In my last article I asked whether advice would ever be the same. In this article I would like to ask whether the industry will ever be the same. I ask this, because the industry still seems to be in a gigantic state of denial.
Everywhere you look nothing seems to be any different. It’s as if the whole industry is paralysed by the glare of the spotlight.
In the last week I received the quarterly newsletter from my adviser’s dealer. It had changed. It had been redesigned, and was glossier than ever. In it there were really pertinent articles, such as ‘the future of international airlines’, ‘Australian tourism under threat’, ‘new age travel’, ‘ensuring your travel is insured’, ‘a bird’s eye view of Macquarie airports’, and ‘what drives the Australian dollar’. Apart from the last article, what do the rest have to do with the concerns advisers’ clients currently have?
As a client, I would have preferred my adviser’s dealer had saved money by staying with the old format (or a less glossy one) and reduced my fees.
Also I would have liked articles relevant to the current economic situation and some that commented on the recentAustralian Securities and Investments Commission(ASIC)/Australian Consumers’ Association (ACA) survey, for example, how they ensure their advisers deliver quality advice. Or can’t they give me that assurance?
This same dealer also had their advisers send out form letters (albeit personally signed) extolling the virtues of equities with an attached list of buys and strong buys — no sells. This intrigued me because firstly, I’m a review client and secondly, I have a number of shares, mostly dogs, and if anything I am overweight in equities. Surely, as a review client, any ‘offer’ from my adviser should be in the context of my plan and known objectives?
But why should I be surprised? This industry, for as long as I can remember, has all been about flogging equities. Sorry, in the early 90s it was fixed interest, and the late 80s it was unlisted property trusts and mortgage trusts. Really, it has been whatever the fund mangers were promoting at the time. (Lest we forget international equities.)
Being the supreme optimist, and with the trend towards fees and the embracing of ‘holistic’ financial planning, I thought the days of the fund managers having a squirrel grip on this industry were waning. Or are all parts of the industry so entrenched in their ways, that it is nigh impossible for the industry to change? Or is there another reason?
Are we hoping that recent events are an aberration? The good times will return — the equity markets will recover and once again provide double-digit yields. This will placate clients, who will then not question the level of fees and commissions. Sadly, a number of people in the industry do believe this.
Even if the equity markets do return to double-digit yields, the industry will never be the same. There are too many other forces at work to allow this to happen. The industry is now of a size that it is attracting attention from many different parties — consumers and their advocates, the Government and the regulators and new players — both local and international.
Consumers will become more and more demanding. Not only will they want value for money, they will not want a service imposed on them by the industry. They will want control, and they will want to decide what they need. The adviser will have to work with them (validators) not for them (delegators).
The Government wants everyone to be more self-reliant, especially in retirement. For this to happen, the Government recognises that more than superannuation is required, financial planning is necessary. The Government, whatever its political persuasion, cannot allow the industry to stuff up either superannuation or financial planning. Neither can the regulators.
This brings us to the new players. They see an industry that, even given its current travails, is fat with margins and opportunities. Even internationally, Australia is seen as one of the best opportunities for funds management. Recently, some big international hitters have set up shop here. Locally there is more and more interest in the industry. The banks have had their run, now it is time for some of the others, for example, the large superannuation funds.
These new players are not going to play by the old rules. They have no legacy systems, they have no blinkers. They will enter the industry, especially financial planning, in a very business like way. They will be efficient and process driven. They will make financial planning available to the mass market. Some may see this as the dumbing down of financial planning.
But should financial planning remain the preserve of the rich? If you listen to some financial planners, they say it has to, because they can’t afford to service anyone else. Why can’t they afford to service anyone else? Is it because they want a certain income stream, or because their business practices are so woeful that it costs them a fortune to operate their practices? It is probably both, but most likely mainly the later.
At the start of this article, I said the industry still seems to be in a gigantic state of denial, even paralysed. It’s probably worse than that. On the one hand, we’re being more excessive than we were. On the other hand, the industry is descending into squabbling.
On excess, I have already mentioned my adviser’s dealer’s newsletter. Last week a new newsletter was launched — that’s four zillion now. How many hedge funds can we choose from? How many software and platform providers are there? Some managers are even putting their fees up to compensate for loss of revenue from the drop in market values of their funds. Every second person is now either a consultant or a commentator or both.
On descent, every week I read (in one of the four zillion newsletters) about a new industry association. It seems that every sectional interest in the industry wants to have its own association. Each protests that it has the solutions to the industry’s ills, but in essence each continues to push its own barrow. In reality, this says to me the industry still has a lot of growing up to do.
So far, I have put forward a number of reasons why the industry appears to be paralysed, but none seem to provide the complete reason. Possibly it is because we have had it so good for so long. Perhaps we have been able to do and charge what we want, that we are incapable of changing. Or perhaps it is just that we are really, really afraid of change. Because of this, I do think many are hoping the current ills will just go away.
I am certain the current ills won’t go away. Life agents thought that 10 to 15 years ago, much to their regret. The financial services industry will change. In five to 10 years time it will be very different to today.
Even though the industry may appear to be paralysed, there are new players (international and local) already working away on how they can exploit the current paralysis by the existing players. They see now as a time of opportunity. So do I.
