A truly independent financial planning professional doesn’t pass the buck when things go wrong. However, along with transparency, professional planners also need protection.
By Marina Williams
The collapse of Opes Prime in 2008 and then Storm Financial in 2009 helped reshape the financial planning advice sector in Australia. The scandals gave impetus to the Future of Financial Advice (FOFA) reforms, which were mandated in 2013 and have led to increased consumer protection and transactional transparency. But some problems remain, and the debate continues about whether professional standards in the financial planning sector need to be redefined.
As a profession, financial planning has broadened and developed in response to consumer needs. The 2016 launch of CPA Australia’s wholly owned financial planning subsidiary, CPA Australia Advice, is a case in point. Announcing its launch, the former CPA Australia chief executive Alex Malley said: “The company we are announcing today will set a new benchmark for professional and ethical conduct in making independent financial advice available to all Australian consumers.”
Consideration of liability lying beyond professional financial advisers flows from the FOFA reforms, which aim to improve the trust and confidence of Australian retail investors in the financial services sector. They will try to do this by ensuring the availability, accessibility and affordability of high-quality financial advice.
"Independence, integrity and transparency are embedded into out DNA". Peter Docherty
CPA Australia has long believed consumers deserve a more transparent and independent alternative to the traditional financial adviser offering. Peter Docherty, former CPA Australia’s general manager of public practice, says the traditional financial advice model could be easily criticised for not focusing enough on consumers. Some financial advisers were tied to sales targets within a revenue split or “cut” of fees arrangement and, because of that, more benefits were flowing to product providers than to consumers.
Yet if an army of independent advisers is to emerge in this new landscape – and be able to offer financial planning that is effective and transparent – then they need the same protections possessed by other quality professionals.
“Australia has a very advanced economy when it comes to liability reforms and protection for professionals,” says Docherty. “It’s been a long and continuous lobbying effort by the profession to achieve limited liability coverage for members.”
CPA Australia’s push for liability reforms started in the mid-1990s in New South Wales, in association with other professionals. The Professional Standards Act and a joint accountants’ scheme were introduced there on 9 October 1997. “By 2008, schemes were in place across mainland Australia, and as we go to print Tasmania is expected to introduce its Professional Standards Bill 2016, which will align legislation with the rest of Australia,” Docherty explains. “This will finally allow CPA Australia to deliver consistent and limited liability for all its Australian members, not just those on the mainland.”
The Professional Standards Council (PSC), which works to both improve professional standards and protect consumers, is yet to approve a liability scheme in the wake of the FOFA reforms. The Professional Standards Authority (PSA), the PSC’s regulatory support agency, released its Professionalisation of Financial Services white paper last year. And while it identified strong support for professionalisation across the financial advice industry, disagreements over what constitutes the “essential elements of professionalism” pose significant obstacles to regulatory reform.
“The white paper provides a roadmap, outlining the possible steps of collaboration between industry and government,” says PSA’s chief executive Dr Deen Sanders. “There’s an opportunity for further discussions about the future of regulation in financial services – for more efficient regulatory design that improves consumer protection and motivates expanded professional obligation.”
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Docherty expects the PSA’s forthcoming strategy won’t be a “set and forget” compliance requirement. He predicts that the financial advice professional standards’ limited liability scheme will continue to evolve alongside the financial advice services offered by CPA Australia members.
“As the service offerings of our members change, we want to make sure our schemes and the member protection they provide also evolve,” he says. “We achieved coverage of services provided under a limited Australian Financial Services Licence (AFSL), and now we will be attempting to extend our schemes further for those members who have their own full AFSL or are authorised under CPA Australia Advice.
“Independence, integrity and transparency are embedded into our DNA [as CPA Australia members], and our standards, like APES 230 Financial Planning Services, and our oversight programs ensure our members ‘do what they say they do’ and protect the public interest.”
The CPA Australia Advice offering is a transparent fee-for-service model that enables professionals to “provide strategic financial advice that serves clients’ best interests” without commissions, fees, linkages to products or sales targets. “It’s all about putting the interests of our clients first, and extending professionalism in the financial services sector,” says Docherty.
Twenty associations, including CPA Australia, operate under a Professional Standards Scheme that covers more than 68,000 professionals. The PSC has the power to assess and approve applications from occupational associations for schemes that limit the civil liability of members. Sanders says the ultimate test for where liability should lie is that consumers are adequately protected.
"Many sections of the financial services industry believe that the regulation of the sector needs to recognise that a one-size-fits-all approach does not work, and that specific expertise and functional knowledge of the industry operations is needed in the regulatory toolkit,” he says.
“We hope that our findings will encourage discussion and debate for all stakeholders and, ultimately, help improve consumer protection and motivate expanded professional obligation across the sector.”
Meanwhile, Docherty says efforts to reform the liability regime will continue. This is especially important after a recent High Court decision found that proportionate liability rules in the Corporations Act do not apply to claims based on contraventions of section 1041E of the Act, which deals with false or misleading statements.
In effect, that decision exposes professionals to joint and several liability even when they are only negligent. It applies to situations where professionals ought “reasonably to have known” that information is false or misleading, as opposed to knowingly making a false or misleading statement.
“We believe this is contrary to the intentions of the proportionate liability provisions,” says Docherty.
CPA Australia is a member of the Liability Reform Steering Group, a peer network comprised of representatives from industry and professional associations, and professional services firms, which meet regularly to share information and advocate for legislative reform in relation to professional liability issues
Setting higher standards for financial planning