Financial planners in this country are copping a kicking that they just don’t deserve. Having watched the Royal Commission dish it out, and then read the media’s ‘outrage’, I smell a witch hunt and I simply have to point out some things which seem to have been missed in all the “courtroom drama”.
Being a solicitor I’ll start with a disclosure. I’ve worked with financial planners for over 30 years. I helped establishment the FPA and its predecessor the IAFP. Before you howl that I’m therefore biased, let me tell you that I’ve got ahead of you and thought about that before penning these comments. I’ve come to the decision that I’m not.
I don’t get the majority of my work from financial planners and I’d like to think that after 40 years as a solicitor I know when I’m advocating for a client and when I’m not. Here I’m not. I’m simply doing something for financial planners that the Royal Commission doesn’t allow them to do – have someone speak on their behalf.
It seems to me that those 30 years’ of connection with financial planning and those who practice that discipline have given me some insight that can be lost in the current emotional context.
There are in the order of 18,000 “financial advisers” in Australia. That figure is pretty rubbery but was the one used by the Ripoll Report in 2015. That report also said that about 85% of them work as an authorised representative or an employee of an AFS Licensee. The rest either have their own AFSL or don’t need one.
How many financial planners have appeared before the commission? I don’t know either but it’s not many. It’s a ridiculously small percentage of the total. And it’s a skewed sample anyway – they’re the ones the ‘counsel assisting the commission’ have the dirt on.
The view that the majority of financial planners are money-hungry spivs is completely wrong. The many that I’ve dealt with have been honest, hard-working professionals who’d do just about anything to ensure their clients are well looked after.
They are bombarded with change constantly in the areas they need to understand – securities and investments, superannuation, taxation, social security, estate planning … the list goes on. Most of them do much, much more professional development than your average solicitor. They need to in order to keep up with that constant change.
They are allowed into their clients’ inner-most confidence; things clients wouldn’t tell their own mother. But most financial planners handle that deeply personal information with all the integrity expected of them and with considerable empathy as well.
Do they get it right one hundred percent of the time? No. Who does? Do they put themselves and their self-interest ahead of their clients? Some probably do. But the number is a minority – a substantial minority. Do they make money from their efforts? Damn right they do! Why shouldn’t they? They work hard at providing a very valuable service and should be well-compensated. If we want more and better financial planners we need to remunerate them well.
Frankly it would be a tragedy if the public were left with the view that the average financial planner was someone not to be trusted. Not only is that untrue but it has the potential to deprive Australians of the very valuable services good financial planners offer. I was saddened to hear an accountant at a conference the other day tell me she doesn’t tell clients she’s a qualified financial planner because she believes they’ll think less of her. That’s an indictment on our inability to convey the real position.
In a world where home ownership is waning and public offer superannuation is beset by curiously high costs and fees from ‘fund managers’, the financial planner is the last line of defence for clients wanting to ensure their financial health through sensible superannuation investment and good strategies with money. And they don’t just help the rich. Many have a deep understanding of the turgid, Kafkaesque social security rules because their clients need access to social security. Those clients are not wealthy people.
That is not to say that the issues raised before the commission are not serious, pervasive, distressing and regrettable. They need to be fixed. But the fix does not have to come by smearing all financial planners with the brush of deceit and dishonesty reserved for the dishonest, self-interested or negligent few.
The solution comes with public education. Twenty years ahead of her time the Queen of Australian financial planning Gwen Fletcher tried to get the old Trade Practices Commission (now the ACCC) to legislate a definition of financial planning in the mid-1990’s. Had it agreed to do so we’d have a lot less problem now.
Clients need to understand the difference between real financial planning and simply product advice; in the way they understand the difference, say, between asking a chemist for a recommendation of a product to fix their ailment versus seeking advice from their GP.
That confusion about that difference has been rampant among our legislators and regulators in all my time helping the industry and amazingly it continues. The educational requirements of FASEA and the refusal to acknowledge substantial experience of long-term financial planners yet again misses the point.
The problems the Royal Commission has highlighted have nothing to do with the lack of education of financial planners. They are much more to do with greed or with demands by employers that their product sellers, masquerading as financial planners, put the employer’s interests ahead of the clients.
Financial planning should be a profession which means substantial education, a formal entry requirement, a clear understanding of the practice requirements, a strong enforceable code of ethics and substantial penalty for those who misrepresent they are part of the profession when they are not.
All of these things are within reach but let’s not act so quickly or blindly that we destroy the businesses of many excellent financial planners simply because the educational requirements are too onerous for them or we destroy the reputation of the whole of the financial planning discipline just because of the appalling behaviour of the minority.
Most financial planners rock! We simply need to help people understand the benefits of using financial planning and identifying a real financial planner from a faux one.