Our industry is being compared to used-car sales again (“Shorten throws down the gauntlet”, Sally Patten, Australian Financial Review, 29th April 2011, p. 48). This is obviously a slur against used-car salespeople.
Seriously, the latest release of details surrounding the proposed Future of Financial Advice (FOFA) legislation should make every Australian financial adviser reflect upon three things.
- Where is the financial advisory marketplace heading?
- In light of the direction the industry is taking, what trends will most affect the delivery of advice?
- What are the one or two decisions advisers need to make now to best achieve what they desire from their work?
We’ll deal with the first issue now and then examine emerging trends and required decisions in Reflections on Advice – Part 2.
Reflection 1: Where the financial advisory marketplace is heading
The government clearly intends to do what it believes is required to improve financial outcomes for Australians.
Our assistant Treasurer Bill Shorten has made it clear that if financial planners adopt the recently amended proposals surrounding the FOFA legislation, it will mean:
- they are serious about becoming a profession
- the current government’s proposal to raise the compulsory superannuation contributions from 9 to 12 per cent by 2020 will have a greater chance of eventuating (provided the current government eventuates)
The path towards the government’s imposed definition of professionalism is destined to traverse some unknown territory. Advisers involved in the day-to-day delivery of financial advice know there is a significant difference between a client who ‘feels financially secure’ and one who ‘is financially secure’. Just having access to ‘cheaper advice’ or what may be labelled ‘professional advice’ doesn’t by itself provide any guarantees in a world that will always be full of marketing slogans and where financial certainty means different things to different people.
Our financial media and financial product manufacturers do a magnificent job every day of appealing to our clients’ anxieties by heralding threat after threat to achieving short and long term financial certainty.
Their latest products, analyses regarding the latest financial rip-off scandal, stories about events we cannot control (i.e. oil prices, USA debt levels, striking truck drivers in Shanghai), and general intent to promote their own services and products all make our search for direction harder.
As much as (we naively hope) our government has our best financial interests at heart, its representatives seem to consider that good ongoing advice is similar to good ongoing car maintenance. Good advisers know this couldn’t be further from the reality they see every day.
Here are three major distinctions:
- Pace of change of infrastructure. The infrastructure supporting our road system evolves at an evolutionary pace compared to the facebook-style pace of change in the technology infrastructures supporting the financial advice industry.
- Changing outcomes. The financial destinations and outcomes our clients seek change as quickly as their lives change, while our cars continue along similar journeys each day.
- Performance measures. It’s obvious when our cars are not performing. Due to the underlying complexity and interconnectedness of all the different components in our clients’ financial lives, it’s not as obvious to our clients when parts are blowing a lot of black smoke.
One thing can be said quite confidently regarding the future landscape of financial advice in which advisers will be working.
Financial advice clients will still be driven by their primary desire: to best achieve their financial objectives. Our products and services will only ever be a means to our clients’ ends of better seeking the outcomes in their lives that are important to them.