As every adviser knows, financial advice has been on a long journey to progress from an industry to a profession. From inquiries and investigations to the introduction of benchmarks, much has happened in the past few years to prompt the professional evolution.
For some advisers, it may elicit the question: Is financial advice now considered a fully-fledged profession?
One recent study from the University of Southern Queensland, published in the International Journal of Economics and Financial Issues, examined whether advisers today have the attributes associated with professionalism. Its findings shed light on how far financial advice has come.
What makes up professionalism?
To highlight the distinction between an industry and a profession, the study’s literature review lays out several key differences. For example, an industry is driven by self-interest, accepts its current “body of theory”, and has sanctioned professional authority and low ethical responsibility. In contrast, a profession is driven by public interest, creates its own body of theory, uses specialist knowledge to dictate professional authority and has regulated ethical responsibility, the study outlined.
To compare advisers’ professionalism today with 12 years ago, the study collected survey responses from more than 1000 advisers recruited through associations and dealer groups. It then compared that data with responses from another study in 2009 (by Watts and Murphy). The authors noted the sample size was about 6 per cent of the adviser universe and acknowledged that as a limitation.
Professional attribute progress
So, where do today’s advisers stand? The results showed they were more aware of their social responsibility, understood the importance of a body of theory, and showed greater consciousness of professional authority.
The biggest area of improvement, however, was in ethical responsibility, where there was a significant change in remuneration declaration and avoidance of conflicts of interest.
The vast majority of advisers in the sample were members of professional associations (86 per cent), compared with two-in-five in 2009; however, fewer advisers today believe professional membership “adds value to the professionalism of financial planning”, the study showed.
When it came to education, more advisers today considered it important. More than 80 per cent of today’s advisers thought things like the adviser exam added value to financial planning, compared with less than 60 per cent in 2009.
What’s the conclusion?
Based on the data they collected, the authors stated that financial advice had made strides towards professionalism, but noted it was an ongoing process.
Referencing McInnes (2020), they concluded, “It is imperative that Australian financial advisers, offering professional input, commit to being involved in shaping the professional policies, governance, processes, so that financial planning becomes a true profession run by advisers, like other established professions run theirs.”
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Comments9
"Oh, my goodness, Grant seems to not understand those of us who have remained as financial planners have effectively had pay cuts, simply because the costs of doing business and compliance have risen dramatically when compared to fee income. There is no other occupation/profession that I know of that’s had it’s earning capacities decimated because of Royal Commission findings. Slashing insurance commissions was effectively a pay cut most planning offices cannot afford, it’s also one reason for the significant levels of underinsurance that are appearing in Australia. Oh, and let’s not forget the onerous increases to education standards (I’m pleased to say I met the education standards early) while at the same time totally ignoring experience. Both are key contributing factors to people leaving in droves. Planners leaving en masse has nothing to do with not making enough sales…many are tired of being punching bags for the media, others are struggling to cope with the extreme uncertainty of an ever-changing playing field, simply because the powers that be keep moving the goal posts because they can’t make up their minds! The current QAR is yet another example of the uncertainty I’m talking about. In the most part, those FPs who remain are highly educated and experienced professionals who, over decades in my case, have witnessed and complied with increased supervision and compliance regimes in the vain hope we’ll reach a standard of professionalism. It has to be noted the ideal of “self-regulation” generally found in professions is simply not possible under the current highly regulated regime of legislated oversight. As FP's we are required to know, understand and be capable of applying complex strategies, as well as legislation for the benefit of our clients. We provide solutions to improve clients situations, we do not simply ‘sell stuff’. Ask anyone at the coal face, they’ll tell you modern financial planning is a multi-faceted discipline. Financial planning is about so much more than ‘selling stuff’; it’s about things like relationships, technical competence, estate planning and intergenerational wealth transfers, emotional intelligence, coaching, counselling clients through grief and relationship breakdowns, providing assurance, and understanding our clients’ needs and fears through multiple phases of like. "
Gayle 15:28 on 19 Dec 22
"For Ben Neilson I am sure you are an exceptionally good looking person and it is a fascinating study, the problem will be there won't be any financial planners left by the time it is considered a profession by those outside the field. For Grant I would argue that if doctors, engineers, scientists etc saw the cost of providing their services increase by over 20% per annum and their revenue decrease then they would exit the profession. You can still be a profession and terrible career."
Scott 09:19 on 15 Dec 22
"DAVID...love your response...just a quick one on self regulation...even Medicine didnt self regulate until early in the 20th century...practice of medicine in the USA is the best example of self regulation.. But thats only because of the lobbying muscle of the AMA. All professions had difgiculty with the ruling elite in the 18th and 19th century...appears like normal birthing pains of a profession...nothing to be yoo trouble by...but strong representation...a strong political voice in future will help this develop further."
Phil 19:54 on 14 Dec 22
"Grant, you have a big chip on your shoulder...and you cannot define a profession so why comment on what is or what is not a profession."
Phil 19:44 on 14 Dec 22
"very interesting...wonder where he got the idea for the study!!"
P{hil Oxenbridge 18:55 on 14 Dec 22
"What rubbish. Professionals such as Accountants, Engineers, Doctors, Scientists are not leaving their profession in droves. Financial Planning is a sales driven industry. If the money isn't there, if the requirement to keep up to date is too much for the poor souls who haven't got the brains to pass exams or the understanding of the Investment Cycle to be able to provide good advice to their clients, then they leave. 26,000 down to 16,000 and falling, don't give me that rubbish that it is a profession. It is decades away, if ever, from being a Profession. For starters over the majority of planning groups, it can only sell shares and managed funds, cannot advise on direct property. Seriously, that is like an ice cream Vendor who can only sell you vanilla, because ASIC says he isn't allowed to advise on or sell chocolate ice cream. What rubbish."
Grant 16:10 on 14 Dec 22
"I have been in the industry the exact length of this study. I joined in 2010 as a FP graduate. I have definitely witnessed it transform and very much move towards professionalism which makes me extremely happy so great work to everyone who has contributed! Bug Bear: the one area I still feel has a strong "sales" culture to it to me is the Investment Bond universe. In my opinion, the following line that we have all heard is very misleading and needs to be taken out of peoples pitches: "Capital Gains Tax free after 10 years" BDMs, please stop using this line. Advisers, please stop using this line. Its misleading. It infers that NO capital gains tax is payable on the growth of the asset if you hold it for 10 years. Technically, yes no CGT will be payable on the individuals tax return upon redemption after 10 years. However, CGT is withheld from the growth of the investment internally by the bond provider at the corporate tax rate of 30%. "Oh, but Sean, here at XYZ Investment Bond Providers we use TAX ENHANCED INVESTMENTS so the tax is usually only 10-20%"........ Again, misleading. Offsetting the 30% tax payable by the bond provider on income and growth with FRANKING CREDITS (aka tax enhanced investments) and telling people the effective tax rate is lower than 30% is misleading. Franking credits form part of the gross income. In the absence of any tax being payable, they are FULLY REFUNDABLE. If you invested into franked Australian Shares in an account based pension you wouldn't say "its a tax enhanced investment" would you? You would gross up the dividend with the franking credit and consider the total income. If franking credits were not fully refundable, and they were a non-refundable credit, then you could call it a "tax enhanced investment", but since they are fully refundable to Australian Tax residents, the franking credit is merely part of the overall gross yield. Stop pretending like it is anything different to make your elevator pitch perk up peoples ears. Not trying to start a big argument here. Both those lines are arguably technically true. My point is they are misleading and need to be eliminated from our "pitches." Disagree? I am more than happy to hear your counterargument. I have given my real and full name, I am not hard to find :)"
Sean Nigh 16:00 on 14 Dec 22
"“It is imperative that Australian financial advisers, offering professional input, commit to being involved in shaping the professional policies, governance, processes....." That is already demonstrably being done. The missing piece of the puzzle is the absence of self-regulation. The only reason financial planning does not self-regulate, is because we are not permitted to. It is something that we should insist on, and it should be a focal point of the QAR reforms."
David Smith 15:54 on 14 Dec 22
"Seems like a fascinating study completed by a very capable and good-looking author. "
Ben Neilson 15:28 on 14 Dec 22