Implementing a financial product for a client is not financial advice. It needs to be classified for what it is, and charged as a transactional service.
An event a few months ago heralded another financial planning “atrocity” committed by the “big end of town”. This time they have been caught out charging for services that were not actually delivered to the client. In the overall scheme of things it is a relatively minor offence, and compensation and mea culpas have now been offered.
However, if I was advising one of these firms, I would be strongly recommending to them that this really should be the end of the road in terms of trying to dress up advice as anything other than product related services. If they keep going down this path, and continue to link (and use the word) advice with the delivery of their financial products, then these issues will keep coming up and their reputation (and shareholder returns) will continue to suffer.
You see, the problem is not the people in these institutions, it is the framework in which they operate. Firstly, the term financial adviser or financial planner is used far too loosely by these firms, and in a lot of cases the person sitting opposite you is not in the meeting to help resolve non-financial product issues for you. They are there to sell you a product.
The reality is also that the good work of these people is really only recognised by the sale of financial products. The more clients they can see, and the greater “share of wallet” they can achieve, then the more successful they are in the eyes of the “institution”.
This is simply incongruous with true financial advice. The implementation of a financial product for a client can be significantly rewarding for that client, but it is a transaction and not a means to building a trusted and valuable ongoing relationship. Some clients just want a new home loan or new insurances, and these needs can easily be met by these institutions. The problem arises when their team of product salespeople dress up their work as more than a transaction, and try and “hook in” the client to an ongoing fee arrangement.
A good example is the fee that was levied by one of the institutions for an annual review meeting (and which was then not delivered!). The figure quoted was $300. To suggest that you could deliver advice (and add value) for $300 is staggering, and worse still is to suggest to the client that this was part of an ongoing “advice relationship”.
$300 would barely cover the weekly maintenance costs of the security gates in the foyer to let the client in to the building. If they were honest, the purpose of this meeting was really to review a client’s financial product position, and assess whether there were other products that could be sold to them at that time.
Implementing a financial product for a client is not financial advice. It needs to be classified for what it is, and charged as a transactional service. The reputational damage that has occurred at the “big end of town” in their wealth divisions has been phenomenal. If the institutions continue with their current “financial advice” offerings, then they will continue to see more of their clients looking elsewhere for financial product solutions, which will no doubt get the attention of shareholders.
Ben Smythe is managing director of Smythe Financial Management
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