could trust a financial planner, but it would send an extremely powerful message to the community. The message being that the organisation believes so strongly in the sanctity of the professional standards it has fostered for almost two decades, it is prepared to give up control of those standards so they can exist free of speculation about tokenism in order that the growth and acceptance of financial planning can continue with much greater momentum and strength in the community.
Knowing the difficulty that besets the FPA in straddling its dual functions, given the opportunity to establish a new profession in Australia on any basic environmental analysis, you would likely be loathe to combine professional standards with member services if the profession involved practitioners advising on products, the manufacturers of which remunerated the practitioner.
You would, on balance, recognise that economically ideal as it might be to combine those functions, such a decision would implant a hairline fracture in an otherwise robust organisation that would be vulnerable to exploitation whenever the x-ray of community attention hovered over the profession.
It is time to be brave and visionary.
Ray Griffin is managing director of Griffin Financial Services.
