Only one can rule the industry

The battle between individual planners and institutions leads to confusion over whose influence is greater, says Robert MC Brown.

It’s a regrettable reflection on the mindset of much of the financial planning industry, and the media which reports on it, that so many of the industry’s spokespeople in its public war against the Government’s proposed Future of Financial Advice (FoFA) legislation are employed by product manufacturers and dealer groups.

This was well illustrated in a recent industry “roundtable” titled, “Financial Planners Prepare for Regime Change” (Australian Financial Review, January 12, 2011). Not one of the journalist’s five interviewees was a financial planner.

One was the CEO of the Financial Planning Association, and thus was a logical choice to be interviewed about the industry’s future. At least he could reasonably claim to be an industry leader representing the official views of his association and some of its members.

The other four interviewees (promoted in the headline as “financial planning industry leaders and senior representatives”) were employees of public companies principally engaged in product manufacturing and distribution. Of course, these people and their corporate employers are entitled to their opinions, many of which are interesting, intelligent and thoughtful. However, it is extraordinary for an industry that is so desperately seeking professional recognition that “big end of town” spokespeople are still accepted by much of the media as sources that should be interviewed to represent the aspirations and professional interests of individual financial planners.

Of course, one could argue the toss about whose views they were representing and whether they would be supported by the bulk of financial planners. That is not the point. The point is that the common background of the participants in the “roundtable” spoke volumes about how the financial planning industry is still viewed by most of its participants, let alone by the media and the public.

After all the efforts to “legitimise” financial planners as independent professionals who are fiercely protecting their clients’ best interests, this was a very bad look. Imagine if the CEOs of drug companies were presented in the media as representing the views of the medical profession; or if directors of public companies were likewise presented on behalf of independent auditors. Actually, one can’t imagine it at all. It would be inconceivable. No journalist would even consider structuring an interview about the future of doctors or auditors in such a lopsided way.

And yet, in the financial planning industry, which purports to be transforming itself into a true profession, once again it seems to be the product manufacturers and distributors who are accepted by much of the media as speaking on behalf of advisers.

This raises the question as to whether the industry has changed much at all (I mean fundamentally) since its inception some 30 years ago. Sadly, I must conclude that it hasn’t. It certainly looks different, but appearances can be deceiving. In the end, much of the industry (with some notable exceptions) remains in the mindset of a sales and a financial product distribution network in which financial planners are perceived both by their AFSL holders and themselves as the bottom link in a “value chain”, rather than as independent and trusted advice-based professionals acting in the public interest (“gatekeepers” for their clients, if you like).

Transformation of the industry into a trusted profession will only be achieved when the real and perceived nexus between product distribution and professional advice is genuinely broken. Appearances of transformation will not suffice. The public is not that naïve. Unfortunately, “roundtables” of “big end of town” industry luminaries reinforce the perception that financial planners are not genuine about reform.

This perception is further reinforced by the industry’s public representations that the Government’s well-intentioned FoFA proposals should be substantially amended before they become law. Essentially, it seems that the industry wants the retention of certain payments to AFSL holders and planners (often referred to as volume bonuses), the emasculation or (preferably) termination of the annual “opt-in”, the adoption of a watered-down fiduciary duty and the retention of commissions on life insurance and asset fees.

Much of the industry knows that the politically compromised FoFA proposals, especially in an amended form, will not achieve the scope of reform required to make a profession out of a sales force. That step must be taken by the industry itself; however, it will never be taken voluntarily until financial planners come to the realisation that the only way to achieve true professional status is to comprehensively remove all conflicted remuneration structures, thereby changing the way in which they think about themselves and their place in the world of financial services.

Perhaps, while the FPA is in the mood for changes in its constitution, it should think about changing its name from the Financial Planning Association to the Financial Planners Association. At least, that would send a strong message to the media and to the public that “planners rule” the industry, not the product manufacturing and distribution networks.

Robert MC Brown is a chartered accountant with over thirty years’ experience in taxation, superannuation and financial planning. He is independent chairman of the ADF Financial Services Consumer Council and a member of the Government’s Financial Literacy Board.