Part I: A Professional Sector Needs a Professional Structure
The financial planning sector needs structural reform to become a true profession, aligning with the standards and trust enjoyed by other professions like law and medicine. This article explores the necessary changes to achieve this vision.
Foundations of a Professional Structure
Current financial planning structures create doubt and mistrust among the public, largely due to the reliance on a licensee system. To build trust, financial planning must adopt a model where professionals are directly licensed under law or a governing standards board, similar to other professions.
Shadows of Doubt and Mistrust
The public's lack of trust stems from two core issues: the system for admitting and removing professionals, and the broader framework within which financial planners operate. Transitioning to a structure without licensees would ensure greater accountability and transparency.
The Case for Registered Advice Groups
Licensees should evolve into "registered advice groups" that live and die on their value propositions to advisers. These groups must focus on delivering valuable tools, business efficiency, and professional culture, without relying on product aggregation or soft dollar incentives.
Challenges to Overcome
1. Professional Indemnity Insurance and Liability
Many advice groups struggle with insurance availability and costs. Transitioning to a proper professional framework would enable liability schemes similar to those in accounting and law, fostering greater stability in the market.
2. Approved Product Lists
Current approved product lists are a relic of the Financial Services Reform Act (FSR) and contribute to inefficiencies. Financial planning businesses must take responsibility for product selection, leveraging external expertise to provide tailored solutions for clients.
3. Direct Data Exchange
Under a reformed system, advice businesses would submit data directly to ASIC, reducing reliance on licensees as intermediaries. This would streamline compliance and allow registered advice groups to focus on adding value rather than administrative overhead.
4. Customer Access and Trust
The current system’s complexity and costs hinder consumer access to financial advice. Reforming the structure would create a more efficient, trustworthy, and accessible system for all stakeholders.
A Professional System for a Noble Cause
Adopting a professional structure would align financial planning with global standards, such as the U.S. Investment Advisors Act. Registered professionals would meet stipulated standards, earning the public's trust and transforming the sector into a true profession.
These reforms are essential to demonstrate the sector's commitment to transparency, accountability, and consumer outcomes. With courage and collaboration, financial planning can fulfill its noble purpose of improving lives through trusted advice.
