Setting a global standard

It’s taken nearly five years, in which time it’s been dwarfed as a financial services issue in Australia by the launch of the Financial Services Reform Act (FSRA), but a global standard for financial planning is at last set to become a reality.

A Final Draft International Standard (FDIS) is being readied by the International Standards Organisation’s (ISO) Technical Committee in London for distribution within the month to 18 global working groups for their sanction. If the 18 global committees, including one in Australia, vote to approve FDIS as it stands, it could feasibly be published as ISO Standard 22-222 by early next year.

Local participation

Along with its counterparts, the Australian committee has contributed to the standard’s development with the participation of its members in four working groups set up by the ISO technical committee. Established by the ISO affiliate Standards Australia, the Australian committee is also tasked with adapting the voluntary standards to suit local conditions, and promoting its take-up in the financial services industry.

To quote Australian committee chair David Williams, the use of the standard in individual countries will “reflect whatever the respective domestic committees believe is appropriate for their countries”. Also general manager of Diversified Portfolio Managers, Williams believes it’s unlikely the content in the FDIS will be a point of issue among the global committees, including Australia, during their vote. “The work of the global committees is probably over in terms of drafting the standard, and it’s up to the ISO’s technical committee to run with the ball in terms of publishing it,” he said.

Standard unnecessary

If and when the standard is published it will be no small achievement for the Australian committee, which has been divided over the standard’s content and the form of its adoption in Australia. Only in April this year, for example, Financial Planning Association (FPA) chair Kathryn Greiner described the standard as “inappropriate for setting standards for professional practice in Australia”.

Speaking on behalf of the FPA as one of numerous committee members, Greiner added that the implementation of FSRA in Australia had rendered the standard “unnecessary”.

Ironically, the divisions within the Australian committee have served to maximise its footprint in the wording of the standard as it appears in the FDIS, at least in the key area of certification.

Australia was alone among the 18 working groups in rejecting the pre-FDIS draft issued last November, and many of the amendments in the FDIS reflect its key concerns with the previous version.

Williams said a “lot of input was provided by the Australian committee into the international drafting process, which was certainly actively listened to by the technical committee”. “I think the document has been considerably improved in its FDIS format as a result of this input, albeit almost entirely in one area, namely certification or ‘claiming conformity’ as the ISO puts it.”

Certification policy

Remarkably, the rewording of the relevant clauses within the FDIS represents something of a climb-down by the ISO from its official policy of certification across its range of standards. The concerns of the Australian committee, and others, were based on the potential for abuse of the ISO’s good name, stemming from the three avenues or principles for claiming conformity with its standards.

Essentially, it was felt that third-party certification, other party certification and self-declaration were not appropriate for a standard about a service such as financial planning. Debate within the Australian committee has centred on whether any form of conformity other than declaration by an “independent third party” should be permitted or even acknowledged in the standard, Williams said. “There’s a strong feeling that they should not be, but the dilemma for the committees lay in finding a way of asking the technical committee to facilitate change without breaking the ISO’s fundamental principles on conformity.”

The upshot is that the technical committee “has endeavoured to word the standard, as reflected in the FDIS, in such a way that consumers are left in no doubt as to the most appropriate way to look for compliance,” he said.

The ISO principles have evolved as a result of a global mandate that encompasses many countries, including some developed ones, which do not have the ability to have an independent certifier. On the other hand, as the committees emphasised, an ISO standard — 17024 — already exists to accredit independent third parties for certifying financial planners as compliant with the proposed ISO 22-222 standard.

So, for example, if the FPA became compliant with ISO Standard 17024, it could then certify that financial planners are compliant with ISO 22-222, and indeed monitor them for ongoing compliance.

Implementing the standard

Williams said the key issue for consideration by the committees now is how to reflect the proposed standard in their respective countries, assuming they vote collectively to approve the FDIS.

There are three ways the standard can be adopted by industry in individual countries, he said, notwithstanding that in some countries it could simply be ignored. One way is to adopt it verbatim, without any domestic interpretation, which might be a suitable route for countries with no existing domestic standards regime.

It can also be adopted with specific guidelines that are prepared by a committee of a domestic standards body, which is the approach the Australia committee has adopted.

Finally, it could be used as the basis for a domestic standard, which might occur where differences in the local scene require substantial changes by a domestic committee to the international document.

Colin Blair, Standards Australia general manager, said the way the standard would be reflected in Australia would “only emerge once the industry has been able to fully consider the FDIS.

“Essentially, it is up to all participants in the industry to decide how the proposed standard could be applied, which in turn will influence the take-up of the standard.”

Asked whether the FSRA and the ISO standard could live in harmony with each other, Williams points out that a “great deal of the changes in the FDIS have emerged out of the recent changes in the Australian financial services environment.

“It’s a fact that the basic design of the competence part of the standard was promoted by the Australian working group and reflects PS 146 of the FSRA.”

Best practice guidance

Williams sees many benefits in using the standard as a point of reference in Australia, which he said is “really only at an entry-level in a regulatory sense, despite its sophisticated planning environment”. Williams said the FSRA was a “good, responsible, first step to advice on financial products, but it does not cover good practice in providing financial planning advice.

“The ISO standard, by contrast, provides a framework for all forms of services relating to achieving consumers’ financial goals.

“It doesn’t distinguish between real estate and equities in its mandate, for example, but rather says that all assets are something that an adviser must be competent to advise on, and all forms of use of those assets,” he said.

This echoes the sentiments of Ian Heraud, who represented Standards Australia at the ISO technical committee meeting in London last November that led to the conformity revisions contained in the FDIS. Heraud is also chair of the FPA’s Professional Standards and Ethics Committee and chair of the Financial Planning Standards Board Council, formed last year after buying the rights to certification of the Certified Financial Planner (CFP) mark, and a director of dealer group Heraud Harrison.

Describing the standard as a “reinforcement of what good quality financial planning is all about”, Heraud expects that it will “become embedded in an organisation such as the CFP over time”.

He believes the standard is “nearly on a par” with the CFP mark, and foresees a scenario where planners obtaining their CFP will also be compliant with ISO 22-222, contingent on thorough cross checking between the marks.

Such a scenario would help to ensure the standard is “not able to be abused by individuals who can stick their hand up and self-declare compliance to it without anybody checking on their claim”, he said.