Nothing seems to change in the financial planning industry: more predictable failures continuing to trample over the industry by industry funds, a wealth manager trying to impress, and more of the same from the regulator and industry bodies.
While the market was rebounding the industry was speculating about the Ripoll Inquiry.
I can’t wait for the ‘noughties’ to end and the ‘teens’ to arrive so the industry can come of age and hopefully become a profession. All parties need to grow up — not just planners, who always get belted by those climbing over their backs trying to make a name for themselves.
For too long, sectors of the industry have sold product rather than advised their clients. Sadly, some say removing commissions will change this when the problem is not commissions, but the people/organisation creating inferior products and services and those licensed to sell them.
If I was to ring my broker and get advice to buy BHP or Woolworths, for example, and pay a commission, it does not mean the advice was automatically bad. On the other hand, if I paid a fee to gear up my house to the limit, put that into a margin loan and then paid fees to make sure I was always fully geared, that would be financial suicide — yet no commissions would be involved.
I am not going to defend commissions, but most industries work on commissions (often referred to as mark-ups, overheads expressed as a percentage, agreed fees or value pricing).
It is understandable that the financial planning industry would want to pretend they have the same standing as accountants and lawyers, and are belatedly advocating hourly-based fees when the legal and accounting professions are quickly moving away from hourly charging to value pricing.
In The Australian Financial Review June 20, 2008, High Court Chief Justice Murray Gleeson commented on the problem of hourly fees in the legal profession and stated the blinking obvious: “A problem I have about a system of costing based exclusively or mainly on time spent is that it seems to reward slow thinking.”
The regulator can do a lot about good advice by:
- weeding out poor advisers;
- setting higher standards on Australian Financial Services Licence upon licensing;
- reviewing their work long before a Storm arrives;
- reviewing products and solutions from the outset;
- conducting old fashion intelligence gathering (eg, encouraging and acting on complaints) by:
- attending conferences; and
- talking to people who know what is happening in the industry.
Product manufacturers
Planners like to blame the product manufacturers for failed products. While that is fair enough, it does not take away the responsibility from planners to ensure that products with little or no prospect of success are not sold to clients.
If a regulator has doubts about a product, perhaps that product could be reviewed by a reputable research group.
2010 — the coming of age
If the Prime Minister can solve the world’s carbon problem by attacking the source, perhaps we can solve the problem of high cost, poor financial planning advice by also attacking the source:
- the concentration of ownership by product manufacturers;
- the quality of licensees;
- the quality of planners; and
- the inefficiency of too many regulations and systems.
Hopefully we will see:
- the retention of independent advice — we are well on the way to advice being more than 90 per cent provided by product manufacturers;
- less, but more effective regulation; and
- better professional representation and less political interference from vested interest groups.
Barry Lambert is executive chairman of Count Financial.
