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1
Financial Planning in Australia:
Industry or Profession?
Brian Murphy
School of Accounting, Economics and Finance
Deakin University
Victoria
brian.murphy@deakin.edu.au
Ted Watts
School of Accounting & Finance
University of Wollongong
Wollongong NSW
tedw@uow.edu.au
Corresponding Author
Dr Ted Watts
School of Accounting & Finance
University of Wollongong
Wollongong 2522
Australia
Email tedw@uow.edu.au
Telephone +61 2 4221 4005
Key words: Profession, Professionalism, Financial planning
2
Financial Planning in Australia: Industry or Profession?
Abstract
Purpose – This paper tests whether financial planning in Australia remains an
industry or can be considered a profession
Design/Method/Approach - A set of attributes of professionalism were derived from
the literature—public/societal responsibility, a systematic body of theory,
professional authority and ethical responsibility—a sample of 78 financial planners
were asked to provide attitude statements relating to professionalism as well as
demographic information of their business.
Findings - Evidence from the attitude statements provide by the respondents to the
attributes of professionalism failed to achieve a satisfactory level of professionalism
for any attribute.
Research limitations - The financial services operators surveyed represented a
fraction of the sector. The geographical area surveyed is in the middle to upper socio-
economic strata and may not represent a fair cross-section of the financial planning
sector. No attempt was made to weight the professional attributes tested. These
factors could also influence the generalization of the research findings to other
groups.
Practical limitations – Public concern with recent collapses of financial planners has
made the question of the professionalism of financial planning the subject of debate.
Results of this study may assist with changing the practices of the financial planning
sector.
3
Imagine a world where almost anyone could drive
anyway they wanted—fast, drunk, reckless,
whatever—and nothing could be done about it.
That’s financial planning today.
Dan Moisand, 2008
1. Introduction
Almost every trading group, from the Milk Vendors Association of NSW to the
Tourism Industry Council, for example, have captured the words ‘profession’ and
‘professional’ in an attempt to increase their own standing and the standing of their
members in society (Neal and Morgan, 2000).
To some this has led to a devaluing of the professional and their professional
body. Nowhere is this more confusing than within financial planning. The
introduction of the Financial Services Reform Act 2004 saw a conglomeration of
individuals competing as financial planners—from accountants who offered
‘incidental services’ to insurance salesmen to those who formally offered financial
planning as their primary service. At that point, all that was required to practise was
a licence issued by the Australian Securities and Investment Commission (ASIC), or
become PS146 compliant (both technical competencies) and authorised as a
representative of a licensed dealer. The distension between industry and profession
became less oblivious.
To examine this problem the paper draws on the components of professionalism,
provided by Dellaportas et al., (2005), and constructs a comparison between industry
and profession.
4
First, we provide some definitions of workers within an industry and those in a
profession. This definition, provided is by Dyckman (1974: 40), applies to workers in
an industry:
(A group) of persons engaging in the same business or plying the same
craft. Membership reflects the trade practiced…the primary function of
which…is to establish control over the practice of that trade by setting
standards of workmanship.
Such industry groups also aim to protect themselves from competition, and thereby
assure the economic security and public status of their members. However, this
definition fails to recognise the dynamic process typically associated with the learned
arts (such as law and medicine), within which practice continually adjusts to reflect
the inputs from theoretical and empirical analysis.
For a ‘professional’ we have adopted the definition of Lee (1990: 139), which
argues that a professional is a person working within a group that is part of a:
self-regulating occupation that can be used as a vehicle for social control in
providing needed skills to match defined uncertainties. It controls its body
of knowledge, regulates its members, and encourages client dependency
for its services. It is given authority to exercise such power. However, it
needs to institutionalise and have its activities legitimated to achieve this
state.
5
While accepting that these definitions provide only a partial explanation
of a professional, this paper argues that financial planning, as practised
today in Australia, does not yet qualify for the title ‘profession’.
2. Review of the literature
Historically, the term ‘profession’ or ‘professional’ had its beginnings with the sacred
oath taken by monastic clergy. During the late eighteenth and early nineteenth
centuries this was transformed to embrace four specific areas of endeavour: theology,
law, education and medicine (Kimball, 1996). Central to this historical concept was
the notion of providing selfless service to the community; however, the concept of
contractual service was added in the nineteenth century to accommodate the legal
profession. This very concept of fee currently divides financial planners between
their self-perception of industry and profession. The debate centres on the notion of
two cultures: the professional, which operates on a fee-for-service basis, and the
industry, which operates on a commission basis (Keeble, 2001)
The existence of a formal profession is often, but not always, characterised by
the existence of a professional organisation (Greenwood, 1957). The advantage of a
professional organisation is that it advances and disseminates specialised knowledge
and information by publishing journals, newsletters and other materials—it provides
the link between the identity of a profession and the professional identity of
individuals (Hotho, 2008). Professional organisations provide opportunities for
continuing education and professional development, such as conferences and
workshops, and offer prospects for networking among members. Professional
6
associations advocate for members on issues such as licensing and funding,
providing ethical leadership (Johnston et al., 2001), influencing public policy and
informing the public about their area of expertise (Cruess and Cruess, 1997).
Professional associations may also assume responsibility for the development and
dissemination of a professional code of ethics, often in the form of professional
statements.
Overall, these attributes support the collective view that professionalism, or
the drive for it, is a manifestation of a desire for status, cultural dominance, market
control, specialisation and qualification (Enright, 2006; Kaye, 1998; Schmitz, 1993).
However, the most important aspects of a true professional association is to maintain
its leadership position through ensuring that its contribution to maintaining public
trust and business confidence is recognised and valued (Dyson, 2008).
The literature relating to financial planning professionals rests within the
larger literature focusing on professionals, which explains the existence, and
persistence, of the profession. A brief summary of the major attributes of a profession
is provided below. This will establish a framework for the subsequent discussion.
3. Attributes of a profession
Central to the concept of professionalism is the idea that a profession has as its
primary purpose the spirit of public service (Pound, 1953). This provides the theoretical
base of public interest theory and the concept of regulation of the profession to
protect the public. Dellaportas et al., (2005: 13) believe this is embodied in the very
essence of professionalism:
7
(Professionals)…are educated to possess the competence and skills to
deliver their services in the public interest. They are regarded as
professionals who have a fiduciary relationship with those whom they
service.
Resulting from this need to safeguard the public interest, professional licensing
occurs because of some market ‘failure’ and the belief that licensing will increase
benefits to society. The presumption of public interest theory is that consumers of
professional services lack complete information about the quality of such services
due to the complex nature of the service and uncertainty about the efficacy of
competent service. Therefore, public interest theory asserts that professional
licensing corrects this market deficiency by ensuring that financial planning
professionals are of a sufficiently high and standard quality. The implication of this
is that a professional has as their prime responsibility service to the larger
community through the practice of their expertise. Such an outward-directed
perspective would suggest that the responsibilities of a financial planner to their
client, firm, association, fellow members, and themselves, are secondary to the good
of society.
A systematic body of theory is a defining characteristic of a profession, because it
involves the mastery of theory rather than manual skills, and is underpinned by
extensive tertiary education, professional updates, practical experience and research.
Dellaportas et al., (2005: 61) claims that this characteristic is:
8
The primary quality that distinguishes a professional from a non-
professional…as it reflects…the reliance that clients place on their
professional advisers due to their superior knowledge and expertise. In
simple terms, professionals know things that others do not.
An organisation that serves society should be able to evolve with the changing needs
of that society. It should be creative, ready to tackle new problems and
be concerned with research and education. Nowhere is this more important than in
financial planning, where the financial planner is required to have specialised
financial information, an understanding of financial theory and application skills. For
example, a financial planner should understand the specifics of tax planning, estate
law, retirement planning details, insurance products and investment products. The
use of these products should occur within the context of financial theory, including
diversification, asset allocation, market efficiency, risk and expected return.
Such knowledge, based on theory provided by the academic community,
gives financial planners power. This power is not based on legal sanction, but on
knowledge underpinned by formal tertiary education. This knowledge identifies and
then fills the gap in the theory/practice debate between ontological assumptions and
the implementing of evidence-based practice (Brennan, 2008).
This systematic body of theory and knowledge provides the professional authority
derived from a dependent relationship with those who rely on the professional
service. In a professional organisation. this is characterised by the evolution of
9
practice through improved theory. In an organisation of professionals we would
expect appropriate treatment to be defined by a set of rules sanctioned by the
organisational hierarchy.
According to Dellaportas et al., (2005: 62) this professional authority obtained
through superior knowledge places the financial planner:
…in a dominant position in their role/relationship with clients, so much
so that the client has no choice but to trust or rely on the judgment and
experience of the professional…and because…the client cannot appraise
the quality of service due to the knowledge differentiation…clients must
therefore take it on faith that the professional is competent and committed
to helping them.
This concept of professional authority is not solely the domain of financial planners.
It is a fundamental plank of all professions. As Morris et al., (2006: 710) proclaim ‘an
important element of a profession is ownership of a body of knowledge that is
distinctive to the professional group’. Examples can be found in the medicine and
surveying professions, for example. Olive (2005) claims that in the medical
profession, professional authority was based on the fact that the lay public had very
limited access to information and relied on the professional for appropriate
recommendations. Male (1990) identifies professional knowledge as the basic
building block of professional authority in the quantity surveying profession, and
argues that the development of mystique aids professional authority.
10
The idea of ethical responsibility supplies professionals with a minimum standard of
ethical behaviour to resolve ethical dilemmas. It is not necessarily contained within a
code of professional ethics, but rather, emerges from the practitioner’s exposure to,
and understanding of, the ideas of utilitarianism, rights and justice. As Dellaportas et
al., (2005: 64) points out, the ethical responsibility test is whether they act in ways
that are consistent with the duties entrusted to them.
One of the major ethical issues within financial planning is independence. Can
the financial planners whose fee or commission is paid by a finance company,
insurance company or property developer truly exercise independent judgments?
The facts surrounding the collapse of WestPoint in Western Australia and Storm
Financial in North Queensland suggest this is not probable.
The review of the literature indicates that the attributes identified are closely
related, because ethical responsibility must flow from the notion of responsibility
and a systematic body of theory and knowledge acquired through education.
The literature review identified four major attributes which are relevant to
distinguishing an industry from a profession. A schematic of the attributes is given in
Figure 1.
11
Figure 1
Attributes that Distinguish an Industry from a Profession
Attribute Industry Profession
Public/societal
responsibility
To members — self-
interest
To Society — the public
interest
A systematic body of
theory
Stability — by accepting
the existing knowledge
base as providing
sufficient information for
the practitioner
Creativity — by using the
increased knowledge base
to add value
Professional
authority
Judgment through
sanctioned rules
Judgment through
superior knowledge
Ethical responsibility Regulatory — through the
belief that regulatory
licensing bodies will
provide a minimum ethical
standard
Self-imposed — through
the acceptance of the
public interest and the
need to protect it
4. Methodology
This research tested the professionalism of financial planning to determine if it fitted
the definitions of industry or profession. To achieve the research aims the data was
collected through a structured questionnaire administered to a sample of
respondents.
Sample size
Using the 2008–2009 North Shore, Pymble Yellow Pages (Sydney, Australia), a
questionnaire was mailed to financial planning practitioners listed under the
‘Financial Planning’ and ‘Retirement Planning’ sectors—in total 153 questionnaires
(for the remainder of this paper these two groups will be referred to as financial
planners).
12
Questionnaire design and administration
The attributes relevant to distinguishing an industry from a profession developed in
the literature review guided the design of the questionnaire. The four major
attributes were explored through several sets of questions, each containing a series of
detailed items. The first group of questions focused on responsibility, the second
considered adaptability, while the third investigated the authoritative basis. The final
group of questions explored ethical responsibility. Respondents scored each item in
the question on a five-point Likert scale ranging from one: strongly disagree to five:
strongly agree. In addition to the questions relating to the attributes, a demographic
question was included. A pilot questionnaire was tested through six financial
planners located in Sydney’s lower north shore prior to being administered to the
sample.
Form of analysis
Because the Likert scale measures attitude statements, means are an appropriate
form of analysis (Veal, 2005). This study used attitude statements to explore
respondents’ attitudes towards a range of issues relating to professionalism.
Therefore, means can be interpreted as scores on importance to which they agree or
disagree with the question.
Response rate
Questionnaires were distributed by mail to 153 managers in 122 financial planning
firms, accompanied by a cover letter identifying the objectives of the study.
13
Table 1 shows that of the 153 questionnaires distributed, 82 were returned, of which
78 were useable. This represented a response rate of 57 per cent, with a useable rate
of 51 per cent.
Table 1
Data Collection Results
Number Per cent
Distributed 153 100
Returned 82 57
Usable responses 78 51
5. Results and discussion
The descriptive statistics, below, asked the respondents to reflect on specific issues
relating to financial planning, as well as gathering demographic information. The
results are displayed in Tables 2 and 3.
Table 2
Feelings about Occupational Group
Yes Per cent
Are you a member of the Financial Planning Association? 31 39.7
Do you believe a professional association would add value to the
professionalism of financial planners?
63
80.7
How would you describe your occupational group?
— Industry 18 2.3
— Profession 70 89.7
Would obtaining higher qualifications add value for your financial
planning?
45
57.7
Interestingly while only 31 (39.7 per cent) were members of the Financial Planning
Association, 63 (80.7 per cent) believed that a professional association added value to
the notion of professionalism. The question relating to occupational groups suggests,
quite strongly, that 70 (89.7 per cent) described their occupation as a profession. With
respect to higher qualifications adding value, only 45 (57.7 per cent) saw this as an
advantage.
14
Table 3 shows the age distribution of the respondents, with Tables 4 and 5
reporting the size of the business and the years the respondent had been working in
financial planning.
Table 3
Age Groupings
Age Group Number Per cent
20–29 24 30.8
30–39 32 41.0
Subtotal 56 71.8
40–49 18 23.1
50–59 2 2.6
60 and over 2 2.6
Of the respondents 56 (71 per cent) were under 40, and of that group, 24 (30 per cent)
were under 30, indicating a relatively young group.
Table 4 indicates a small business environment with 52 businesses (66.7 per
cent) having between one and five staff and 10 businesses (12.8 per cent) having
between six and 10 staff.
Table 4
Size of Business
Size of Business Employees
Per cent
1–5 52 66.7
6–10 10 12.8
11–15 6 7.6
Table 5 presents the years of experience of the respondents. This shows that 47
respondents (60.2 per cent) had worked in financial planning for 10 years or less,
with 15 (19.2 per cent) being in the business for five years or less. Only five people
(6.4 per cent) had over 15 years’ experience.
15
Table 5
Years Working in Financial Planning
Years Working Respondent
Per cent
1–5 15 19.2
6–10 32 41.0
Subtotal 47 60.2
11–15 26 33.4
16–20 5 6.4
Table 6 shows the highest educational qualification achieved by the
respondents. Only 13 (16.7 per cent) had attended university, with only one
achieving a masters degree.
Table 6
Educational Qualifications
Qualification Number Per cent
Bachelor 12 15.5
Master 1 1.2
The following results represent the importance the respondents attached to the
components of each attribute of professionalism. Each attribute contained six
components derived from the literature. Respondents were asked to rank each
component from one: strongly disagree to five: strongly agree. The levels of
importance attached to the components by the respondents are shown below in
Tables 7, 8, 9 and 10.
Public/societal responsibility
Table 7
Importance of the Attribute ‘Responsibility’
Questions Mean
The goal of financial planning supports the spirit of public service 3.33
The purpose of financial planning is to protect the public 2.97
Your primary responsibility is to your self and associates 2.13
Your primary responsibility is to your client 1.93
Your primary responsibility is to your firm 1.97
Your primary responsibility is to the greater community 3.47
16
The results suggest that financial planners are conscious of their professional
responsibility to the community and the notion of the public good. The positive
components relating to the public good had a mean of 3.47 and 3.33 (agree/strongly
agree): while the negative component of self-interest had mean scores of 2.13, 1.97
and 1.93 (disagree/strongly disagree): which also suggests a strong acceptance of the
spirit of the public good. The only positive component that scored below the median
was Question 2—The purpose of financial planning is to protect the public—with a mean
of 2.97.
A systematic body of theory
Table 8
Importance of the Attribute ‘Systematic Body of Theory’
Questions Mean
A systematic body of theory is a defining characteristic of financial
planning
1.13
A mastery of theory is important in financial planning 1.97
A degree is a necessary prerequisite in financial planning 2.57
An increasing knowledge base will add value to financial planning 3.63
The existing knowledge base provides sufficient information 4.10
A theory base would allow financial planning to evolve with the
changing needs of society
2.57
The mean scores for four of the positive components all scored below the median,
with 1.33, 1.97, 2.57 and 2.57. The only negative component, Question 5—The existing
knowledge base provides sufficient information—scored above the median at 4.10. The
only positive contribution to score above the median, Question 4—An increasing
knowledge base will add value to financial planning— scored a mean of 3.63. Overall,
this suggests that financial planners do not believe that a systematic body of theory is
a necessary ingredient of professionalism, but are willing to accept that increased
knowledge resulting from theory could add value.
17
Professional authority
Table 9
Importance of the Attribute ‘Professional Authority’
Questions Mean
A financial planner has authority derived from a dependent
relationship
3.47
Clients have little choice but to trust the financial planners’ judgment
3.10
The lay public rely on the financial planners’ recommendations 3.93
Industry knowledge is the basis for professional authority 4.40
Theory and knowledge provide professional authority 1.90
Improved practice evolves through improved theory 3.30
The results for two of the components of professional authority scored above the
median, with 4.4 and 3.93, suggesting that financial planners do believe they have
professional authority, but it is derived through a dependent relationship and
industry knowledge. The scores below the mean: Question 1—A financial planner has
authority derived from a dependent relationship— 3.47; Question 2— Clients have little
choice but to trust the financial planners’ judgment 3.10; suggests professional authority
is not influenced by dependency relationships. Question 5—Theory and knowledge
provide professional authority—1.90 and Question 6—Improved practice evolves through
improved theory—3.30, indicate a view that professional authority is not effected
through theory and knowledge nor is improved by practice.
18
Ethical responsibility
Table 10
Importance of the Attribute ‘Ethical Responsibility’
Questions Mean
Ethics provide financial planners with standards to resolve
dilemmas
2.30
The way in which I act is consistent with my duties 4.13
My advice and actions are truly independent 2.73
I declare all commissions I receive to my clients 2.90
I believe that ASIC rules provide sufficient ethical direction 2.23
I do not believe that any conflicts of interest occur in financial
planning
1.87
The responses to the components of ethical responsibility suggest that overall,
financial planners have a reasonable sense of ethical values, although may require
guidance when confronted with ethical dilemmas. Question 2—The way in which I act
is consistent with my duties—with a mean of 4.13, suggests that practitioners believe
they act in an ethical way. However, the responses to Question 3—My advice and
actions are truly independent—with a mean of 2.73, and Question 4—I declare all
commissions I receive to my clients—with a mean of 2.90 suggest otherwise. Question
1—Ethics provide financial planners with standards to resolve dilemmas—with a mean of
2.30 and Question 5—I believe that ASIC rules provide sufficient ethical direction—with a
mean of 2.23 suggest that, while accepting that ethical dilemmas do arise, financial
planners have little guidance when confronted by problems, and may benefit from a
code of professional conduct as a basis for self-policing.
When considering each of the responses to professional attributes as either
reflecting an industry mentality or a professional mentality, the results suggest that
financial planners have a bias towards an industry mentality. Of the 24 possible
19
responses the mean of 16 reflected an industry mentality while the mean of 8
reflected a professional mentality.
6. Conclusion
The descriptive and demographic data of the sample suggests a young and energetic
group of financial planners. However, it may also suggest a group of business
entrepreneurs with little experience. While a large proportion of the respondents
believed they were working as professionals, only a small proportion were members
of the Financial Planning Association. The low number of respondents with
university qualifications does detract from the notion of a profession, but more
importantly, it could exclude respondents from membership of the Financial
Planning Association when that organisation introduces degree requirements for
membership in 2009 as proposed.
Evidence from the attributes of professionalism exhibited by the respondents failed
to achieve a satisfactory level of professionalism. Similar conflicts identified in the
United Kingdom also inhibited the development of a financial planning profession
(Gaskell and Ashton, 2008).
Specifically, with regard to the attribute ‘responsibility’, financial planners
demonstrated a partial conformance to the primary purpose of the professional: the
spirit of public service. However, regarding the attribute ‘systematic body of theory’,
the evidence suggests that financial planners did not believe it was a necessary
ingredient of professionalism, but were willing to accept that increased knowledge
20
resulting from theory may add value. Likewise, regarding the attribute ‘professional
authority’, financial planners accepted that they had such authority and that it was
derived from a dependent relationship and industry knowledge. Nevertheless, they
were unconvinced that their professional authority would be enhanced through
theory and knowledge, or that this could improve practice. The final attribute,
‘ethical responsibility’, also revealed little of the elements of professionalism, with
financial planners acknowledging a need for ethical direction while admitting to
actions generally considered as unprofessional.
The present study offers a new focus on the debate between industry and profession.
However, it is also subject to some limitations. First, given the size of the financial
services sector, the population surveyed only represented a tiny fraction of the
practitioners. Also, the geographical area surveyed is in the middle to upper socio-
economic strata which may not represent a fair cross-section of the financial planning
sector. Finally, no attempt was made to weight the professional attributes. These
factors could influence the generalisation of the research findings to other groups.
21
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