Are we measuring success in terms of our own success or what we have done for consumers? In other words, is the industry run for itself or the consumer?
Whenever you hear about success it is in terms of funds under management, a record multiple, growth in the number of advisers and so forth.
When do we hear about successes with advice for consumers? Do we hear any talk about how successfully the industry has been in either reigning in or reducing costs for consumers? No, what we hear is advisers boasting that the platforms they’re using have enabled them to charge their clients 75 to 100 basis points.
Over recent times advisers have gone from wanting to own their own practice, to having equity interest in their dealer, then in the platform and now in the fund manager. Why is this so? Is this to benefit the consumer or the client? How can advisers still call themselves ‘independent’ (ignoring ASIC’s silly definition) if they do this?
How is this upward vertical integration different to the downward vertical integration by institutions? Many advisers scream that the institutions impose platform and product on them. Ah, an adviser would say to me, I still have choice, I can still decide whether I’ll use the platform or product I have an interest in. Poppycock!
In many ways I think the institutions are being more honest. They are open about their intent and they disclose. A consumer who goes to one of these institutions expects to end up with some or all of their product. When a consumer goes to an adviser, who purports to be independent, do they expect to be put into a platform or a product that is part-owned by the adviser?
Consider CPA Australia’s foray into financial planning. According to a recent issue of its magazine, the association is looking for someone to stump up $12.5 million to launch its own dealer group. Why? Why does it want its own dealer group and platform? Who will benefit (eg. make money) out of this — the association, its participating members? Is this in the best interests of consumers? (I could write a whole article about this folly.)
Firstly, why does it need to set up a dealer group and platform, and secondly why does it want someone else to pay for it? Do the riches of this industry bedazzle it? How can it promote such a service as being independent when it owns it and has received support from product and service providers? (I think I will write a whole article about this folly.)
And how confusing for the consumers! If CPA Australia runs advertisements promoting the accountants that use its services, where does that leave those accountants that either already have their own licence or belong to a dealer? Will consumers be led to believe they are lesser advisers, or less independent, than the CPA Australia advisers? Once again the consumer is confused.
This leads me to how we present ourselves to consumers. Recently the Financial Services Reform Act (FSRA) came into force and it has been touted as a single regulatory regime providing for full disclosure. Poppycock again! Any debt instruments (including margin lending) and real property are excluded. This means, for example, commission earned on mortgages and car leases do not need to be disclosed. Do you think consumers understand this?
Then we have the various associations touting their own designations. At last count, I believe there were five. Is this in the best interest of consumers? For all of FSRA’s failings, we do now have a single regulatory regime and one licence. Why can’t the associations get together, at least on designations? Whose interests are served by the confusion? Certainly not the consumers.
Also, why do we need so many associations? When we had separate licensing of advisers, brokers, life agents and general brokers it made sense. But now that they are all covered by FSRA, regulated by ASIC and have similar licences, surely it would make sense to have one association, or at least one umbrella association.
But even the FPA’s membership is fragmenting. For example, we have the Association of Independently Owned Financial Planners (AIOFP). Why does the AIOFP need to exist? Is it an association of independently owned advisers or is it an association of advisers that give independent advice? The members would probably argue it is for both reasons. They may be, but ownership is no guarantee of independence. (Probably they would like to have their own designation.)
And just to add to the confusion, FSRA changes the language on us. No longer do we have prospectuses or CIBs, we now have PDSs. ASGs are now FSGs and plans are SOAs. Nor are PDSs now registered with ASIC. So where does this leave ASIC’s big drive over the last few years to educate consumers to only consider managed investments that have a registered prospectus?
It is not surprising that consumers are an easy mark for scams. How could any consumer understand the language when we even struggle with it? How could a consumer know what’s covered by FSRA, when even we don’t know? How can a consumer know when a financial planner is authorised? Unfortunately, for both the consumer and the industry, the term ‘financial planner’ is not a reserved term. This means that anyone, even those who wear white shoes, can call themselves financial planners.
What makes it worse for consumers (and the industry) is that some authorised financial planners do get involved in promoting some questionable products — even some that have turned out to be scams. Maybe one measure of success could be how many advisers ASIC jails or bans each year. Last year was definitely a record year!
This leads me back to distribution. We are in a market where competition is supply driven not demand driven. There is no shortage of product — an over supply really. There is no shortage of customers, but there is a shortage of intermediaries. So the competition is for the attention of the intermediary not the customer. This puts the intermediary in a very privileged position, a very responsible position, a position of trust. It also puts the intermediary in a very vulnerable position, as they will be tempted by many overt and covert means to sell products. Has our success lured us not to be as questioning as we should be?
Does success mean that we are more concerned about ourselves than our clients? It seems to be the case.
This gets me back to my original question — is this industry run for itself or for the consumer? Our measures for success are all self related. Our concerns are about how many pieces of the pie we can have our fingers in. Our focus on professionalism is about who has the better designation. Our competition is supply driven — how can we have more influence over distribution? Is the industry run for itself or the consumer? It was a rhetorical question — really!
