It is timely to reflect on our industry. Not because of the millen-nium, but because over the last twelve months or so we have seen a changing of the guard in the industry.
With the selling of Asgard, GPL, Tyndall and soon BT, there are changes not only to ownership but also faces. Last year we had Tony Muston step down at RetireInvest, Bill Radcliffe is taking a back seat at IntegraTec and Bruce Madden is about to leave this esteemed publication. There are probably many companies and names I
It is timely to reflect on our industry. Not because of the millen-nium, but because over the last twelve months or so we have seen a changing of the guard in the industry.
With the selling of Asgard, GPL, Tyndall and soon BT, there are changes not only to ownership but also faces. Last year we had Tony Muston step down at RetireInvest, Bill Radcliffe is taking a back seat at IntegraTec and Bruce Madden is about to leave this esteemed publication. There are probably many companies and names I have missed, but you should get the general idea. Other changes have been with the regulator and the FPA.
No longer do we have the state based CACs. In the past it was fun to trawl around the states to decide where it was best to set up your business. We now have the super-regulator ASIC overseeing the level playing field that we have all yearned for. Or are they about to prove the old adage that “the grass is always greener…”.
And how about the FPA? We used to have two organisations (ASIFA & IAFP) if you didn’t count the insurance and stockbroking associations. Now we have one, once again if you do not count the insurance and stockbroking associations and the accounting associations. We have gone from a DFP course that I could pass to one that requires a Mensa IQ. Once being an associate member of the FPA was good enough. Not today; now you have to be a CFP.
Distribution is changing. There are few independently owned networks left. Co-operatives are being tried with varying degrees of success. The banks’ distribution channels appear to be getting their act together. There are also new channels such as superannuation administrators, asset managers and even the Internet.
More advisers are on salary packages and many advisers now work as part of a team. The financial planning process has been segmented into advisers specialising in client and technical support. More advisers are charging fees and offering ongoing service. Advisers are now offering home loans, providing advice on insurance and trying to figure out how they can do banking as well. This is not to forget estate planning and remuneration planning. No wonder a DFF8 plan goes to nearly 100 pages.
And we have had the development of discretionary master trusts and wrap services. Their development was supposed to deliver efficiencies to the industry especially the advisers’ back office. Unfortunately, to date, little of this has been achieved, but fortunately for some, the industry’s revenue cake has been sliced differently.
Technology has also been turned on its head. Some twenty years ago, a fax machine was the ultimate in high-tech. Ten years ago PCs were starting to appear in advisers’ offices, with monochrome screens and dot matrix printers. Today, if you visit an adviser’s office you would wonder if you were in an IT shop not a financial planning office. In some groups you could not help wondering whether IT is the servant or the master.
As my regular readers would know, I often quote Charles Darwin, who says in brief: “it is not the strongest or most intelligent who will survive, but those who adapt best.” All of the changes mentioned are signs of an industry adapting to its growing maturity and changing times. In themselves they are neither good nor bad and many have been necessary. What is important is that they lead to advisers delivering a relevant and timely service to their clients. Unfortu-nately, its is possible that some are being used for self-serving purposes.
Financial planning started in a Australia in response to need to help people invest their lump sum superannuation payout, while incidentally helping them maximise their pension and minimise their tax (what’s changed you might ask). At the time, accountants and insurance agents were not interested. Banks and life companies were too interested in protecting the status quo. This provided the op-portunity for advisers and fund managers. Advisory groups like Monitor Money, RetireInvest, Godfrey Weston, Cameron Walshe and fund managers like BT, Macquarie, Tyndall (then Clayton Robard) had their start.
These pioneers shaped the industry, as we know it. There have been some failures (Estate Mortgage, Austwide) and some cowboys (some are still in gaol), but in the main they challenged the status quo and won. Those that were and are successful focused on delivering good results and service to their clients. Also, they were willing to adapt as the need arose.
But today financial planning is big business, it is the status quo. You need to be big to start, and big to get the economies of scale. ASIC is raising the entry hurdle for both fund managers and dealers. In many ways, this is ironic since the industry is now better regulated and modern communications and technology should be making smaller scale enterprises more viable. The danger is that, now we are big, we try and defend the status quo.
The FPA is now big business. One wonders whether this has gone to the head of some of its leaders (past and present). They seem to want to build an exclusive association that believes that their view of the world is the only one. There is only one way to do financial planning and there is only one legitimate designation. Is the eager promotion of the CFP designation a public-spirited exercise or is it an exercise to legitimise advisers and provide them the opportunity to charge large fees?
Another question is whether boutique dealers can survive. Can independently owned dealers survive? Will co-operatives be the answer, or are the egos too big? Can a dealer network owned by an institution offer unbiased advice? Can an adviser who is not on a salary offer unbiased advice? For the sake of the consumer, I hope there are as many ways and as many adviser reward structures for them to choose from. The consumer should choose how, when, where and what they buy – not the industry nor ASIC.
Recently, transaction related commissions have become infra dig. It is argued that they encourage churning. Some people argue for time-based fees. Well, you could argue these reward the dull-witted and the slow.
Others argue for an on-going fee based on funds under management. This has the rich paying for the poor. Also, it can encourage churning as some advisers think that unless there has been some movement, the client will question the need for on-going advice. Maybe they should, because have on-going fees been introduced for the benefit of the client or for the benefit of the adviser, in terms of secure renewal income that provides both annual revenue today and a capital value at sale.
Whose benefit are administration services for? They lock clients to advisers and advisers to dealers and dealers to administrators. Who benefits? Has the client seen any improved service or any fee reduction? Technology has enabled the development of these administration services. However, it would not be unfair to suggest that these services have been built to protect the interests of the parties involved. This is a shame because they could be great benefit to the client.
In wrapping up (sic), I am concerned that we are taking on all the trappings and protective behaviour of big business, and because of this we will be more interested in protecting the status quo than delivering a relevant and timely service to our clients.
Also, some of the changes that have occurred have been more based in self-interest that client needs. Let’s reflect as the guard changes and ensure that we are part of a vibrant client-focussed industry. Our near past tells us, that if we do, our clients will support us and we too will be successful. The alternative is to become as well-regarded as the banking industry is today. The choice is ours.
Ends
