In a FOFA preview edition of his Trialogue blog, Tria Investment Partners managing partner Andrew Baker has outlined a number of the key changes taking hold, and also questioned why financial advice is the only profession to be targeted with a sales commission ban.
While conceding it’s not hard to argue that changes to sales incentives were needed, Mr Baker questioned whether the sale of financial products need a special regime.
“If so, why not real estate and other close substitutes as well?” he asked.
Changes to remuneration structures are also having an impact at the institutional level, with the purchase of Count Financial by CBA the “canary in the coalmine” signalling how hard it would be for businesses based on old remuneration models to transform for a post-FOFA world.
Institutions have a lot of history to review, with potentially conflicted arrangements going back 20 years or more, even though those involved in setting up such arrangements are long gone, he said.
But the approach institutions are taking is a conservative one, and in the process they are “re-setting the relationship between institution and planner (in favour of the institution of course),” noted Mr Baker.
Wildat – look at the survey results for qualities FPs think their customers value the most.
Professional reputation, last with 7%
Technical skills, very poor at 17%
Achieving results not much better at 19%
Interpersonal Skills – the big winner by a huge margin at 56%.
Clearly many FP do see themselves as salesmen. I would think that if the same Q was asked directly to clients a father different result would be the outcome.
As I said ‘Are the mark up fees justified – that is for each client to decide.’
Just like buying a meal – huge mark up and if good value then many will pay for it – no biggie.
I still assert that many FP are salepeople – many do not do the technical work and some frankly don’t understand it at that level.
Just like the car salesman does not need to be a skilled mechanic, does he?
FPs are Sales People, as is anyone who offers a product or a service. The issues we have stem from the belief that FPs have no reason to charge a fee or earn commissions, after all, the information they provide can be downloaded off a website somewhere, right? The WWW provides access to a plethora of information, from any industry. Want to build a pergola, repair a motor engine, bandage a wound, invest in shares, determine what type of insurance, cook a risotto? Why would clients ever consider paying for a service? Why do you pay for a meal at a restaurant when you can cook for yourself? Why buy a bottle of wine when you can grow grapes? The answer: Value/Benefit vs Cost. If a client sees value in a service they require they will be happy to pay for it, but only until the cost erodes the benefit. If you offer value to your clients you should have no concerns in making money, if not, then you have no business. The real issue is the provision of value, not the making of money.
Steve-jj, your assertion that “The FP is a salesman” is ludicrous statement.
On what basis do you make this clearly ridiculous statement. Sure there will be some, especially in the big instos and industry funds, but to say something like this?
You either know nothing of the true professionals in FP or you are making sweeping generalisations.
Either way it doesn’t add any value.
‘but my advice business and lots of others like it are not because we don’t build our value proposition on the sale of a product’
Danny, I understand where you are coming from, but many FP are doing just that. Many hand off the ‘work’ to a paraplanner who is the brains behind the suit.
Most of the contents in a plan are available to anyone who can be bothered to do the research, and crunch some numbers on a spreadsheet. Risk, estate planning, diversification, tax effectiveness, pensions, Age Pension / Center-link benefits – all available on-line if one cares to look for it.
Strategies – segregation, lump sum (rather than income in Pension phase), multiple SMSF accounts etc are all in the public domain. And often done by others and not the FP.
The FP is a salesman who links the other resources to the client, generally.
Are the mark up fees justified – that is for each client to decide.
Steve – you have hit the nail on the head – about 10 times. You are correct – the level of risk is not compensated by the money earned. Full stop.
Anyone choosing Financial Planning as a proffession is a real dopey nutjob. Not only will you be on constant attack from every possible angle by every possible person (clients, markets, compliance, dealer groups, asic, fpa, afa staff cost & education hurdles every single year) but you will also NEVER make the money that warrants such RISK & demands on your time. This industry is FINISHED unless the toothless, education/course flogging yesmen from the FPA & like bodies get off their lazy behinds & rally for change. Wont happen cause the fees are notvtheir to motivate them. You watch the industry sink in 2014/15. No one can afford this risk in business! You will see the litigation lawyers lining up like tow truck drivers around the nonsense like best interest & safe harbour to name just two risk. GOODNIGHT & R.I.P advice for those who need it the most.
Andrew Baker clearly doesn’t get it if he likens the role of a Financial advice professional and that of a real estate agent.A real estate agent is engaged by the vendor of the property to achieve the best possible sale price. Therefore it is entirely reasonable that an incentive be put in place via a % commission to achieve the highest price.The advice relationship between adviser and client is not predicated on provision of a product but rather on the implementation of strategy aimed at delivering on the individual clients lifestyle and retirement objectives. This is what has been clouded for so long by the ownership of advice businesses by institutions (banks, AMP, and industry funds).Maybe Mr Baker’s business is threatened by FOFA because Tria Clients are typically Banks and fund managers, but my advice business and lots of others like it are not because we don’t build our value proposition on the sale of a product.