by Tony Vidler
The incessant debate about whether financial advice can be called a profession or whether it is an “industry” keeps rolling along and mostly the debate is within the industry. Those who are not financial advisers don’t debate it because the answer is fairly clear to them I am guessing….after all; if it isn’t a question in their minds then there is nothing to debate.
So the question really should be whether the financial services industry is close to being a profession yet? Are we close to finishing regulatory change because we are close to being a profession perhaps?
I’d suggest the answer is “nope…not by a long shot”. And we never will be simply because this is not a binarychoice: financial advice is already both. There is and will continue to be both an industry and a profession – it is not one to the exclusion of the other. The real debate therefore should be how can we educate consumers to know who the professionals are?
Let’s accept that there will always be an “industry” centred upon delivery of financial products…sometimes with “advice” and sometimes without it. The industry which wraps advice with product delivery will definitely have professional attributes courtesy of regulation together with the self-imposed behavioural standards adopted by many many industry participants. So I am not suggesting that the “industry” does not or can not behave professionally. That is just not the same as BEING a profession or being a professional.
Consider this definition:
“A Profession is a disciplined group of individuals who adhere to ethical standards and who hold themselves out as, and are accepted by the public as possessing special knowledge and skills in a widely recognised body of learning derived from research, education and training at a high level.”
Clearly that standard alone eliminates a sizeable proportion of the advisory side of the industry from qualifying…and that is before we entertain the concept of fiduciary duty. The key is understanding that a critical aspect of being seen as a profession is the acceptance by the public that it is a profession….it is ultimately the public accceptance of that status which defines whether a profession has been established.
That’s not all of us. Not by a long way.
But it is many of us.
Consider how far “the industry” has progressed just in the last 10-15 years. If we look at the investment side of the advice world for example, there is little doubt that the progress from product-focus to defined fiduciary role has been remarkably fast in reality:
Often within the industry we have vigorous debate about the right way forward, and whilst the debates rage there is generally a perception of an industry in conflict or lacking in vision of its place as a profession. I don’t believe that to be true. The debate is usually about what is the right way forward…not a debate about where we are going forward to. In fact, more often than not the apparent conflict between regulators and industry is only a conflict about how we shall progress, not conflict over the actual vision for the future.
At present much of the debate centres upon simply whether one is or isn’t a fiduciary, and if not, what one has to do to get there. When that particular debate is eventually resolved we will begin perhaps to get close to being able to address the role of the professional adviser in the wider financial services industry.
The thing is, a financial advice profession is not the exclusive domain of fiduciaries. And nor should it be. Any regulator, or professional body, or market participant who feels that financial advice can only be delivered by a fiduciary has lost touch with consumers and what they want. To be blunt there is a voracious appetite from consumers for financial advisers to NOT be fiduciaries: they want brokers who go to market and find appropriate product solutions and who do not charge fees for then advising them upon what the solution is to their particular need of the moment. So the essence of the fiduciary argument, which centres upon remuneration conflict, is at odds with what a massive proportion of consumers actually want.
Where in the above definition (taken from a recognised professional body BTW) does the remuneration model enter into it?
Let’s consider the world of medicine briefly, as one where the role of the professional is clearly recognised and defined, and the industry itself is labelled “a profession”. In fact it is virtually a protected profession, with an extraordinary (and in my view unhealthy) level of self-regulation. They continue to be allowed to bury their mistakes, literally. However, I digress. For the moment let’s call the qualified medical doctor their version of a fiduciary.
Certainly there are some things that only “the fiduciary” can do. And some things that not all of their “fiduciaries” can do, like cut you open with a scalpel. Only some of their professionals are allowed to do that because there is a very high risk of you being dead if some partially qualified twit still called a doctor was allowed to have a crack at it simply because he or she felt confident doing so. That same person who is ineligible to wield the scalpel can however engage in delivering medicines that can kill you…and we call them all professionals. We also call a bunch of the people associated with the delivery of healthcare professionals even if they don’t have the “doctor” part before their name, such as nurses. I would argue that they are certainly professionals and they definitely meet the definition outlined earlier. But they aren’t doctors…of medical “fiduciaries” in the strictest sense. But they behave as if they were.
Then there are pharmacists who frequently dispense treatments and give advice. They too have appropriate training (usually to a very high level and quite focussed upon their core service of drug dispensing). They are a core distribution element in what is definitely an industry. But they are professionals within the pharmaceutical delivery section of the healthcare profession. And we don’t pay them a fee for telling us whether aspirin or panadol will be better for us…we listen to them and then buy the one that they told us to….and have no qualms doing so, and nor do we consider them unprofessional for not charging us for the 5 minutes diagnosis and prescription. Nor do we call them drug dealers or consider them as such (and nor should we!). The public considers them professionals, and that is the core test at the end of the day.
When one steps back and takes a wider view of the consumers needs and desires and expectations of a service industry, such as healthcare in this brief example, it is apparent that there is both an industry and a professional element within it, and also that the “industry” aspect can be professional and accepted as such by consumers. It is also apparent that what makes the profession stand out from the industry, without either the industry or the profession causing confusion or harm to consumers is that there are clear demarkation lines between them. Pharmacies are regulated, and only allowed to operate within certain parameters. So too are doctors. So too are recognised alternative health providers.
So it must be with financial services delivery. The mistake made thus far in the various regulatory reform iterations is the tendency to lump all forms of advice delivery into the same basket. The teller working for a bank who started 2 weeks ago is labelled the same as the CFP professional of 25 years standing and with advanced technical learning on an ongoing basis being a core part of their skill. As a result, consumers can’t tell the difference.
Each of those roles has a place in the business…in the industry. But one IS expected to be a professional in all conduct and technical aspects while the other is just expected to behave professionally while serving their employers interests.
There is a massive gap between those 2 positions.
There must come a time when there is a clearly identified aspect which is reserved for qualified professional practitioners, simply because the risks are too significant for the unknowing consumer. But at the same time there should continue to be high street shops offering over the counter solutions to simple needs too, as not every problem requires comprehensive analysis and planning. The industry needs to have the regulatory structure to cater for alternative choices for consumers, while still providing basic protection within each realm of consumer choice.
So while we debate whether establishing a suitable fiduciary standard is the finish line, the reality is the industry structure needs to evolve much further to capture and manage the range of product and advice delivery roles. Wrapping professional standards around all of them is good for consumers and for all other practitiioners within the industry. But clarity in labelling that enables consumers to understand the differences between a surgeon and a pharmacist is essential to creating a profession here too.
More regulation is actually needed before we will get to the point of having a recognised profession within the industry. Particularly in the area of what regulators allow various distribution channels to name themselves.