Despite how important financial planning should be for all Australians trying to build their wealth, it strikes me that planners, as trusted advisers, really should advise themselves out of business. I don’t mean out of business altogether, I mean out of a large part of their ongoing business.
For some customers the need for ongoing service — the lifeblood of the industry — really does not have to be as intense as many advisers make it. I’m not saying that no plans ever need tweaking now and then, but I have seen so many instances of overservicing and overcharging that, really, it’s quite embarrassing.
On the other hand, I’ve seen many customers baulk at the prospect of having to pay money for a financial plan that they really need, and which will make a big difference to their future life. Regrettably, most consumers are programmed to be (excuse the French) scabs, and so they think paying $3000 to $5000 for a plan is outrageous. But let’s face it, if our plans can’t deliver $10,000 worth of value, even over a couple of years, then we should get out of the game.
For most people, provided their planner is not charging a scandalous annual amount, the “return on investment” is fantastic. Even just a planner’s knowledge of the tax incentives that are available to novice investors can easily deliver a very good return on the cost of working with an adviser.
We recently had a client who did not like the thought of paying us an upfront fee, and ran away, preferring to hang onto her $4400. Six months later she came back and signed up, after her old adviser had been forced to reveal all of his charges, which were closer to $25,000 per annum. This woman really did not need regular ongoing service. She was close to retirement, her circumstances were quite constant for a year or so, and a good plan for such a person should roll along, as it should be set for long-term success.
The client-adviser relationship should be allowed to be flexible and the laws of the land should encourage it. Yet we have people who come to see us, want some changes considered, and the rules of financial planning, as governed by the Australian Securities and Investments Commission, say we have to do a new plan! This is rank stupidity, and creates problems for our industry. The fact that a new plan is not tax deductible while ongoing service is means there is a very big dilemma for planners when these kinds of situations arise.
I believe we have to analyse all of the dumb consequences of regulation, so that a client who has signed up for a plan can have all manner of changes as a part of ongoing service. Just like the Medicare rebate, which all patients receive after seeing a doctor, a regular client should be able to claim a tax deduction. It happens with accountants, so why not planners?
My use of a medical analogy could make some critics suggest that an annual wealth check-up for all clients would be wise, just like a health check-up. And I can see a lot of merit in that idea for many, but not all, clients. We have to reduce over-servicing, to abide by ASIC-patrolled regulations. People should be able to easily buy an hour of our time, but be told, when their issues are too complex, that they will need to buy more hours than they think.
The rules of financial planning were designed to stop crooks and dopes ruining the wealth building aspirations of ordinary Australians. But they are acting as a financial brake on many Aussies lining up for financial help. On the other hand, regulators have ignored overservicing and overcharging, adopting instead a “buyer beware” stance, and this has resulted in some cases of exploitation. As a consequence, many Australians have not looked for help, and this has resulted in substantial losses that could have been avoided.
I have made complaints about overcharging in the industry, and when I tell these stories to the pioneers of financial planning they are disgusted at what is going on. No one from government, ASIC, or anyone else who should be interested in these issues, has ever contacted me.
Maybe financial planning is in the too-hard basket for policy makers and regulators. It’s a pity, because many Australians are poorer for that fact.
Peter Switzer is the founder of Switzer Financial Services, a financial planning, accounting and coaching business.