It was hardly surprising when questions were raised recently in the national media about the propriety of unions receiving payments from financial planners for referring their members to certain firms which appeared on a union-approved list of advisers. The surprising thing is that the matter has taken so long to come to public attention.
Questions are now being asked about the nature, ethics and purpose of the payments, not to mention the warranty being implied to members by the unions and the super funds to which they belong. It is one thing to compile a panel of “preferred” financial planners for distribution to union members (even though that simple task must be undertaken with great care), but quite another thing to proactively recommend a financial planning firm and to be paid a fee by the firm for doing that.
This dubious publicity has come at a time when financial planners are not exactly high on the list of trustworthy advisers, a position that has not been helped by the recent damning report into the industry by the Australian Securities and Investments Commission and the Australian Consumers’ Association.
On top of all this, the Federal Government has now made a most extraordinary decision concerning the use of occupational descriptions. That is, it intends to amend relevant legislation to reserve or limit the use of terms such as “financial planner”, “financial adviser” and “wealth consultant” to certain prescribed persons, presumably those persons who have a proper authority under a dealer’s licence. It claims that this decision is in “the public interest” as it will ensure that the public is not misled by the use of inappropriate descriptions. It seems that every time a description appears to which exception is taken by someone within the Government or a regulator, that description is to be forbidden by adding it to a “banned list”.
Let’s get the ball rolling by adding a few more. I invite all readers to send in your favourites, so that by the time the legislation has commenced we will have accumulated over 50 tacky titles. How about “financial coach” for openers?
When I first read about this proposal it was April 1, 2003. My immediate reaction was to assume that this was an April Fool’s Day joke, especially since assurances have been given by various regulators over the years that the public interest would not be served by this course of action. Having discovered that someone in the bureaucracy (or is it a politician in the Coalition parties?) is actually serious about this crazy idea, it is hard to know whether we should laugh or cry.
On the one hand, we should laugh because the proposal will achieve exactly the opposite of what is intended. Contrary to the views expressed in the explanatory memorandum accompanying the amendments, the changes are unlikely to assist the public at all. They are much more likely to mislead Australians into thinking that anyone who operates under the legislatively restricted title of “financial planner” must be a person who can be trusted. On the other hand, we should cry because the industry is full of poorly qualified, inadequately trained salespeople, all of whom will now be considered by the public as having received the Government-endorsed gold seal of approval.
If, for one moment, I thought that the recently introduced Financial Services Reform Act would substantially lift the technical and ethical standards of all the “gold star” product floggers out there who are masquerading as financial planners, I would be the first to say that these proposals have some merit worthy of careful consideration.
But the truth is that the industry is not yet a profession and most of the participants in it will never warrant the title “professional”. Therefore, to suggest that the Government should legally endorse thousands of salespeople as “planners” exhibits a position so out of touch with reality as to pose some fundamental questions about the independence and industry knowledge of the sources from whom the Government obtains advice. So far off the mark is this proposal that it bears the hallmark of one politician’s brainwave, rather than sensible departmental advice.
The likely outcome of this controversy is that the proposal will be shelved, at least until industry ethics and qualifications have lifted to a standard that are worthy of a profession. That will only occur when commissions have been substantially removed as a form of remuneration, university degrees are mandatory for advisers, followed by post-graduate practical studies and experience and, most importantly of all, a genuine holistic “client first” culture has been well entrenched in the industry for several generations.
Even then, the term “financial planner” would need to be limited to a small class of persons who are able to meet appropriate high-level criteria.
The vast majority of industry participants should be required to be described simply as “representatives” or “sales consultants”, thus properly reflecting their role and minimising the possibility of a government-endorsed description which misleads the public as to their true motives and abilities.
— Robert M.C. Brown is a director of Bridgeport Advisers and Asset Managers.
