Restoring trust in financial planning

The concept of trust in financial planning has reached a critical juncture, writes Geoff Rimmer, and only bold measures will restore it.

It can be argued that, although investment markets are starting to recover from the lows of the global financial crisis (GFC), trust in financial services and the reputation of its participants are not recovering to pre-GFC levels in the same way. 

There are many reasons for this, such as the fact that coverage of the excesses of some businesses and people during the pre-2007 days is still in the news at the same time as remedies against incompetence and wrongdoings continue to be announced. 

Even the largest, and previously most respected, financial institutions have been shown as acting improperly, or at least some of their people have, and new examples are still being exposed regularly. 

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As a result, the role of financial advice, and the value it can bring, has been continually found fault with, with those advisers who are doing good work tainted by the sins of a few. 

The growth in self-managed superannuation funds (SMSFs) can be seen as one symbol of this, highlighting the desire of many investors to take control of their superannuation and, where possible, “do without” the professionals (as they perceive it). 

Moreover, many investors are still dwelling on the damage done to their portfolios, and smarting at the wrongs, real and imagined, done to them. 

Legislative reforms – friend or foe? 

At the same time, the ongoing legislative reforms continue to create an air of criticism around financial services and unfortunately do not seem to be installing greater confidence in the industry, and in particular the role of financial advice, in the way they should. 

The legislative changes still being implemented are also very distracting to industry participants, diverting their attention from the client focus needed to add trust and manage reputation. 

The resultant investor dissatisfaction, media coverage of improper conduct – and questioning of their role by financial services participants themselves – inevitably leads to a negative reaction, which is damaging to industry reputation. 

Getting back in the driver’s seat 

In my view, it’s time for the financial advice profession to take control of its reputation and how it is perceived by the community at large, before it is too late. 

I would argue that right now, trust and reputation have never been more important to the industry if a large proportion of our business is not to be side-tracked. 

We need to be seen as contributing to the good of the nation by helping Australians achieve their life goals and ambitions, not just through encouraging contributions to superannuation but by helping solve problems and deal with the issues facing them. 

To do this, we need to offer the services people want, including the right sort of advice, and investors need to trust us with their money. 

This involves the very basics of the way clients are dealt with, how they see the organisation and its competencies, what the services provided really are, what value they see in the relationship, and how well their needs are served. 

For example, the regulations around ‘best interest’ may have been dictated to the industry by the Australian Securities and Investments Commission (ASIC), but it is now up to advisers to take advantage of this opportunity to show that they not only provide great advice but that they can help clients achieve their personal and professional goals. 

This involves doing more than just asking clients whether they are happy with the returns they are getting on their investments.

It means also asking about whether their lives have changed; whether they have been able to give their children the education that they wanted, or gone on the trip around the world that they always dreamt of. 

The key here is good advice, not just good returns. While the term “holistic” has become a bit of a buzzword of late, its definition – including or involving all of something, especially all of something’s physical, mental and social conditions – is a reminder of what advisers should be striving for. 

This influences the way relationships are developed and how clients assess each contact they have with the organisation and its people. 

It is also seen in the way an organisation and its people are discussed by clients - are they seen as competent, expert, helpful and supportive? 

These are the elements that build reputation and that lead to increasing trust, and trust is integral in ensuring advisers can best assist their clients. 

It’s all very obvious, but is seriously overlooked at the moment – with the added insecurity of a changing operating environment that is still not fully formed, or even properly understood by participants themselves. 

It would be especially disappointing if the outcome of all the regulatory change and government reviews is to make those in the financial advice profession more insular and more wary of doing whatever they can to show how they can help clients and add value to their financial wellbeing. 

Regaining control: cost vs opportunity 

There is a temptation for advisers to batten down the hatches and simply stick to what they know best. 

Offering new or expanded services can seem risky, particularly at a time when the cost of running a practice is already increasing. 

Without doubt, the cost of complying with regulation can be significant. To recoup these costs, advisers will need to be able to retain clients and build up their relationships with them by expanding the range of services they provide. 

Creating good solid processes of client engagement and service offerings should be top of the agenda. 

For example, turn a fee disclosure statement into an opportunity to talk through what has been achieved for clients. 

Keep in mind that what clients most want is someone to make their lives easier and help them reach their goals. 

When it’s time for a review, clients will want to know not just how the portfolio is performing but also how they are tracking in achieving the goals that were shared and discussed at the start of the relationship. 

Also, advisers can ask clients how they are dealing with issues such as their ageing parents. Have they thought about future aged care needs? Do they know if they have a Will or a Power of Attorney arrangement? 

Advisers are ideally placed to assist with these concerns and, by doing so, become a more valued adviser who helps their clients feel better placed to deal with whatever life throws at them. 

I believe that advisers who seize the opportunity to grow their practice in this way will thrive regardless of what happens with legislation such as the Future of Financial Advice reforms or the Tax Agents Services Act, or whether we have a Labor or Liberal Government by the end of the year. 

On the other hand, advisers who refuse to recognise the new reality are likely to struggle in the future. 

While guaranteed superannuation contributions may continue to ensure inflows to fund managers, it will be a sad day for all if the Australian financial services industry ends up almost entirely dependent on this, and unable to attract voluntary savings from investors. 

It will pretty much mean the end of the retail sector as we know it, which would be bad for the industry, the health of retirement savings, and the economy overall. 

Trust and reputation 

It all comes back to the idea of trust and reputation, and how the industry goes about improving these. 

It cannot be done solely by throwing money at the problem through advertising and other communication activities. 

Nor can it be done in some sort of industry-wide, centrally-controlled communication program. It has to come from within the organisations that make up the industry, so that the attitudes of people who deal with those organisations are influenced positively by the experience. Reputation cannot be bought; it has to be earned. 

Professional communicators can play their part in this by improving understanding, but for many organisations a re-evaluation of own values, how they provide value to clients, and manage relationships and service quality, is the first step to building trust. It is also what reputation is based on. 

So there needs to be basic change within the industry, with each organisation and its people acting in a trustworthy way and enhancing reputation, which is part of the shift from selling to advice and counselling. 

It may be a cliché, but nevertheless absolutely true, that the best business development manager is a satisfied client. 

If we accept that third party endorsement is the best form of business development, strong client relations is a solid starting point. 

Organisations must continue to deal with their clients in a positive way that shows them to have the attributes clients need and expect. 

Perception of trust and reputation are only changed, for better or for worse, through the interaction with the people who deal with the organisation. 

An extensive advertising program promoting the value they give is wasted if clients’ contact with the organisation shows otherwise. 

However basic, a focus on improving and building client relations in a way that leads to improved understanding of what the planner is doing for them is always going to be the best investment. 

Once the standards are set, continuing communication of this that shows how value is added will expand and strengthen relations, as well as building reputation and trust.

Geoff Rimmer is head of private wealth services at listed financial services company Equity Trustees Limited (EQT).