Accumulating evidence suggests that the old financial planning industry (OldCo) is entering its death phase. Effects on advisers and their business plans will be profound.
There is no single emerging trend, no single piece of legislation.
Just a mounting pile of seemingly unrelated issues, with surprisingly aligned consequences …
- Several years ago, the superannuation industry’s “compare the fees” adverts started consumers thinking about cost and performance differences between not-for-profit accumulators of industry superannuation monies and retail funds.
- Disenchantment with professional fund managers is fostering the growth of self-managed superannuation, the fastest growing sector of our funds management industry.
- Advisers wait for a solid recovery in the All Ords Index assuming – very dangerously! – that the advice landscape of the future will be the same as the one we’ve experienced to date. Other advisers commit to debt, investing in over-inflated new books of old clients’ business. They assume book valuations will hold firm. In reality, their product propositions (masquerading under “fees for service” pricing models) will leave them unprepared to (re)engage clients, resulting in an inability to service their debts and little option but to sell back, at significant discount, to the big banks and insurance groups.
- Investors in OldCo frozen mortgage income funds dislike paying ongoing management fees and trail commissions to their financial planners (“Financial Planners Cash In on Frozen Colonial Fund”, Duncan Hughes, AFR Business Day, 28/02/2011, p. 3).
- An article protests that it only takes 8 days to obtain proper financial planning authority, but 3 years to become an accredited hair-dresser (“Days training … and you’re a financial planner”, AFR Perspective, 26/2/2011, p. 24).
- Basis points (BPS) are increasingly referenced in the ‘influence-sphere’, while active fund managers are being ‘outed’ to start performing or drop fees. (How long before consumers start using BPS as a means of determining value for money?)
- Resentment is roused by stellar payments to departing executives who have risked others’ money without producing stellar results.
- Less visibly, major OldCo dealer groups display an insatiable appetite for distribution (not profitability) and innovation, and will probably devour many mid tier groups (e.g. Matrix, Australian Financial Services, IRIS) for “improved services to clients and return to shareholders” reasons.
Maybe OldCo is just entering a new phase of operation. The big end apparently seeks to water down FOFA reforms, with the Financial Services Council’s John Brogden – representing retail fund managers – wanting changes to ‘opt-in’ and ‘volume-based payments’.
My clients, knowing consumers seek greater certainty in their financial lives, welcome the reforms:
- ‘Opt-in’ finally forces the separation of product from advice
- People will NOT “forget to opt-in” every year (cf. FPA and others!)
- ‘Volume-based payments’ and ‘commissions’ add costs to the consumer, bias advice, and discourage the industry from financially standing on its own two feet
These committed advisory firms are managing the difficult transition from their OldCo past to their NewCo future.
OldCo firms seem blind to the sentiment growing within our marketplace. They avoid the NewCo advice path at their increasing peril.