The COVID-19 economic crisis has placed on full display the value of professional financial advice.  

People who have an active relationship with a financial planner are better off.  They have a plan to get through the immediate challenges and make the most of the eventual recovery.  They are making better financial decisions because they are more informed, understand their options, and feel more in control of the things that matter.

An uncomfortable reality  

But while there are professional financial planners out there, the fact is financial planning is not yet a profession.  

The Hayne Royal Commission uncovered the systemic problems in the financial advice industry.  It highlighted the institutions, vested interests and secret money flows standing between the advisers and their clients, biasing the advice.

And the uncomfortable reality is that most advisers have simply been the sales representatives of their institutional employers.  They’ve been paid to sell investment products and super funds.  

But community expectations are clear. CoreData research shows that clients expect their adviser to serve them alone, not other vested interests.  They expect their adviser to be paid only for the advice they give, not for selling investment products.

So, how has this detachment from community expectations arisen?  And why has it endured for so long?

We think it’s because of what psychologists call the bystander effect.  

The bystander effect

This is a phenomenon where bystanders are less likely to offer help to someone in need when others are present.  The greater the number of bystanders, the less likely it is that one of them will act.  When there’s a large group of people, individual responsibility is diffused.  

A real-world example was the 2011 death of American Raymond Zack.  Zack was caught in freezing waters for more than an hour, with hundreds of bystanders present as well as the police and firefighters.  By the time a lone good Samaritan entered the water to pull him back to shore it was too late.  He died from hypothermia.

In financial services, it’s been easier for individual advisers to just fit into the system, conform and achieve their sales targets.  

Things are changing too slowly

In the absence of leadership from the industry, the government has responded.  The Financial Adviser Standards and Ethics Authority (FASEA) was established to set higher education and ethical standards for financial advisers.

The higher education standards require all financial advisers to pass an exam by January 2021, and for them to have a ‘relevant’ degree by January 2024.  

The industry has been slow to act.  With less than 8 months until the education requirements apply, just 25% of advisers have passed the exam.  

A new Code of Ethics has also applied since January 2020, incorporating twelve standards.  The standards include acting in the client’s best interests and avoiding conflicts of interest.

Unfortunately, the industry has railed against these changes, doing everything they can to stop them or delay their application.  They’re likely to be successful too.  It looks like the Senate will pass changes that allow uneducated advisers to continue operating until 2026.

And while the ethical standards have now been in place for more than four months, they’re not being monitored because there’s no Code Monitoring Body.  Incredibly, there’s unlikely to be one within three years.

Well then, it’s up to us

When it comes to professionalism, it’s clear who is responsible.  It’s the individual adviser.

That’s why at When Financial Solutions we have already passed the FASEA exam and have met the ‘relevant’ degree requirements by completing bridging courses on ethics and professionalism, even though we could have waited years to do so.

We have taken control of our careers and we are working in ways that meet the new Code of Ethics.  We are self-employed, paid only by our clients and only for the advice we give.  

We are paid fixed fees that are agreed with our clients up front.  We don’t accept commissions or asset-based fees that introduce conflicts of interest.

Not all financial planners are the same

If you’d like to experience professional financial planning services today, don’t wait.  Give us a call.  Because when you embrace professionalism, it’s not a matter of ‘if’ you will set the standard for others to follow, but ‘when’.

Michael Bowman and James McMaster are co-founders of When Financial Solutions.  This article is general and does not consider your personal circumstances.  If you would like advice specific to you please give us a call.