How can Financial Advisers rebuild trust?

It would be no exaggeration to say the Australian financial advice industry is going through a difficult time.

Following years of scandals, and shocking evidence brought to light by the Hayne royal commission, urgent steps are now being taken to “professionalise” the banking and finance sector.

Amongst the headlines: embattled financial services giant AMP is setting aside an eye watering $290 million to compensate customers who received poor financial advice, and a further $35 million annually to improve compliance structures.

All of the major banks have announced their plans to “amputate” financial advice and wealth management from their portfolio of vertically integrated activities.

Many advisers have already lost their jobs. And many more have already announced their intention to leave the industry rather than face greater scrutiny and a new compliance burden.

For those operators planning to stay in business, there’s a new sheriff in town. The Financial Adviser Standards and Ethics Authority (FASEA) was established by the Federal Government in 2017 to set the education, training and ethical standards of licensed financial advisers in Australia.

FASEA requirements for mandatory education and Continuous Professional Development (CPD) are unlike anything the industry has ever seen.

The push to professionalise the sector is moving with speed. Starting this year, advisers will be required to undertake formal education, in the form of either a full degree or bridging course, plus nine hours of continuing professional development (CDP) annually. Advisers will be required to pass an exam to earn their license and continue to operate. 

What’s the problem?

While the standards mentioned above might sound perfectly reasonable to someone already working within a well established profession such as accountancy or the law, this is unfamiliar territory for many financial advisers.

Many advisers who have been working for years or even decades will be daunted by the demand for serious study and a formal academic qualification. Some advisers have already expressed concern at the financial burden of course fees and lost income. Many others will be daunted by the sheer number of hours required each year to meet FASEA’s standards.

It’s little wonder the industry is going through a crisis of confidence. And while the emphasis has rightly been placed on the rights of the customer, and the many people who have received poor advice, it’s also worth pausing to think about the impact this has on individual advisers – some of whom have been operating honestly and ethically for many years. For such people, and there are many, the avalanche of bad press and community outcry has been difficult to bear.

We know many people become financial advisers because they are passionate about the financial wellbeing of their family, friends and community. They aspire to help people secure economic stability and security whilst avoiding the abundant pitfalls and bad products.

Of Gallup’s Five Essential Elements of Well-being, financial security is at the centre. Practiced ethically and professionally, the work of a financial adviser supports and protects other critical areas of a person’s life. 

This leads to some interesting questions about the overarching purpose of a financial adviser.

Why does this role exist? What purpose does it serve individuals, communities and society at large? What is the overarching public good that can be achieved from a profession that supports, protects and grows a person’s financial wealth?  

Or to look at it another way, what would the world look like without financial advice? If all of the competent advisers were to leave the industry, where does that leave the community?

Advisers who are on the fence about their future should take time to work out what the role of financial advice means to them. Whilst the reputation of the industry may be at its lowest point, it’s a great time to get back to basics and think about the purpose and impact of this type of work.

What is the solution?

The Ethics Centre has had quite a bit of involvement in this story as it’s unfolded.  When the scandal first began to erupt three years ago, we worked with some of the largest advice firms to develop in-house training programs for financial advisers.

We’ve helped inform FASEA’s thinking on ethical standards for the industry. We’re currently working on building a course on ethics and professionalism to be delivered by universities.

We also offer free counselling to individuals via our Ethi-call service – and that includes financial advisers struggling at a career crossroads.

For those advisers currently at this point, we’d advise some clear headed thinking about career purpose and priorities. If you think you’d benefit from talking through your dilemma with an impartial counsellor, you are welcome to call Ethi-call.

The service is a free, appointment-based telephone counselling service offered by The Ethics Centre to help people navigate some of life’s toughest decisions.