Blogger: Jason Bragger, Principal, Dolfinwise
I have come to the conclusion that the biggest single impediment to the financial advice industry gaining the communities trust is the gap in our training of up and coming advisers. Specifically the failure to instil sufficiently the ability to assess risk.
Over the 5 years since the GFC the biggest cause of disillusionment with the financial advice community has been the amount of failed investments recommended. Clients had their hopes and dreams dashed by these failures as well as hampered by frozen investments.
The most fundamental duty I believe we have as financial advisers is too protect our client’s hopes and dreams. We do this by helping manage their risk. We must have the ability to analyse an investment option and understand the risks involved. We then have to explain these risks to clients in language they understand.
The courts have made it clear it is not good enough to rely solely on research houses for investment choice.
Nor should we rely on dealer groups and APLs. Licensees are in bed with product groups, advisers cannot rely on them to provide impartial guidance on the appropriateness of investments. $40 billion of frozen and failed funds in Australia since the GFC is a list of the who’s who of funds management in Australia.
Advisers need the skills to assess properly risk for themselves. Most advisers who have survived the GFC have learned some lessons about the folly of listening to product marketing spin without question but we still believe we have a long way to go before advisers on mass have the relevant skills they need.
Graduates of commerce degrees with financial planning majors are still not obtaining these skills. They are not learning how to assess the risks in a managed investment structures for example. Proper consideration of performance of underlying assets in different market conditions, potential for adverse tax consequences due to pooled nature of managed funds, fee issues, liquidity in down markets, leverage mandates, currency factors etc are not sufficiently thought about.
Until these skills become a basic skill set of a trainee financial planner we as an industry will continue to fail our clients when conditions are tough. The next crisis is only a cycle away….
I am amazed at the blind faith so many advisers still put in black box arrangements driven by quant models and algorithms. Many of these options have complete lack of transparency and are sold basically on historical performance.
Bernie Madoff ‘s fund should be the warning beacon to advisers not to entrust significant amounts of their client’s life savings to opaque investment vehicles yet they continue to abound on APLs.
Clients who are protected in a downturn may never again question the value of advice, the benefits to the Adviser’s business and reputation will be immeasurable.
About Jason Bragger
Jason Bragger CFP is principal of Brisbane-based financial advice firm Dolfinwise and a member of the Financial Planning Association’s policy and regulations committee.
He has a background in applied mathematics and gained several years actuarial experience at National Mutual/AXA, as well as completing studies in macroeconomics at Monash University, before commencing his advisory practice in January 2000.
He also serves as Vice President of Riverside junior rugby club in Brisbane and plays cricket with the ‘mighty Muddies.’
