The industry has come a long way since the 1970s, when planners were essentially life insurance agents operating in a sales-oriented culture with little, if any, formal training in providing professional advice.
Many financial planners today have undergone extensive education – beyond the minimum requirement of RG146 compliance – to obtain a Diploma or Advanced Diploma of Financial Planning, Master of Financial Planning, CFP certification and other specialist qualifications.
Since the Ripoll Inquiry in 2009, the industry has made huge inroads into increasing transparency and removing conflicted remuneration practices. There’s been a shift from commission-based charging to a fee-for-service model and new opt-in notices and fee disclosure statements that will make it explicit to clients exactly what they’re signing up for – and how much they can expect to pay for the service.
Importantly, CoreData’s research suggests the typical client is happy with the advice they’re getting. Extensive research of financial advice clients across Australia shows the average satisfaction rating awarded to financial planners by their clients is 7.91 out of 10. In the main, planners are doing a pretty good job.
Now don’t get me wrong – I have no sympathy for advisers who have deliberately misled their clients, investing their life savings in products that were inappropriate and in some cases outright fraudulent. Storm Financial and Trio Capital spring to mind.
But let’s put this in perspective. While a true figure is hard to come by, there are an estimated 18,000 financial planners in Australia. Since 2009, just 61 have been banned by the regulator, the Australian Securities and Investments Commission, from practising as a financial planner.
That’s just 0.3 per cent of planners who have operated outside of the law in the last eight years.
Compare this with the legal industry and you’d find that the level of impropriety is actually lower. Statistics from the Office of the Legal Services Commissioner reveal that of the approximately 66,211 practising solicitors in Australia, 330 lawyers (or 0.5 per cent) have been struck off the register since 2010.
It’s true that the consequences of poor financial advice for clients are typically more severe than the consequences of poor legal advice; however, the statistics suggest the incessant focus on financial planning is somewhat excessive.
According to the chief executive of the Financial Planning Association, Dante De Gori, the financial planning industry has been subject to 54 inquiries, reviews and consultations since 2009. Opposition Leader Bill Shorten recently signalled a royal commission into financial services if Labor wins the next Federal election, citing “systemic and widespread problems” in the banking sector.
While it’s not yet clear if this royal commission would include financial advice, the peak industry bodies have both voiced their opposition to further scrutiny of the sector, and rightly so.
The large majority of financial planners are doing the right thing by their clients and constant judgement only serves to undermine the value they’re adding through good advice.
Financial planners should be given the breathing space to turn their focus back to the most important aspect of this whole debate – the client.
Kristen Turnbull is head of financial services and head of Western Australia at CoreData Group
Jacqui, doctors, lawyers and every other profession keeps up with their day to day knowledge, that’s your job, your industry, your problem not your clients. You have to do this whether you have one or one hundred clients. It’s not their fault the FP industry is today a compliance filled ridiculously burdened industry. Until you FP’s stop this RORT of fee for service you will always be treated with suspicion and once the new generation of clients get control you won’t have a business because they won’t put up with this nonsense.
Your industry needs to stop, look at itself and change. Let me assure you and your industry that FEE FOR SERVICE is a laughable alternative you have all migrated to. It’s immoral and smells of commission by disguise.
….and for all the work/time that happens when we aren’t ‘charging per meeting’/in between those meetings? The enquiries/research and intellectual property that we have/education gathered over years of training and up skilling? Car Nut, you epitomise the ignorance of what we do as an industry. Good luck with your transactional adviser, assuming you have one. You are going to need it.
and what industry are you in?
It’s still a con this fee for service. You really need a broom thru your industry and stop this nonsense. A well constructed strategy needs no hand holding that warrants a monthly fee.
Advisers are free to charge an ongoing service fee just as much as clients are free to opt out of it. Some people like having someone there to run ideas past and they are happy to pay for it. Many advisers will simply work by the hour if you want them to as well.
Thousands of happy clients would believe otherwise. And if you do your research you would find that there are people who provide “one-off” or “transactional” advice, however the clients are actually worse off and end up paying more over the long term.
Clients are empowered to choose to pay fees and receive advice, or not pay fees and do it themselves. There are dozens of different fee structures available to suit different people. The reason the majority provide an annual fee for an annual ongoing service is because this is in the client’s best interest.
Philip Carman and Car Nut…..dear oh dear!
At least Philip has the courage of his (often misguided) conviction to put his name to his comments.
Car Nut just hides away poking the bear from behind the bushes…..no courage, no depth, no conviction, no relevance.
Thanks Geoff
Hi Philip, we’ve jousted a few times here on riskadviser but am yet to receive back a reply in relation to my query about fee for service risk advice. You assume others are “stupid or lazy” for providing most clients with a cheaper way to pay for their “advised” insurance arrangements. I’ve run the numbers and would be happy to share if you are? I may be missing your point, but if my point was to act in my clients best interests than with the current pricing arrangements with insurers I will gladly put my clients interests before my own. If that means I am conflicted…then so be it. To be clear I am not arguing the point that insurance is sold not bought…I am arguing that it is cheaper for a client to buy an insurance policy under a commission arrangement than it is to buy fee for service (assuming that any ongoing service is actually provided of course and that this may actually involve,,,wait for it…changing the clients insurer if it is in their best interest). While insurers say they have “wholesale” pricing, the current discount is insufficient to utilise for all but the higher premium cases without leaving the client worse off or the true professional risk adviser making a loss….have you read ASIC’s replacement policy advice guidelines?
Why do Financial planners still sting the majority of their clients with a “service fee” when 99% of them do not need it. Until FP’s get rid of this rort of fee for service and stop telling themselves they are holy saints because they cut out commissions they will have all the credibility of a car salesman. Fee for service is wose than commission and just another FP industry rort. FP’s MUST start charging per meeting and that is it. Until then your profession & industry is a rort taking advantage of people not needing your ridiculous hand holding and fee taking.
Always nice to see you in print and in person… It’s bee too long since we caught up but I’ve watched your progress over the years.cHeers,
Hi Kristen – not sure if I know you (by your maiden name, maybe?) but while I’m critical of self-congratulation I don’t disagree with everything you say and would think we’d share the same views about getting advice on track. It’s frustrating that so many just won’t shift even a bit from their positions and remain wedded to old notions that if they don’t think they’re conflicted then they’re not…completely missing the point that we are AL conflicted by degrees and that the only way forward is to remove every conflict. I went fee for service about 29-30 years ago and have invoiced my clients for every fee charged and I am self-licensed for nearly 10 years, so if I can do it as a sole practitioner then surely others aren’t so stupid or lazy to be able to…?? Why is it that so few have their own AFSL, I wonder?
At last, someone standing up for those of us who slog it out each day trying to do the best for our clients. Thanks Kristen for a great article and your support.
Hi Phillip, I also totally agree with you that there is a lot more that can be done, should be done and will be done. We need to work from the inside and the outside, via client and adviser education and ALWAYS work in a client’s best interest. It can be done, and it is happening more and more often. Kristen is correct though that there is reason to promote the good advice which is definitely out there, and not tar everyone with the negativity brush.
Thanks Melinda.
I agree Philip, there is certainly work to be done and we shouldn’t shy away from that. But it’s just as important that we celebrate the good financial planners and the value they add for their clients as it is that we bring to account those who are doing the wrong thing by clients.
Thanks Katherine
Great article Kristen
Let’s not get carried away with self-congratulation, either. Our industry has been problematic for several decades and yes. the old “lifies” may well have done much harm, but the systemic adherence to faulty practices (commissions, selling product rather than advice, being paid by product manufacturers rather than clients because it was “too hard” to explain fees, etc) has been largely responsible for the poor image that persists. And while 0.3% may be all that’s (successfully) hit the courts, many more have not got that far…and let’s face it; do we really want to be compared to lawyers?
People like Melinda have done much good in and for the industry, by lifting standards of practice and discussion, but there’s still much more to do. I still find many clients who have simply walked away from advisers they didn’t feel comfortable dealing with (and no doubt a few may have wandered away from me to other advisers) and that tells me we have all got to learn more about explaining the costs, benefits and nature of good advice – perhaps starting with the simple admission that with financial matters there’s far more that we (all) don’t and can’t know than we do know. That’s why we should all be explaining why lower risk portfolios and greater attention to savings and reduced costs are good starting points. We also should more widely and openly respect the fact that we are NOT the wealth creators – our clients are – and we should be advising more on risk management rather than holding ourselves out to be wealth creators. A little more humility may allow us to forgo a lot more humiliation!
Hear, hear! An article of common sense.