Date issued: 10 December 2014
GREG Medcraft, chairman of the Australian Securities & Investments Commission, took to the podium of the National Press Club last week and put a policy spotlight on the financial advice sector.
It is true that Medcraft and I have had our disagreements over the years, but we've developed a good rapport and can constructively discuss the big issues.
Improving the quality of financial advice to rebuild community trust and confidence is such an issue. It is also rightly a central theme of the Financial System Inquiry report.
ASIC is advocating a national exam to test a minimum set of knowledge as the solution. While I commend them for putting the issue on the table, there are different perspectives on the way forward and it now gives all relevant stakeholders the opportunity to debate the best policy solutions for the future.
Renewed credibility for the sector lies in an all-encompassing regulatory framework, robust education standards and ongoing professional development.
A cultural shift away from short-term profit to long-term client relationships is critical, as is a principles-based code of conduct based on honesty, integrity, objectivity, competence and confidentiality. A stand-alone national exam is unlikely to achieve comprehensive reform of such principles and transparent culture.
Trust and confidence comes from a robust education framework that sets out the curriculum, key learning outcomes, quantum of study and includes independent and formal assessment. The education should be equivalent to or higher than the Australian Qualifications Framework level 7 bachelor degree.
The problem with a minimum set of knowledge as advocated by ASIC is that everyone works to the minimum. Potentially, to go beyond is costly and delivers no advantage.
The exam idea seems to come from requirements in the US financial planning industry, notably responsible for some of the most toxic financial products ever devised and possibly not the best model to follow.
It should also be noted that ASIC has previously raised the idea of an exam for investors before they are allowed to invest in certain products.
Whether it's for investors or advisers, an exam is a moment in time the problem is bigger, broader and longer than that.
An exam would not ensure that a financial adviser has the requisite competencies, being a combination of knowledge and the skills required to provide quality financial advice.
It won't tackle systemic issues, can't test for ongoing ethical behaviour and may well result in more regulation being required down the track. In our view it is not the panacea for a complex issue and it may have the unintended consequence of implying that people are protected as a result of its introduction.
Behaviour is a result of not only minimum knowledge requirements, but of professionalism, culture, expectations and rewards.
The focus on only one element of the complex web of influence on behaviour indicates we need further discourse in this area. If we are serious about lifting consumer confidence and improving the quality of advice we need to focus on enhancing education standards and improving the regulatory framework in which we are operating.
Or as David Murray's Financial System Inquiry report finds, we need to focus on "lifting competency and increasing transparency". CPA Australia has been a strong advocate of the Future of Financial Advice reforms and its underlying objectives to tackle adviser reward structures built on conflicted remuneration and improve transparency around fees.
Effective policy is built on a systemic approach, healthy debate and collaboration with key stakeholders. It is the difference between hard yards and short cuts, and it is what's required to deliver trust, transparency and confidence in the financial advice sector. We stand ready to work with ASIC and other key stakeholders to enhance the trust that investors seek.
Alex Malley is chief executive of CPA Australia.