The past few years have not been good ones for the image of the financial services industry.  The financial planning and advice arms of both Macquarie Group and the Commonwealth Bank have been plagued by scandal, after investigations revealed many tens of thousands of investors had lost millions because of lacklustre standards and poor advice.

The revelations have prompted numerous government inquiries and, almost, a Royal Commission. Meanwhile, earlier this year, an ASIC investigation revealed more than a third of life insurance advice was so poor it was non-compliant with regulations, prompting a stinging rebuke from ASIC about the industry’s “unacceptable” level of failure.

The consequence has been a level of government focus on the financial services sector that has not been seen in recent years. As well as the broader Financial System Inquiry, the industry’s standards are being investigated through a Parliamentary Joint Committee into proposals to lift the professional, ethical and education standards in the financial services industry. There is also a Federal Treasury Working Party into the same topic, being run behind closed doors.

ASIC has also been keeping the sector under a magnifying glass; as well as the investigation into life insurance mentioned above, it has also released a wide-ranging report exploring the domestic insurance market. In both instances, ASIC found glaring shortcomings in the quality of advice.

Tighter reins

As part of this current focus on professional standards, ASIC has renewed calls to drastically increase the height of the hurdles people must leap to enter the industry. The corporate regulator has revived calls to set a mandatory national examination for all financial advisers.

“We consider a national examination to be the most objective and efficient method of assessing whether financial advisers have achieved the requisite competence,” an ASIC spokesman says.

However, Insurance Council of Australia CEO Rob Whelan says the proposal is problematic. “Our experience is that a ‘one size fits all’ training model does not work effectively for general insurance,” he says, urging authorities to make a clear distinction between brokers and other financial advisers.

“The risks associated with a general insurance product are very different to other investment-based products such as superannuation, margin lending or funds management,” he says. “Further, financial planners usually advise on a range of products (ranging from investment-based to general insurance products) and are required to have the requisite knowledge and product expertise across these products.

“In contrast, brokers and other insurance advisers frequently only advise on general insurance products.”

University degrees don’t fix ethics and they don’t fix culture.

ASIC is also pushing to make a university degree in a relevant field the mandatory minimum training standard for the industry, a proposal NIBA CEO Dallas Booth is lobbying against.

He says there is evidence that much of the bad advice in the Commonwealth Bank financial planning scandal was provided by degree-holders. “University degrees are not necessarily the answer,” he says. “University degrees don’t fix ethics and they don’t fix culture.

“Some other sectors have massive issues with their culture but the culture in broking has for a very, very long time been all about acting in the interest of clients and looking out for their needs. That ethos is inherent in broking and it makes my job a hell of a lot easier.”

Broking strong

Booth says this culture is a large part of the reason brokers were able to gain exemption from much of the previous Federal Government’s Future of Financial Advice reforms.

“There is already a widespread recognition when we talk to regulators about the role of insurance brokers that we are not the problem,” he says. “It is absolutely pleasing to report there are no concerns about the nature and quality of work brokers are doing.

QPIB: The most powerful four letters in broking

“That puts us in a very strong position when we then run our arguments about not wanting to be included in reforms which have been developed for other parts of the system.”

For decades, that ethos has been supported and fostered by NIBA. The professionalism of brokers is one of the association’s four stated key objectives, and it is realised in a variety of ways.

Most prominently, NIBA College operates a structured educational program running from entry-level qualifications through to advanced and graduate diplomas, along with a focus on keeping brokers up to speed with industry and regulatory changes through its Continuing Professional Development program.

“Our Code of Practice has also been in place for many years and has recently been upgraded with a new Code Compliance Committee giving external independent oversight,” Booth says.

One of the core components of that Code is, of course, maintain the high professional standards of brokers, spelled out the pledge that brokers “will discharge our duties diligently, competently, fairly and with honesty and integrity.”

However, Booth says the government’s loss of faith in the financial planning sector has been so large it presents a risk right across the financial services sector.

“The loss of confidence has been so great that almost all the regulatory balls are being tossed up in the air and it’s not yet clear where they are going to fall,” he says. “So we’re going to watch very carefully and continue to talk to Treasury very regularly to make sure that when those balls do start to land that they don’t create any unexpected burden for insurance brokers.”

Where to next

Even aside from the prospect of regulatory change, Booth says there is absolutely no room for brokers to be complacent. “We must maintain confidence in insurance broking,” he says.

“That confidence is going to be critical in this new world of digital disruption. The fundamental thing for brokers in the future is to maintain the confidence of clients in their value proposition.”

For years, brokers have been pushing for their expertise to be recognised by business owners as being as vital as that of accountants or lawyers. While progress has been made, there is consensus that broking is not there yet.

Steadfast Managing Director and CEO Robert Kelly says that the average man in the street still does not consider brokers as professionals in the fashion of accountants and lawyers.

“We’ve improved dramatically over the decades. I think we’re considered to be closer to the accountancy and legal sectors but, unfortunately, a lot of the sales that brokers transact are still predetermined on price,” he says. “When advice is seen as secondary and price is seen as primary, it’s very difficult to consider that a professional way to operate.”

“Unfortunately, very few insurers place any emphasis on advertising the inclusions of their policies or the endurability for clients of the process to actually get a claim paid.”

Austbrokers Managing Director and CEO Mark Searles says shifting from a commission-based model to a fee-for-service situation is not necessarily a solution either.

“Identifying risk and finding appropriate solutions is what brokers do and they’re incredibly good at it,” he says. “At the end of the day, the remuneration is secondary.”

Foster the people

Searles says the importance of professionalism is simple. “We’re a relationship industry. Clients work with advisers they trust, and that they trust to protect them,” he says.

“They’re not going to certainly stay with some shonky broker if they’re not getting the relevant professional advice.”

So how to foster professionalism in one’s firm? NIBA’s Dallas Booth says there are two prongs: having a skilled, well-trained workforce and having a workplace mindset that puts the best interests of clients above all else.

“Regardless of whether you’re a broker principal, an employed broker, an authorised representative (AR), in a big firm or a small firm, that culture is crucial, and it is driven by good management,” he says.

Keeping skills sharp

“One of the issues in the financial planning and investment advice sphere appears to be a breakdown in the application of oversight mechanisms for ARs. You can’t afford to let that happen. The compliance and ethical obligations have to be adopted and applied right across the board.”

Steadfast spends a lot of time considering the standards of the brokers it works with. “Before we bring somebody into our network, we do an analysis of their errors and omissions history over a five-year period. That’s a litmus test of the credibility of their advice and back-office processing,” Steadfast’s Robert Kelly says, adding that there are common threads to those doing it right.

“The first thing they do is ensure that the staff that they’ve got are trained to the level of expertise that the regulator actually requires. That’s the starting point,” he says.

Everyone’s got to do some of that heavy lifting, including the Government and industry.

“The next thing they do is make sure that their thirst for knowledge about new products and new markets is never quenched and goes on all the time. And thirdly they make sure their staff’s professional development is done all the time, not by just going to one conference.”

Appetite for change

Shadow Financial Services Minister Bernie Ripoll delved deep into professional standards when, in 2009, he lead the Federal Government’s Inquiry into Financial Products and Services, which became known as the Ripoll Inquiry.

He says while much progress has been made since then, the sector as a whole is still a long way from achieving professionalism. “The scandals we continue to see – with bad behaviour and massive consumer losses – just further demonstrate the amount of work that needs to be done,” he says.

“There’s a lot of heavy lifting to do and everyone’s got to do some of that heavy lifting, including the Government and industry. My assessment is that today there’s still no clear path. There’s still debate about how that should progress, but everybody agrees that they want to professionalise.

“It’s just a matter of time. What’s important is that we’re continually striving to improve and lift the standards.”

Griffith University Institute for Ethics, Governance and Law Director Professor Charles Sampford says the central element of a profession is service to the community whose delivery constitutes a public good.

“A profession involves a body of knowledge, institutions for imparting it and a dedicated and identified group of experts who apply that knowledge for the benefit of the community they claim to serve,” he says. “Most professions recognise duties to a public good and clients, placing the first above the second and both above their own interests.”

With that in mind, brokers have good reason to have faith in the power of their industry’s professionalism.