The Shifting Sands of Professional Accountability

Michael Perkins,

Partner, Perkins Fahey Rosenblum,

Sydney

Tel:+61 (0)409084777

Email:

Keywords: Estate Planning, Professional Practice

Paper presented to the 2nd International Conference on Private Capital and Intergenerational Wealth, Hong Kong 2016.

The Shifting Sands of Professional Accountability

ABSTRACT

In this article I reflect on changes in professional advice through the lens of my 30 years of professional practice in estate planning and administration. The traditional wealth services business model operating in the financial services sector is dominated by functional specialization of the professions.Commoditisation of professional practice and services is being challenged by the increasing complexities facing clients in the administration of their affairs. This is particularly so in the area of realms of Estate Planning and Administrationwith relational professional practice focused estate practitioners being challenged to engage with the consulting, advisory and general counsel expectations of their clients. These developments have in turn has resulted in fresh business models emerging for professional practice in the Estates Practice field.

1.Introduction

Functional specialisation since the 1950’s has shifted the normal service offering of professionals tobespoke and often productised advice or transaction focused offerings. As a result, the role of a non healthcare professional to provide a consultative, problem solving service to a client that is focused on achieving results s Initially ought by the client has until recently been disregarded in most professional service business models.

With the retirement of the Baby Boomer generation, the longevity of their parents and increasing fiscal transparency in the global economy, private client focused professionals are being challenged to engage with the consulting and general counsel expectations of their clients. This in turn has resulted in fresh business models emerging for professional practice.

The alignment of the value being demanded by clients from their professional service providers with these new business models has also resulted in recognition that there is a distinct professional role (referred to as the estate practitioner) for a multi disciplinary or cross disciplinary practitioner who:

  1. is focused on practicing the ethics of care, and
  2. is a relational professional practitioner who uses a consulting or advisory method of client engagement to achieve sufficient understanding of the requirements of their client , and
  3. intermediates as necessary, the provision of more specialized services to the client to solve the more complex problems of clients, and
  4. as appropriate to the scope of the engagement, provides advice and result integration services to and with their client. This is the client education role of an estate practitioner.

The membership of the Society of Trust and Estate Practitioners[1] provides evidence of this trend within the global market for professional services.The Society was formed as a multi-disciplinary professional society in 1991 in the United Kingdom[2]. Initially focused on the account ting and legal professions, the Society has grown to include over 18 Practice Areasthat are shared by over 26 occupations in its membership catchment[3].

This paper provides a discussion of these trends, describes the core operational processes of an estate practitioner led engagementand explains the significance of Cynefin theory as a tool to describe the emerging role of the estate practitioner.

2.the grand bargain is changing

In their book, The Future of the Professions, Richard and Daniel Susskind (Susskind and Susskind 2015) observe that professions have the following broad overlapping similarities:

  1. They have specialist knowledge;
  2. Their admission depends on credentials;
  3. Their activities are regulated; and
  4. They are bound by a common set of values.

Professionals are the human actors who perform professional activities in the community. The professions refer to the occupational groups and institutions to which professionals belong and which represent the interests of their members. Some have a self-regulatory role whilst others are part of a legislated scheme of professional regulation.

Whilst professionals are licensed to carry out particular types of work and given status and, in the most part,monopolies on the performance of that work, such privileges come at the cost of the professional being regulated and holding themselves accountable to standards of conduct and community expectation of their role.

The values of professions and professionals are said by Susskind and Susskind (2015) to include honesty, trustworthiness, commitment to public service, ensuring access to their services and improving human welfare and advancement. The expectations of the community of the professions is however changing. Because the rise of a more educated and self-reliant community and as a result of the operation of the internet:

  1. more broadly accessible knowledge and services are being delivered to the community;
  2. the role of the professions is being re-intermediated by the application of technology which expands the methods of vending of expertise to the community; and
  3. the value of professionals is being expanded through their role to assist clients manage emerging complexities in their lives and affairs.

As a result, the value of professionals is not onlyto facilitate community member access to knowledge skills or experience held by the professional, but also to assist the client to resolve presenting complexities in their lives and affairs. Community members are increasingly requiring that bespoke service is not delivered, but rather a normalized more generic service that is still appropriate to their circumstances. This can be thought of as the commoditization of the professions. It is this trend that is causing community members to reassess how they access expertise in the operation of their commercial and personal enterprises.

The continuation of the inexorable trends of functional specialization of the professions and the commoditization of professional practice and services, means that the traditional model of a professional being the bespoke method of delivery of expertise highly valued by the community which would be customized to each recipient in every case is waning in significance.

Susskind and Susskind (2015 p.216) put forward seven business models they observe are emerging from development in the constitution and function of the professions. These arethe:

  1. Traditional model;
  2. Networked experts model;
  3. Para professional model;
  4. Knowledge engineering model;
  5. Communities of experience model;
  6. Embedded knowledge model; and
  7. Machine generated model.

The community is not demanding all professions deliver their services by the traditional model of face to face real time interaction where the knowledge skill, experience and resources are focused on the particular requirements of the presenting client.

Increasingly the professions are being forced to consider their operations in the context of the supply chain of which they are part. Product based business models for the vending of professional expertise are being quickly disrupted in many fields, disrupting the existing business models.

Master craftspeople will still be needed to deal with complexity presented by clients that lie beyond the utility of normalized solutions to generalized problems. For many situations however, these normalized solutions will provide a cost effective method of delivering a wide variety of professional services to the community. The introduction of cloud accounting services and an ecosystem of ancillary services such as established by Xero[4]in the accounting profession is but one example of this trend.

3.shifting focus from transactions and events to consulting and advice

Professions are expected to provide services of sufficient quality that the community is not damaged by the provision of such services. The law of negligence provides a normative control on the quality of professional services delivered as does community expectation, professional regulation and the scope of engagement negotiated between professional and client.

The expression of professional services into normalized solutions is also a quality control measure initiated by the professions. Combined with functional specialization, these trends have resulted in “precedent” forms of service and expertise production and application. The characteristic of the offering primarily determines how, to whom and at what price it is delivered. This approach also facilitates the efficient delegation of a professional task to the lowest cost employee qualified to perform the task. Professional work delivered in this context has many characteristic of a commercial product held in inventory by the professional or their firm. The product characteristics define the professional service delivered to the client rather than the client’s statement of requirements.

In consulting or advice led business, it is the client requirements that defines the purpose of the engagement. The presenting problemsfor an estates practice focused advisor or consultant may be as broadly as these statements:

•“I want my money to last to my grandchildren.”

•“I am a business owner and am concerned in this downturn about being sued; how can I protect my capital and provide security for my family?”

•“I am spending my money on my wife and myself, the kids can simply have whatever is left over when we are gone; just break up what’s left evenly between the kids as simply as possible.”

•“I have spent all my life building up the family business. Times have been good to us. My children are running the business but my wife and I still own all the shares. How do we balance the interest of our children and ourselves?

•How do we manage our estate for ourselves and our bloodline?”

Responding to such requirements necessitates the professional to apply a problem solving, advisory or consulting[5] methodology as the process through which the professional service is delivered. The price of that service or the method of calculation of the price of the service should normally be agreed at the commencement of the engagement.

The areas of professional knowledge skill and experience that are applied to the solution of a client requirement increasingly are outside the realm of any one professional discipline. The following areas of client service are examples drawn from estates practice that draws on multi-disciplinary areas of operation that in turn require cross-disciplinary collaboration and co-operation:

1.Asset Ownership & Control

Determines impact and limitations on form of asset ownership on estate planning objectives

Determines impact of client family and beneficiary maintenance obligations on estate planning objectives

Determine impact of estate claimant rights on asset ownership and control.

2.Life Risk Management

Determines impact of the client’s life risk management objectives on their estate planning

3.Taxation Planning

Determines the impact and limitation of the client’s attitude towards taxation on their estate planning objectives

4.Retirement Planning

Determines the impact of the client’s retirement objectives on their estate planning objectives

5.Care Planning

Determines the impact of declining health and capacity of the client and their dependents on the cost of their care and maintenance during their lives.

The situation and objectives of the client operates as anormative constraint on the scope of work to which theprofessional is engaged. These constraints on engagement will normally come within the following classes of client objectives:

1.Personal and Family Representation and Succession

2.Family Continuity, Governance and Legacy

3.Wealth Preservation, Enhancement and Transfer

4.Business Ownership and Control

5.Financial Security and Compliance

Advice and consulting led businesses engaged to the financial services sector normally need to scale up their operations to match the client catchment of large corporate organizations in that sector. It is necessary that such businessesadoptpolicies, systems tools and processes that facilitate consistent client conversations about estate planning and administration issues across all the client-facing workforce of the enterprise. . Suchpolicies, systems, tools and processes ensure a consistent approach to estate advisory workis followed by firms that are focused on engaging to resolve the problems and requirements of the client of the client, not just provisioning work product that is delivered by the professional or their firm. Examples of these conversations are:

1.Concerns about wealth preservation that often lead to discussions about family continuity, governance and financial security.

2.Concerns about wealth enhancement, business ownership and personal succession that often lead to discussions about business succession and whether a business should be retained within a family or a particular generation within a family.

3.Concerns about wealth preservation and personal succession that often lead to a discussion about inheritance protection and isolating financial assets and resources from relationship and creditor risk.

The tools deployed to support these conversations are increasingly being made available through cloudbased platforms such as Xero[6], Optimizer 720[7] and Astute Wheel[8].Estate Practitioners need to have a consulting methodology in their approach to business if they are going to efficiently use these tools in their practice. The modern professional practice needs to support as appropriate to their span of competence and service, client engagement and work methods that incorporate:

  1. Consulting
  2. Advice
  3. Transactions, and
  4. Dispute Resolution.

Turner (1982) distinguishes between consulting and advice. He notes that practitioners need to distinguish between the purpose of advice which is the presentation of evaluable choices to a client who remains the decision maker in the professional engagement relationship and the purpose of consulting which still remains defined by the following criteria:

  1. Providing information within the consultant’s span of expertise;
  2. Providing a solution to a given problem;
  3. Conducting diagnosis that may redefine a problem;
  4. Providing commendations and recommendations;
  5. Assisting or facilitating the implementation of solutions (strategy + implementation);
  6. Building consensus and commitment around particular strategy or solution;
  7. Facilitating client or organizational learning; and
  8. Improving organizational or enterprise effectiveness.

The complexity of the problem presented by the client will largely determine whether the solution to that problem lies within the span of competence of a particular profession, discipline or occupation.Where the complexity of a client problem exceeds the competence of the professional to whom the client is engaged, a method of discriminating the out of competence tasks or problems needs to be used so that appropriately skilled providers can be engaged to the solution to those problems. The Cynefin framework (Kurtz and Snowden 2003)is one model that provides a method for classifying the presenting complexity of a problem. The key elements of the framework are:

  1. Complex;
  2. Complicated;
  3. Simple; and
  4. Chaotic.

This framework provides a service approach that links the complexity of the presenting problem with the initial responses to be followed by the person responding to the situation. These initial actions can bedescribed as:

  • Simple – sense, categorise, respond (Best Practice)
  • Complicated – sense, analyse, respond (Good Practice)
  • Complex – probe, sense, respond (Emergent Practice)
  • Chaotic – act, sense, respond (Novel Practice)

As the application of technology to the Simple domain or professional service continues, it is incumbent on professionals to consider how their business model needs to adapt to higher value forms of service. In this model however the traditional model of bespoke service is confined to the chaotic form of a presenting problem. Scaling higher value professional service business models necessarily means focusing on servicing the complex and complicated areas of service within the profession or occupational span of the person concerned.

7.the emerging professional order

The complexities surrounding family definition and operation challenges the usefulness of any one profession or discipline to be the primary provider of services to a family.

As families become the client segment of focus for private client focused professional practices, there is an increasing need to define cross disciplinary and multidisciplinary approaches to professional practice where efficient delivery of professional services to a family does not require parallel delivery of specialist services directly to the client. A more balanced approach that mediates the general client care with specialized service delivery as needed has to be developed. This is the “supply chain service approach” discussed previously in this paper.

In my opinion, professionals engaged in the field of private wealth administration and succession have much to learn from the human services and health care sectors in organizing the delivery of delivery of multiple professional services to a private client consistent with a care plan first negotiated with the client/patient.This care planning approach needs further development in the context of the private client focused professional service sector.

Whilst substantial academic work exists which focuses on families as emotional and purely social systems, the work focused on families as holders of wealth has been largely limited to as families as owners and operators of closely held family businesses.

8.Concluding thoughts

No one profession, occupation or skill group can deal with the complexities described in this paper. Whilst not exhaustive, the following list represents the most common failure points I have observed in firms delivering trust and estate based services:

1.Focusing on maximizing profit per unit sold rather than attracting and retaining client

2.Failure to optimise links between staff assessment and workplace behaviour.

3.Failure to implementing Estate and Administration practice as a professional service with its own business model and service team

4.Failure to give estate services their own revenue line and profit accountability.

5.Failure to understand estate advice is about delivering change to a client's life, not just products and services. The value proposition to be presented to clients is that Estate Planning is not a unitary service, it is shaped by the practitioners knowledge of the focus and needs of the client.

6. Failure to recognize Estate Planning as a discrete employable professional competency within the firm. It is not just another CPD knowledge area.

A role can be discerned in society for a class of professional focused on the systemic, social, cultural and wealth related complexities that affect individuals and families. Accordingly the professional talent bank normally engaged to the private wealth interests of clients may include one or more of the following professions or occupations:

1.Financial Planning;

2.Law;

3.Accounting;