September 12, 2016
Industry debate over the handling of the Life Insurance Framework has the potential to place a sector of the advice profession on the outer for many years, according to Paragem Managing Director, Ian Knox.
In this column, which first appeared at New Investor, Knox states the LIF legislation was already heralded by the Future of Financial Advice reforms and pushing back against it involves resisting the wider cultural change moving through the industry.
It appears that some disgruntled advisers in the Association of Financial Advisers are so keen to preserve their stature that they are in grave danger of doing the very opposite by tearing down their own association under the nose of a watchful government and its regulators.
Given the importance and value of a membership body to its constituents, this is an extraordinary outcome where individual judgement appears to have become so clouded it cannot see the future.
In this instance the future is even embedded into related policy through the words ‘Future of Financial Advice’ – so there’s a strong clue that change is underway, is being called for and is not about to be recalled to the negotiating table to preserve the good old days.
For the past few weeks a group of financial advisers who are members of the AFA have been publicly lobbying for an extraordinary general meeting of the association with the purpose of gaining membership authority to water down the policy making powers of their own elected board.
This scenario is bizarre to say the least given the board has delegated authority based on the directors’ expertise, judgement and undoubted inclusiveness with members. To refute that refutes the very process of governance. Why not work on that if there’s a grievance?
“Regrettably, the stoush has become public with little regard for damage to reputation…”
Regrettably, the stoush has become public with little regard for damage to reputation and now the association is looming as a lame duck once the dust settles and no one wins.
The main objective behind the disgruntled members appears to be structuring the association in such a way that the board cannot negotiate a position with the government of the day on major policy matters without consent from the majority of members.
Unfortunately in real life this means having a neutered board which is unlikely to attract any executive calibre and it seems intent on a democratic process that focusses internally not externally on matters of structural significance.
The stoush is all about a lot of the members feeling their board has not achieved a satisfactory outcome with their need around legislation impacting the Life Industry via amendments outlined in the Life Insurance Framework (LIF).
This framework took its clue from FoFA and was ushered in via a consultative process under the watchful eye of an independent eminent person – John Trowbridge, and involved more than the AFA.
In fact, it sought out input from the entire industry before making its judgement and by any reasonable standards this would have meant compromise by all parties to move forward.
Significantly, John Trowbridge made it clear at outset that consumers were at the heart of change as much as policymakers and that the outcome had to meet this criteria – not prioritise the status quo for the benefit of the sales and manufacturing arms of the life industry.
In these circumstances and given the government’s mantra, the existing board had little room to negotiate – whatever the membership need. This is a very difficult reality check for all to consider.
All the other associations got on with the spirit of intent, the reality of government needs, even the manufacturers bought into the changes. But not, it would appear, enough for members of the AFA who seem to feel betrayed by their association acting in line with the rest of Australia.
This questions whether the rest were wrong or perhaps whether the AFA could have stood outside and commanded more attention?
So the proposed solution and the danger? Change the constitution and demand a broader member engagement, which could demand an unworkable policy such that the association is just earmarked as a basket case for future years. Presumably some thought would have gone into this.
“The long-term danger… is that the AFA is unlikely to be a serious reference point for the industry.”
The long-term danger if the association does pursue and wins its EGM case is that the AFA is unlikely to be a serious reference point for the industry.
Accordingly, advisers could conceivably move in time to a single body like the FPA which is chartering a more sensible course of individual professionalization of membership. It’s a higher moral ground to effect change – and from a consumer advocacy position it’s right on course. No wonder the FPA is keeping quiet now.
Also the fragile revenue base of the AFA could be challenged by sponsors smelling the decline and distribution value of yesterday’s thought leaders. This means conferences will be questioned and content ignored.
The ironic twist with all this is many advisers in the industry feel the AFA has tended to reflect the so called ‘Lifies’ of yesteryear and that the AFA board has done an incredibly good job energetically drawing in young blood by introducing the Gen X principal.
One can but hope the young blood and sensible members now take a stand against the aggrieved party members and vote their proposal out – otherwise they might not have an association worthy of their values in future times.
One thing’s for sure: there isn’t going to be a soft landing for anyone with the strings that are being pulled at present. Normally that signals a loss of common sense and high emotions.
Let’s hope there’s a shift in mindset and that the embarrassment of a neutered irrelevant board doesn’t eventuate. The whole planning industry is on the right wave at the moment and arguing about the need for a longboard isn’t what’s needed in the world championships.
Note to Advisers:
We welcome your comments and in the interest of fairness, request that you properly identify yourself either in your post ID or at the end of each comment.