If the history of financial planning in Australia was sketched across the popular board game snakes and ladders, you’d see it has advanced within a dice throw or two of the final square.
It’s a neat analogy, snakes and ladders, but it has been no game. It’s more like a battle of wills tested over two decades – often with more snakes than ladders – challenging all but the most persistent and committed industry participant.
The ultimate prize? A trifecta of recognised professional status, peer respect and client trust.
Achieve that golden triangle and the future looks more assured, both for the industry (now an emerging profession) and the consumers it serves.
Many in the industry, not least the Financial Planning Association, seek a viable professional model to take root alongside or in place of the cottage-based, product reliant industrial models.
These same ‘professional proponents’ articulate a clear and logical future where the accountability of a best interest duty is applied not just to those 17,000 or so humans licensed to give financial advice, but also for the many more who operate the machinery of manufacturing investment schemes.
Much of the recent round of industry regulation has targeted advice or issues which remain – to my mind at least – behavioural symptoms of a deeper industry malaise.
I refer to the dead weight rationalist influence of product. Add to that the word its twin concept ‘distribution’ and you’ll see there is not much oxygen given to the lofty concept of advice.
Here’s the rub: on the big board game that is 2013, will the 1 July FoFA kick-off be a snake or ladder moment for the broader financial services sector?
I believe it will be both, depending to a large degree on how deeply financial institutions have embedded systematic processes required to pursue a product distribution model. I believe 2013 will bring a greater emphasis on the role and responsibility of product manufacturers under the best interest regime within FoFA. Further, if it survives the rearguard attacks, the Accounting Professional and Ethical Standards Board memorandum 230 that examines financial planning services (APES230), is another form of the same thing – fixing symptoms, not necessarily the underlying cause.
So while we today understand that the primary focus of FoFA reform and debate throughout 2012 has been on the advice segment of the value chain, it seems only natural – at least to my observation – that regulators will look further upstream at the manufacturers of product. Yes, the nexus of commissions/ platform fees/ disclosures and so on are, or will be, made wholly transparent (if not forever broken) so the next logical step in the compliance chase is to pursue all investment schemes on a similar ‘best interest’ basis. This is particularly as it relates to ‘soft targets’ within the so-called vertically integrated sector.
What can we learn from overseas jurisdictions on this point?
Product focus by the media and regulators appears to be the case in Britain, as BlueChip confirmed in recent discussion with kindred communications firm, the London-based Lansons Communications.
Like Australia’s BlueChip, Lansons is a market-leading financial services communication specialist with great blue chip brands and deep market experience. It has some terrific insight into the inner workings of the UK advice system, product manufacturing and the regulators which enforce the British industry. And, just as BlueChip advises the FPA here in Australia, Lansons acts as media counsel to an innovative professional financial adviser referral website, unbiased.co.uk; a ‘go to directory’ for consumers and businesses looking for advice.
Since 1998, unbiased.co.uk has been a popular online destination, which receives high annual consumer traffic and lists over 12,000 professional adviser branches, and more than 20,000 registered individuals, making it the most comprehensive adviser search in the market.
So, imagine the conversation between our two firms, paraphrased here by me to go something like this: “yes, the Australian advice market is under enormous regulatory and economic pressure.” “Yes, same here in Britain, tick.”
“IFA’s are emerging with a stronger value proposition than tied advisers, and recent research proves it as there appears to be proof of a rising polarity between those two.” “Yes, same here, tick.”
“We live in the era of massive consumer activism and protectionism, where the average investor is placed at the heart of all new laws, ethical duty and best interest accountability.” “Yes, same.”
“But the reputation of financial planning in Australia is at a low ebb. There are good people here diligently working on it, but the biggest risk to the collective reputation is not the rogue individual, it is the wholesale collapse of the next product scheme, like a Trio or a Westpoint example.”
“Say what? The product manufacturers don’t wear it? How unusual! Products and their brands are far more in the firing line from media and others over here than the IFAs.”
Interesting, don’t you think? From a reputation point of view, it will be fascinating to observe how the larger diversified financial institutions begin to buttress their defences against a future where more voices, more channels, more willing lawmakers, have the last say on systemic product failures.
Footnote:
Keeping with the reptilian theme, observers of the Chinese Lunar calendar will see the year 2013 happens to be the year of the snake.
I am no expert in zodiac symbolism, let alone Chinese astrological charts, but a quick Google search tells me the snake is a good luck omen. Having a snake in the house is considered by some a good sign for one’s wealth and well-being. Those born under the sign of the snake are considered clever and adept at planning and making money.
Of course, Western meaning applied to the snake paints a far less optimistic picture of a cold-blooded risk lurking in the grass at ankle level.
But to identify as a snake, at least in Chinese culture in 2013, is actually a very good thing.
It’s all about perspective!
Happy New Year.