An altitude of almost 8800 metres, and just 50 metres below the summit of Mt Everest, there was a small but technically challenging section which came to be known as the Hillary Step. It was named for the New Zealand mountaineer Sir Edmund Hillary, and it was the last significant challenge on ascent before climbers reached the top.
Climbers at the Hillary step found themselves between a 3000-metre drop on one side, and a 2400-metre drop on the other. It required some climbing expertise and a healthy dose of courage to negotiate. But as more and more climbers reached the top of the world’s highest peak, fear of the Hillary Step gradually abated. And in 2015 it is thought to have been reshaped by an earthquake, making it far less intimidating than it used to be.
The Hillary Step remains a potent metaphor for the financial advice industry’s ascent to professionalism. At Professional Planner’s Licensee Summit this week Jane Hume, the Minister for Superannuation, Financial Services and Financial Technology, described professionalism as the industry’s “last big step”.
Financial advice must stand at the summit to be recognised as a profession. Hume said the goal of professionalism is not a step too far for the industry and in fact it’s a prerequisite for individuals who have a fiduciary relationship with clients. Where such a relationship exists, it’s beholden on practitioners to transcend the sales culture from which financial planning sprang, and to embrace principles of professional behaviour.
Tech is vital, but it’s half the solution
Hume highlighted the role that fintech and efficient scaled advice solutions will play, along with the more widespread use of Records of Advice (RoA) in putting the industry back on track to delivering affordable advice to more people. But it’s only doing half the job to give practitioners the tools they need if those practitioners still are not trusted and respected by the very people they wish to attract as clients.
Also at the Summit on Tuesday the chief executive of the Financial Adviser Standards and Ethics Authority (FASEA), Stephen Glenfield said the government’s prime point in introducing new professional, ethical and education standards was that “there was a barrier to consumers seeking financial advice, and that was a trust barrier”.
“The government noted the education, [professional] and ethical standards of financial advisers needed to be raised in order to improve consumer outcomes and raise public trust and confidence in the advice they receive,” he said.
Glenfield argued that trust and confidence in advisers can only increase if the public knows that these new standards are in place, and that many advisers have had to work hard to reach them. Advisers should be shouting it from the mountaintops.
“There is a really good opportunity for the advice community, and the advice profession as it emerges, to promote what you’ve done,” Glenfield said.
“If I’ve made the step up and I am now operating under a regulated sphere that puts me in a place of delivering an ethical code that puts the interests of the consumer first, then I’d be trumpeting it.”
A ‘very, very positive result’
Glenfield said that so far 7958 existing advisers have sat the industry exam, and another 4031 are registered for exam sessions this year, meaning that 53 per cent of all advisers on the ASIC financial adviser register have sat or are registered to sit the exam. And the pass rate to date is running at about 86 per cent.
“From a consumer perspective that’s a very, very positive result,” Glenfield said.
“We have close to nine in 10 of almost 8000 existing advisers who’ve sat the exam and who exist across the breadth of the country, and on whom consumers presently rely for advice, who have already demonstrated they have the skill to apply their knowledge of advice construction, ethics and legal requirements to the practical scenarios tested by the exam.”
Glenfield said the latest annual returns from higher education providers show that there are more than 2900 existing advisers already enrolled in bridging courses, and that existing advisers are enrolled in more than 6500 individual bachelor degree courses.
In addition, there are more than 900 potential new entrants to the industry currently enrolled in bachelor or higher degrees; and almost 100 new entrants to the industry have already commenced their professional year.
Glenfield has a good point about promoting the new standards and the impact on public trust and confidence. Earlier this year CoreData illustrated how higher education, professional and ethical standards are likely to impact on the perception of financial advisers as trusted professionals. In short, it will be clearly positive.
It’s a tremendous time to be highlighting the value of advice, and the role that financial advisers play in improving clients’ lives. Turmoil and uncertainty on global markets during the COVID-19 pandemic has put the spotlight on how individuals and households are equipped to cope with unexpected financial stress, and unsurprisingly, to those who know the industry, at least, those who have an advice relationship are proving to be better placed and more resilient. And the value of advice extends beyond just the financial.
The broad arc of the advice industry story
Fintech, scaled advice and RoAs will undoubtedly prove to be valuable financial advice tools to help make advice more accessible and affordable, but they have to go hand-in-hand with the ongoing professionalisation of the industry.
Hume said professionalisation is simply part of “a much broader arc of the development of the industry as a whole” as it moves from a sales-based culture to a professional services culture.
“I don’t think it’s unreasonable to create a profession from financial advice, simply because it requires us to do so,” Hume said.
“There must be, in a job where there is a fiduciary duty, a level of professionalism that extends beyond a sales culture. Part of that is seeing a change-up in the infrastructure behind the industry. Banks have left the system, and now we’re seeing a new dynamic in the way licensees operate. That’s going to take a little bit of getting used to, too.”
Hume said disruption to the industry will settle in time, but the task of professionalising financial advice will be ongoing in the same way it is for other professions including, for example, the legal profession.
“They’ve brought in things like legtech that’s helped them get rid of much of the red tape – of course, invented by the legal profession – from what it is they do in bringing down the cost of legal advice,” Hume said.
“That’s exactly what we can do with financial advice too. But it will take a new type of thinking.”
