In 2013, Paul made a formal submission to the Parliamentary Joint Committee on Corporations and Financial Services, as part of its inquiry into lifting professional, ethical and education standards across the financial services industry. The full 22-page submission is available as a PDF below; this page summarises its argument.
The submission was written in the aftermath of the collapse of Storm Financial and the Future of Financial Advice (FOFA) reforms that followed. Its central argument: the Corporations Act defines financial advice narrowly, in terms of product recommendations, while the deeper, more holistic relationship many practitioners actually offer – goals-based, ongoing, fee-for-service – goes largely unrecognised in law.
Drawing on agency theory and stewardship theory, the paper proposes a clear distinction:
Financial advisers, operating under Corporations Law, act as agents – typically of an employer or product provider – and are structurally exposed to conflicts between their principal’s interests and their client’s.
Financial planners, operating under professional standards such as those set by the Financial Planning Standards Board and the FPA, are better understood as stewards, whose remuneration model and code of conduct align their interests with their client’s.
The submission proposes a seven-step framework for a protected, higher-standard ‘Financial Planner’ designation – covering professional body membership, ongoing education, shadow-shopping exercises, independent quality audits, a ban on employment by product providers, and a strictly fee-based remuneration model – so that the public can reliably tell the two types of relationship apart.
About the author (2013)
Paul Moran is a principal of a boutique independent financial planning practice in Melbourne, Australia. He has over 20 years’ experience in finance and financial planning, was named the IFA Australian Financial Planner of the Year in 2004, and has been a member of the AFR Top 50 Financial Planning Masterclass in 2004, 2006 and 2012. He has been a lecturer in financial planning for more than a decade.