Exposing the True Colours of Financial Planning Firms

No one is cocky about managing their financial affairs today.

That’s exactly why current conditions provide a once in a decade opportunity to stand out as an adviser.

Given this opportunity, why aren’t the majority of advisory firms booming? Why aren’t they adding new clients at a great rate? Why are they shedding staff and cutting costs? Why isn’t there huge demand for these self-labelled advice firms, when most clients are suffering from more uncertainty and financial anxiety than ever before?

Worldwide, the financial planning industry has positioned itself as the group of professionals who help people make the smartest possible financial decisions and choices so they can best achieve their desired financial destinies.

If this is true, in these times of greatest financial uncertainty the industry should have clients knocking down the doors for advice to alleviate their uncertainty and distress.  Instead, they’re knocking down our doors for compensation and retribution.

What’s gone wrong?

The business models adopted by most financial planning firms over the last 20 years have been built upon ‘product sales’ and product performance, rather than the provision of their advice or the value of their counsel.

The majority of financial planning firms aren’t financial planning firms. They are first and foremost investment advisory firms. The curriculum for training financial planners is in broad areas of risk, cash flow, structuring, debt, tax, banking, brokering, investments, superannuation, accounting, and so on, and most financial planning firms are calling themselves multi-dimensional; however, they’re being exposed now in their true colours – i.e. as single-dimensional investment advisers.

At a time when the need for advice grows daily, it’s easy to differentiate the real financial planning firms from the pseudo financial planning firms. The majority of pseudo financial advisory firms are earning less, due to having the wrong remuneration model – one weighted to the quantity of product (i.e. declining asset values) provided, rather than the quality of advice provided.

Since Christmas, I’ve heard two hardy 25 year stalwarts of financial planning boasting that in times like these they suffer from declining revenues, just like their clients.  This, they claim, makes them more empathetic to the plight of their clients. This same logic might suggest one has to have cancer to help cancer patients, or be pregnant to help expecting mothers. It’s a pathetic advice proposition from an investment focused generalist. I can’t see this as an advice proposition.

My point is simple. If you are primarily offering an investment advisory service, then be upfront about it. Clearly set expectations with clients that you are an investment advisory rather than a full service financial planning firm.

Ever since our first industry wide survey of trends in the Australian advisory marketplace (“The Road Ahead: The Future of Advisory Business” John Bowen, Russ Alan Prince, Jim Stackpool. CEG Worldwide, LLC New York, 2002 – refer www.cegworldwide.com/research), which we conducted with our USA partner CEG Worldwide, it’s been clear that whilst the market is on the path to offering broader ranges of financial services (67.2% of Australian advisers state that their future model is a broad wealth management model) intent hasn’t matched reality – yet.

Today’s marketplace is exposing those firms which – no matter what they call themselves – have not fundamentally been brave or motivated enough to change their remuneration model to be more wealth management oriented. Most are finding their remuneration models and client propositions don’t work in this market.

There’s never been a better time to do something about it.

When products don’t work as expected, pseudo financial planning firms have very little to offer except hope and patience. This is the best of times to reposition the quality of your broad advice. Unfortunately most advisers don’t know how to do this.

Additional evidence of the thinking that assisted the industry’s slide onto the wrong side of the demand curve can be found in an article about Storm Financial, quoting FPA head Jo-Anne Bloch’s statement that, “Investors need to know that they can trust the advice they receive from financial planners who are members of the FPA” (“FPA found basis for charges against Storm Financial” Lucinda Beaman – www.MoneyManagement.com.au, 31/01/2009).

When the head of our national industry association regards our clients as investors, it’s little wonder our industry continues to boom and bust. Clearly, the financial advisers Jo-Anne refers to are fundamentally investment professionals who are themselves inevitably tied to performance of investment markets, rather than the quality of their broad financial advice.

Whilst we unquestionably need crucial input from expert investment professionals, stock brokers, fund managers, and specialist investment advisers, when we’re crafting an appropriate financial strategy for our clients, this input should only form part of the solution provided by a true financial planner.

Unfortunately, most clients today regard financial planners as investment providers. This is because the focus and remuneration of most planners is first and foremost on the amount of assets the clients have (or, in the case of Storm Financial, the amount of assets they can also gear).

The basis of an advisory relationship, the most important foundation of people doing business together, is trust. It’s obvious now that in the heady days and years preceding this crisis, clients were primarily placing their trust in the performance of the marketplace rather than the performance of their advisers.

If they trusted their advisers, wouldn’t they be flocking to their advisers’ doors, willingly investing time and money for reassurance that they’re still on track to maximise their chances of achieving their financial destinies?

But the majority of our clients aren’t thinking like this now. They’re not willing to pay their advisers more money at the moment. (If anything, they’re looking for compensation for all those years of high fees). They don’t know who to trust to alleviate their uncertainty, so they turn to mates, the TV, conversations they overhear on the bus, and the sensationalising media, whose main care is to sell more media.

There is a small and growing breed of financial planning firms that are getting more new clients than they can handle in this market. They’re lifting fees, attracting new team members, and building great reputations as small giants in their selected niches.

These are the very best of times to be building a stand-out advice firm which is well-remunerated, well-regarded, and providing shareholders, clients, and staff with great returns, no matter the markets. They will be the foundation firms of a new, emerging advice profession which will rise out of the ashes of the old financial planning (i.e. investment placing) industry.

Bring it on.

Image: Salvatore Vuono / FreeDigitalPhotos.net

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