Opportunities and challenges for financial planners in 2014

Milana Pokrajac looks at some of the challenges and opportunities financial planners can expect over the next 12 months. 

Related: Nine things advisers should be on the look out for in 2014

While 2013 will be remembered in the financial services industry for the introduction of the ever-controversial Future of Financial Advice (FOFA) reforms and the longest election campaign in Australian history, early signs suggest this year will see a turn-around in sentiment. 

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The change in Government has created a sense of security and hope that some of the most loathed FOFA components will be removed in a timely manner. 

Grandfathering, which effectively paralysed the financial planning industry (at least when it comes to mergers and acquisitions) during the second half of last year, will soon come off. Another welcome change is the complete removal of the opt-in requirement, as well as the amendment to the fee disclosure requirements, among others. 

Even the new Financial Services Inquiry has been broadly welcomed by all sectors of the industry. 

Future looking a little brighter

The next 12 months are looking a little brighter for both financial planners and their clients. The mood is, in large part, set by two components, according to the Financial Planning Association (FPA) chief executive officer, Mark Rantall. 

“One is the state of the markets and how they are tracking, and the other is the amount of regulatory reform and change that financial planners have to deal with,” Rantall said. 

The markets are looking up, he added. Performance over the last 12 months has been the best in many years, with clients regaining much of what they had lost through the global financial crisis (GFC) – provided they were in quality stocks. 

The increase in client sentiment was somewhat confirmed in the Investment Trends September 2013 Advice & Limited Advice Report, which was based on a survey of more than 5,400 consumers. 

The report found the demand for financial advice was rising quickly, with 2.6 million Australians looking to visit an adviser in the next two years. 

This, according to senior analyst Recep Peker, offset the half a million who stopped earlier in the year. 

“Investor confidence has been higher in 2013 than it had been the preceding 18 months, and their share market return expectations have increased to match this,” Peker said. 

“After years and years of decline in the usage of financial advice, improving investor confidence has seen the number of active planner clients stabilise at 2.4 million.” 

The FPA sees these statistics as encouraging, with Rantall saying the FPA’s own research came up with similar results. 

“That supports that view that more consumers need advice, they’re recognising they need advice, there are growing numbers of pre-retirees coming into the market and the natural source of that advice is qualified, professional financial planners,” he said. 

In terms of opportunities, 2014 will be the year in which planners will be able to give proper attention to clients and client acquisition, Rantall added. They will also have the chance to look at their business and business structures and introduce some efficiencies from the FOFA reform amendments. 

Not without challenges  

Whilst the Government announced the much anticipated changes to the FOFA legislation, some of those changes are legislative in nature, which means they will take some months to pass through the Parliament. 

Changes to the grandfathering arrangements, removal of opt-in and the amendments to the fee disclosure statement requirements will all require draft legislation and a review by industry organisations, followed by the introduction of the legislation to the Parliament (House of Representatives and the Senate). 

“There’s not a majority in the Senate, so much work needs to be done to convince the opposing parties to pass some of these legislative reforms,” Rantall said. 

Another challenge for the industry over the next 12 months will be the Tax Agent Services Act (TASA). 

The FPA had expressed concerns about the challenges financial planners would face by being regulated by two watchdogs, one of which does not have a history of monitoring advisers. 

Rantall said the association had been working very closely with the Tax Practitioners Board and the Australian Securities and Investments Commission to ensure there was no overlap in competency requirements and that they were both sympathetic to the amount of work planners had to do to comply with the recently introduced reforms. 

Warning to dealer groups 

The next few months might see a lot of movement of advisers between licensees, triggered by nothing else but claustrophobia. 

According to founder of Pinnacle Practice Anne Fuchs, once grandfathering comes off many advisers will review their dealer group arrangements just because they can. 

They felt imprisoned over the last few months, she added. 

“Advisers aligned to larger institutions feel more claustrophobic, especially where the advisers were really treated as a distribution arm and where the product manufacturing division hasn’t actually delivered a quality product,” Fuchs said. 

“There are some institutions whose platforms are working, are low cost and are not in danger of losing advisers,” she added. 

“But the other segment that is going to have a big problem are those dealer groups where they’re independent but their future is uncertain, whether because of an EU or ASIC surveillance.” 

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