The Challenge of Professionalism

There is nothing more important than appearing to be professional.
  Niccolo Machiavelli -  Il Principe 

It's common practice to bolster a poor argument by linking it to a seemingly appropriate quote attributed to an acknowledged "thought leader". Abraham Lincoln, Mark Twain, Albert Einstein and Charles Darwin are all popular choices for misattribution given that they're so eminently respectable and so seldom read. Machiavelli, in contrast, is an unusual choice, given the negative connotations popularly associated with his work.

Although this observation of his originally applied to religion, it's certainly worth contemplating in the context of the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 and the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017.

Whether you consider these to be "landmark reforms" or "ill-formed, illogical and untested” proposals may simply be a matter of perspective and self-interest. Legislative reform creates both winners and losers and some advisers will fall into both categories. There'll be material consequences, only some of which have been anticipated, but perhaps none as profound as is currently feared by the more reactionary industry participants. The next few years will, however, be a challenging time for advisers, licensees and those that advise them. Implementation issues are tomorrow's problems and tomorrow is another day.

The immediate challenge now facing our industry is not to re-litigate the need or motives for these reforms but to consider whether, and to what extent, they will address the root causes of the advice failures they aspire to address.

The Financial Planning Association has fought long and tirelessly (and often alone) to transform a financial product sales industry into an advice profession. While some might criticise their advocacy as "out of touch", exclusive and self-interested, there is little doubt that they have had a consistent and compelling vision for the future - an advice profession defined not by product sales and recurring revenue but by clearly articulated duties and obligations.

In fact, one might assert that the FPA's greatest success is not the legislation threatening to remake the advice industry but their success in escaping their "traditional role as a lobbyist for financial advisers"and envisioning a Professional Association comprised of financial planners defined by their empathy, technical skills and their un-compromised commitment to their clients, the community and their profession.

It was a truly ambitious target but this aspirational goal may now be closer than ever to realisation. The Professional Standards Act, with its focus on competency and character, quixotically promises to fix the manifold "problems" of the advice industry.

In recent years, numerous cases of inappropriate advice have had a negative impact on consumers' confidence in the financial services industry. This lack of trust has become a barrier to consumers seeking financial advice
The Hon Kelly O'Dwyer MP, Explanatory Memorandum (Professional Standards Act) at 1.3

Is professionalism the problem?

Unfortunately, one might question whether either of these Acts will address, mitigate or solve the real challenges to professionalism - conflicts, capability and confidence.

One could argue that neither Act addresses the elephant in the room - vertical integration and the insidious impact it has on advice quality. They focus on Agents, rather than Principals, and the focus is deliberate. In fact, one might suggest that the emphasis on professional standards is an implicit acceptance of the "bad apples" theory too often used to normalise cultural failures.

We should focus less attention on the 'bad apples' and more on the people who make the 'bad apple barrels'
Dr Phil Zimbardo - Psychologist, Professor Emeritus (Stanford) and Creator of the Stanford Prison Experiment

Although independence seems to have been given far less attention than statutory protection of the financial planner designation, these incremental changes are still positive (even if they are necessary, but not sufficient, components of an ethical advice profession).

The Professional Standards Body

Eliminating conflicts may have been relegated to the "too hard basket", but formal competencies have been tangentially addressed (even if the real substance has been referred to the proposed new Standards Body). The Act outlines restrictions on entry, new requirements for formal tertiary qualifications and imposes a period of supervised practice on new advisers.

These are laudable initiatives, modelled on existing professions, but will they really address, and improve, adviser capability or will they simply entrench existing interests?

From my perspective, this is the real problem with the Professional Standards Act.

The Act requires the creation of a new delegated authority to do the heavy lifting and fill in the spaces left by the broad brush strokes of the legislation. This new Standards Body[1] must (after consultation[2])

     i.        approve bachelor or higher degrees (equivalent and relevant qualifications);

    ii.        approve the exam;

  iii.        set the requirements for work and training;

   iv.        set the CPD requirements;

    v.        specify a word or expression to refer to a provisional relevant provider;

   vi.        make a Code of Ethics.

The scope of the Standard Body's work, and the compressed time frame in which they need to deliver on these objectives, should concern industry participants. The main reasons are threefold.

First, the compressed timeframe and ambitious agenda increases the likelihood that their decisions will be driven by their timetable and not allow for adequate consideration and analysis. Change does not occur without consequences and the Standards Body requires sufficient time to anticipate, and appreciate, the real cost and impact of their decisions. David Chaplin's analysis of New Zealand's investment adviser market identified that between 2013 and 2016, over 16% of Authorised Financial Advisers left the industry as the result of regulatory change. Given that the Professional Standards Act is a more significant change, we might realise an even greater impact on our adviser numbers in the lead up to 2024.

Second, the obligation to consult with the industry on the proposed changes is undermined by the Act's recognition that a failure to consult does not invalidate any legislative instruments made by the Standards Body[3]. It's a perverse but not unusual approach. I once attended an Industry Working Group function where the Regulator's representative angrily declared that she was there to consult, not to listen. Unfortunately, this may quickly become the norm for the Body's engagement process.

This leads us to the composition of the Body itself. As you may also be aware, the new Standards Body[4] will have nine directors appointed by the Minister with:

  • At least three directors with experience in financial services;
  • •At least three directors with experience “representing consumers of financial services”;
  • At least one director with experience in ethics[5];
  • At least one director with “experience in designing, or the requirements of, education courses or qualifications.

This raises the third potential risk. It's likely that the Standards Body will, for a variety of reasons, be stacked with the "usual suspects"; predictable players with entirely predictable views and entrenched partisan positions. Although current employees and officers of the Associations are precluded from consideration, it seems likely that former employees and experienced advocates will be appointed[6]. While it makes a degree of sense to nominate known qualities with well-defined positions, this safe and pragmatic approach sacrifices the real opportunity for innovation and effective change.

Further, while they may be equipped to prosecute the Minister's ambitious transformational agenda, they are also more likely to re-litigate their historic positions.

Promoting professionalism

Unfortunately, we may have limited capacity to influence the Standards Body but we do have both the opportunity and obligation to shape the future of continuing professional development. Don't miss your chance to help guide the future of our industry. Lobby the Minister. Write to your local member. Talk with your Association. Argue with your peers.

For absolute clarity, I am not dismissive of the need for an advice profession nor am I critical of legislative attempts to drive an often recalcitrant industry in that direction. I am, however, frustrated by reforms that do little more than apply a veneer of professionalism over a model riddled by conflicts, bad incentives and poor accountability measures.

As we, as an industry, struggle to respond to poorly-conceived legislative reforms, I hope those appointed as the midwives of change take an inclusive approach and remember that the appearance of professionalism is a poor substitute for actual professionalism.


Feedback is a gift. I welcome your comments, questions and suggestions. If I can help, or if you'd like additional clarification on any aspect of this post, please contact me directly.




[1] Corporations Amendment (Professional Standards of Financial Advisers) Act 2017, No. 7, 2017 s921U

[2] Corporations Amendment (Professional Standards of Financial Advisers) Act 2017, No. 7, 2017 s921U(6)

[3] Corporations Amendment (Professional Standards of Financial Advisers) Act 2017, No. 7, 2017 s921U(8)

[4] Corporations Amendment (Professional Standards of Financial Advisers) Act 2017, No. 7, 2017 s921X

[5] Surely any Director, except those that have been banned or disqualified, has experience in ethics?

[6] Industry participants are already taking note of resignations and appointments and speculating on those likely to be appointed (helped, no doubt, by the willingness of some to admit the possibility).


(c) 2017 Assured Support and Sean Graham

(c) 2017 Assured Support and Sean Graham