Incentive hounds financial planning
Incentive is an issue that financial planners face day-in, day out, where those who work for a large organisation or work for their own business are under pressure to make sales and generate revenue, an academic believes.
Macquarie University Applied Finance Centre director Professor Kevin Jameson said that while most financial planners do the right thing by their customers, the incentive issue is compelling to those who are greedy and want a payoff quickly.
"I can't think of another industry where that kind of problem is fair and square in your face every day," Jameson said.
"By pushing people into a risk product where there are high commissions or high incentives, you get your bad outcomes very quickly."
If the right decision is to invest a client's money in cash because they are going to need it in a year's time, a good planner will "just wear that", and will say they will prioritise the client and do the right thing.
"I think that's the norm, don't get me wrong. But I think we are talking about a bad apple problem. If you're working for yourself in your own practice you're actually under pressure to grow an income stream for you and your family," Jameson said.
Jameson also said financial planning does not seem to think of education as being the foundation of that profession, unlike law, medicine, and actuarial studies and so on.
"I'm not saying for a second that it's [education] is the only part of it but it's kind of the bedrock. It's where you start and you build from there," he said.
AUTHOR
Malavika Santhebennur
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