The greatest business of all is one where your operation is profitable and it’s a good-cause business. Financial planning is wonderfully placed to be a great business, but there is a fundamental disconnect that has to be fixed. However, I don’t believe federal governments in the past have got it, and I don’t think regulators believe it is their job.
If past governments have understood the industry and have neglected the right reforms, then their actions border on the criminal – or at least on being accomplices before the fact. As for regulators, like most police forces they only seem concerned with administering the law as it stands, and history shows they have not been great at doing that.
I believe the Australian Securities and Investments Commission (ASIC) is under-resourced given its important role, but it has been poorly directed as well. I would like to see ASIC be a regular adviser to the federal government on how to get the best out of financial planning, instead of simply being an anal rule keeper that catches out some slack record keepers, but which fails to stop corrupt or moronic advisers from tipping clients into dumb investments.
If ASIC were seen as an expert that could advise government then it might, one day, suggest that the foundations of financial planning be dug up and laid down properly. From my position, as a new player in the industry who has, over the years, built a reputation for honesty, objectivity and being a big supporter of the investor or consumer, I have problems with the industry’s current raison d’etre.
In a nutshell, the name of the game is to build up a customer base where people contribute money regularly so that you have an asset you can sell to another planner or organisation. That’s why the industry used to be trailing commission collectors: If you could collect trail, it was income for life, or an asset you could monetise.
What shocked me was that financial planners seemed more attached to their salesperson status than their trusted adviser requirement. I don’t blame the individuals. This culture is so heavily ingrained that you have to point the finger at governments, industry leaders and the key businesses that have done the ‘leading’ in the past.
I hope a new Labor Government takes an objective look at what we have in financial planning, and what we should have. I reckon some substantial reforms should be considered to improve the performance and the status of the industry.
For example, I believe the cost of financial plans, at least up to a cap, should be tax deductible. Under current and silly regulations, the cost of arguably the most valuable thing we do – the actual financial plan – is not tax deductible. Yet the less valuable thing to many consumers – ongoing service – is deductible.
This results in over-servicing, with many customers who don’t need ongoing service herded into it anyway. That’s not to say that ongoing service is not valuable – it is, to more active investor clients who have relatively complex circumstances. But I have seen plenty of cases where ongoing service is unjustified. I’m not sure if we know how many people have a financial plan in this country – a figure of 20 per cent rings a bell, though I don’t know if you can trust that number. But every adult of working age in the country should have one.
Plans shouldn’t always take 12 hours or so to complete and cost more than $3000. They should be cut to suit the circumstances of the client. And like tax services bought from an accountant, the cost should be tax deductible.
This country has a massive surplus and confronts an ageing population that has not prepared well for retirement. Future generations should be encouraged to be financially savvy, and financial planners are the best equipped to show people the way, through a plan. I
f we had more new customers coming through the door encouraged by a tax deduction, there might be less need for so many planners to be hooked on the need to sign everyone up for ongoing service. Trusted advice would be the main ‘product’ sold. That’s a nice thought.
Peter Switzer is the founder of Switzer Financial Services, a financial planning, accounting and coaching business.
