A tourist is travelling through Ireland. He stops a local and asks for directions: “How do I get to Dublin?” The local earnestly responds: “Well, Sir, if I was going to Dublin, I wouldn’t want to be starting from here!”
There’s wisdom in the answer. You have a better chance of achieving your goal if you’re well placed from the outset.
Knowing this, and after the last fortnight’s revelations from the Royal Commission, it’s worthwhile to stop and contemplate: how does financial planning possibly become a profession?
Well, I wouldn’t want to start from here.
Professionalism is a worthy destination
Professionalism in advice matters. It matters because advice matters. People with a close relationship with a financial planner are demonstrably wealthier and feel more confident and in control of their finances.
It matters because the entire financial system is stacked against the everyday Australian. It’s hard for them to make good financial decisions because the system is so complex. There’s so much misinformation, and even if you can find information from a trustworthy source, emotions and lack of discipline get in the way.
The retirement system is stacked against the everyday Australian as well. A portion of every employee’s income is deferred and paid into a super fund. While they’re working, they really don’t need to make any decisions.
It’s a paternalistic system that changes at retirement, just when things get really complicated. People who have been disengaged investors are suddenly required to make decisions. They’re required to balance their consumption and investment needs, match their assets to their liabilities, manage their cashflow, and make the money last over the course of their retirement; an unknown period.
It’s an impossible task. And people want and need help from someone they can trust.
A journey of a thousand miles begins with a single step
Even the most difficult journeys have a starting point. The good news is that we’re already seeing evidence of the first step. There’s a shift to independence under way in the adviser market. It’s real and it’s accelerating.
CoreData research has uncovered that the influence of “mega” advice networks – those that have more than 480 advisers – is waning, at the same time the influence of “micro” firms – with fewer than 10 planners – is rising.
Mega-firms accounted for about 47 per cent of all planners in February 2013, and the figure had declined to about 40 per cent by February this year. Over the same period the market share of micro firms climbed from about 11.5 per cent to about 15.4 per cent.
Source: CoreData Research
At the same time, ASIC is granting more licenses, indicating that more advisers are choosing to self-license.
There are several drivers behind this shift, but one of them is undoubtedly the professionalism movement. The fact is that it’s hard to meet the best interests obligations working from within an institution. These advisers are making a personal choice to work with new clients in new ways and take control of their careers.
Professionals don’t wait for others to tell them what they should do
Following the Royal Commission, we’ve seen high profile resignations at AMP. There will undoubtedly be further regulatory changes for financial advisers. There will probably even be structural changes required of the industry.
FASEA will soon set out education standards and an ethical framework for financial planners.
However, professionals don’t wait for external forces to tell them how they should serve their clients. Professionals take personal responsibility. They choose to behave in a trustworthy manner. They choose to invest in their education. They choose to be thorough and fight the human inclination to take shortcuts. They choose to serve others and place their clients’ interests above their own.
Communities of professionals will transform the industry
It’s difficult to stay the course, but encouragement from community helps. So, from here advisers should seek to join with others and make themselves accountable to each other.
We hear a lot about the problems with advice, but the professionalism movement is gaining momentum. Soon it will hit critical mass and the laggards will wonder how they missed it.
That’s how financial planning will become a profession. As more advisers take accountability for how they serve their clients their careers will transform. As they form communities to hold each other accountable, the industry will transform.
Personal commitment is key. The late Michael Jackson said it best in a song from his 1987 album ‘Bad’:
“And no message could have been any clearer
If you wanna make the world a better place
Take a look at yourself and then make a change.”
- Man in the Mirror
Jason Andriessen is Managing Director of CoreData Research.