Richard Klipin takes a look at 2010 and the impact it has had on the financial planning industry.
There is an old proverb, often attributed to the Chinese, which says ‘may you live in interesting times’. It is reportedly the first of three proverbs, the next one being ‘may you come to the attention of those in authority’. By this definition, the financial advice industry this year was doubly ‘blessed’.
The world of FOFA
The year began with a focus on the future. In late 2009, the Ripoll Committee recommended a range of sensible reforms that had bipartisan support.
But on Anzac Day 2010, former Minister for Financial Services Chris Bowen announced the Future of Financial Advice (FOFA) reforms — reforms that will fundamentally change the industry.
So 2010 has been all about FOFA — opt-in, commission bans, intra-fund advice, consequences and unintended consequences.
Most of us have had one eye on the future and the other on serious engagement with Treasury and the world of policy and politics.
While the intent of FOFA seems to be all about trust, transparency and access, there is a danger that now the genie is out of the bottle. FOFA may unintentionally lead to higher costs and poorer access to advice and therefore bad outcomes for consumers.
The Financial Services Reform Act (FSRA) was supposed to be all about ‘clear, concise and effective’ outcomes for clients. Those of us in the advice industry know that what eventuated was the exact opposite.
Therefore the challenge for FOFA, and for all of us as stakeholders, is to ensure that there is no devil in the details; that FOFA delivers the very best outcomes for consumers, advisers and the communities they serve.
Financial advisers as consumer advocates
In the wake of the global financial crisis, governments all over the world tried to tighten loopholes and make systems more accountable by introducing tough new financial services regulations. But the voice of consumers seemed to get lost in the debate.
As a result, the Association of Financial Advisers (AFA) commissioned CoreData to conduct the benchmark Back to Basics consumer research.
The research sought to give an authentic voice to the three in 10 consumers who receive advice and understand their key drivers, while at the same time trying to understand why seven in 10 Australians don’t get financial advice.
The findings are critical and will pave the way for a revolution in the profession, as we all get clear and specific on issues such as value, price and the long-term benefits of financial advice.
Back to Basics was ground-breaking research which cut through the noise and clearly laid open what consumers really value from their adviser relationships: “consumers who have an advice relationship are better planned, are happier with their investments, have a financial coach to help with major life decisions, provide peace of mind, administer of financial affairs and assist in facilitating a path to financial freedom” (AFA Back to Basics Research, 2010).
This is the essence of the value that this profession delivers to the community and it is this issue that we must articulate again and again — to lawmakers, to regulators and to the community at large.
The future of advice thus lies in the world of consumers and it will be our ability to act as consumer advocates that will determine our success over the coming decade.
Constructive engagement
Of course the profession needs to argue its own merits and the most productive way to do this is constructive engagement with the Government, the regulator and all key stakeholders.
There has been a genuine willingness by both Treasury and the Government to engage and the profession has had excellent access to both.
All parties need to bring solutions to the policy table, and of course the Government needs to listen intently to the consultation and work with the industry to create workable outcomes.
If it sounds like hard work, make no mistake — it is. But there are many silver linings and it’s important that when massive change happens, people focus on the opportunities rather than simply criticise the changing model.
Ultimately, the financial advisory profession is part of the solution to Australia’s major problems, which include:
- Living too long (creating wealth, super planning, retirement planning);
- Dying too young (comprehensive risk management and insurance); and
- Becoming sick or ill or suffering an accident (managing risks in daily life).
Bill Shorten: Industry advocate?
The financial services industry has been thrust along by the winds of change since 2007 and now needs a Federal Minister with deep knowledge of the sector, who can advocate for the sector at the Cabinet table and who can work with the industry to promote the benefits to the Australian community and the Global Village.
We look forward to the Minister for Financial Services Bill Shorten assuming this mantle.
The big issues for 2011
- Rebuilding trust and articulating value: The keys to rebuilding trust are having the right market settings and the right policy settings. It’s about living and breathing transparency and sensible, workable disclosure.
- Back to school: adviser education: Ensuring that advisers have a thorough, rigorous education — the right programs, the right courses and the right balance between theory, practice and knowledge.
The Association of Financial Advisers in 2011
2010 has been extraordinarily successful for the AFA. Our key achievements include:
- Membership growth of 26 per cent in 2010;
- Representing over 7,000 planners through our individual and licensee members;
- The launch of our Back to Basics research;
- The voice of advisers: Significant investment on the policy and political front to ensure that the voice of advisers is better heard;
- GenXt & SOS mentoring program which mentors and nurtures young advisers; and
- The launch of Make A Plan: A proactive marketing campaign directed at consumers coming in 2011.
The AFA intends in 2011 to ensure that our members are well equipped to grow, manage and protect the wealth of everyday Australians.
There is, reportedly, a third Chinese proverb. It goes something like this: ‘May your wishes be granted’. In 2011, let’s work as a profession to ensure that they are.
Richard Klipin is the chief executive of the Association of Financial Advisers.
