What would a year in financial planning be without a healthy dose of regulatory uncertainty, complaints about the regulator and the banning of a handful of financial planners?
The year just past is no different in this respect, but it was also a year when the industry demonstrated its remarkable resilience – when great businesses continued to develop innovative and creative strategies and value propositions; when great advice transformed clients’ lives; and when the industry continued to make significant strides towards professionalism.
Professional Planner was there to cover it all, and here is our year in review – some of the year’s biggest highlights, as we saw them unfold.
February
The year started out with a warning from Australian Securities and Investments Commission (ASIC) Commissioner Peter Kell that the regulator would use the Future of Financial Advice (FoFA) to rid the industry of those practitioners who do not measure up. And he defended ASIC’s expanded powers as being critical in significantly reducing the likelihood of a Storm-like collapse happening again.
We focused on the development of Chris Nairn’s financial planning business, Equus Private Wealth; and we took a close look at how non-aligned financial planning firms were beginning to contemplate a brighter future post-FoFA.
Professional Planner Online reported that practice valuations remained stable as the FoFA changes drew ever closer. ASIC accepted an enforceable undertaking from Commonwealth Financial Planning after investigating the conduct of a former employee. And research from the University of NSW said that a mooted plan to raise the Superannuation Guarantee (SG) from 9 per cent to 12 per cent flew in the face of the fact that it would place additional financial stress on those who can least afford it – the under-45s.
March
With the June 30 FoFA deadline approaching, the industry believed it had scored a significant concession from the government with a delay to the “hard” start date until June 30, 2013. Opposition to the opt-in proposal continued to mount, with boutique financial planning firms labelling it as ineffective and costly. But at the same time, the Accounting Professional and Ethical Standards Board (APESB) pressed ahead with the development of a standard for financial planning – APES 230, which would be even more stringent than FoFA.
A round table featuring ASIC commissioner Peter Kell and former chair of the Parliamentary Joint Committee (PJC) on Corporations and Financial services, Bernie Ripoll, identified the key issues that the industry still wanted greater clarification and certainty on.
Shadforth Financial Group demonstrated how a focus on quality over quantity was paramount in recruiting new advisers – its advisers made up 18 per cent of the Smart Investor financial planning Master Class – and WB Financial Management’s Graeme Rudd showed how a simple financial planning strategy executed well helped a Wollongong, NSW, couple generate the peace of mind of knowing their two special-needs children would be taken care of when they retire. We took a close look at latest developments in the mortgage trust industry, and examined the latest investment opportunities in China.
April
The chair of the APESB, Kate Spargo, outlined in detail why a financial planning standard that outlaws both commissions on risk business and asset-based fees is neither inappropriate nor something that will spell doom for accountants working in the financial planning space. Meanwhile, MLC and AMP, among others, continued to refine and develop licensing solutions for accountants to help them to develop financial planning propositions under FoFA. The industry’s wish for a “soft” launch for FoFA came true.
The former head of van Eyk Research, Stephen van Eyk, warned advisers against diversifying clients’ portfolios inadequately; and data – disputed after its release – purported to show that the creation of self-managed superannuation funds (SMSFs) slowed in the December quarter of 2011 – the first time since June 2008.
My Adviser’s Philippa Sheehan outlined the firm’s approach to providing financial planning services in which product is incidental to the advice; and Hillross’s Robert Falconer described how he’d helped Melbourne-based small business owners make the most of their SMSF opportunities. Business Health’s Ray Henderson outlined the “seven secrets of unsuccessful planners”; and Strategic Consulting and Training’s Martin Mulcare provided tips and advice on how to run an effective client meeting.
May
ASIC rated as “good quality” less than 3 per cent of financial plans it examined in a shadow shopping survey. A further 58 per cent were assessed as “adequate” – but the regulator came in for criticism over the small number of plans in its sample. The Financial Planning Association (FPA) was recognised as a tax-agent association; and the SMSF Professionals’ Association of Australia (SPAA) said it planned to modify its code of practice to exempt its members from the opt-in provisions of FoFA. It also added the former CEO of Count Financial, Andrew Gale, to its board.
Professional Planner Online editor Andrew Starke reported from China, where he attended a PortfolioConstruction forum study tour, and concluded that there’s nothing better than being on the ground to understand what makes an economy tick. And China is certainly ticking.
We examined a growing trend towards self-licensing, and looked at how Jason Bragger, of Dolphinwise in Brisbane, helped a medico client ease his cash burn. SPAA’s Peter Burgess explained new rules on the acquisition of certain types of assets by SMSFs; and Bryce Figot, from DBA Lawyers, explained how to fix mistakes after they’re made. Meanwhile, Richard Weatherhead, from Rice Warner Actuaries, assessed the impact of coming regulatory reform, and concluded that the future is bright for those businesses prepared to embrace change.
June
AXA Financial Planning was named 2012 Licensee of the Year in new CoreData research. AXA topped a strong field, including Genesys, Commonwealth Financial Planning, Charter and MLC/Garvan. The research said AXAFP was ranked by financial planners as best on six out of 10 measures: marketing support and communications; compliance support; education and training; business planning; practice development managers (PDMs); and acquisitions and succession.
Stephen & Partners’ James Stephen demonstrated how creating financial freedom for clients means preparing them to handle unexpected events; and we analysed the investment case for fixed interest securities. Woodhall Investment Research’s Ron Bewley advised planners to rethink client equity portfolios in light of increased volatility. And Strategy Steps’ Louise Biti reviewed how residency issues affect the use of superannuation as a savings vehicle.
The Financial Ombudsman Service (FOS) came right out and said that financial planners who adhere to the FPA’s code of professional conduct are unlikely to end up with a claim before FOS in the first place and, if they do, they are unlikely to lose. And AMP expressed the concerns of many when it said it wanted clearer indication from government on the firm start date for the FoFA changes. A delay had been announced by press release, but the government still had not released legislation.
July
“Disagreeable, disorganised and transactional.” Not appealing characteristics, but research for Professional Planner, conducted by The Customer Champion, revealed that exactly this type of person just might be the client of your future. The PP/Customer Champion customer segmentation project identified a number of potentially fertile fields for financial planners, and ideas on how to target those customer segments.
ASIC banned a sixth Commonwealth Financial Planner, but it turned out that the regulator was still a long way from finished with the bank-owned planning business. Macquarie Practice Management’s 2012 Benchmarking Survey found healthy signs of growth, and buoyant adviser sentiment, despite the prevailing economic gloom.
Professional Planner’s third Dealer Group Summit – an event for the heads and senior management of licensees and dealer groups – concluded that successful planning firms would in future satisfy demand for transactional services, support advisers better in developing value propositions, adapt to new technology, and help planners exploit new and emerging customer segments.
Dome Financial Group’s Geoff Whiddon explained how he put two archetypal Aussie battlers on the right track by giving them a far better understanding of their personal financial situation.
Modern Portfolio Theory has stood the test of time, and despite recent challenges to its primacy, Michael Kitces, director of research at Pinnacle Advisory Group and a keynote speaker at the 2012 PortfolioConstruction Forum, said it’s not broken. What’s changed is how advisers use it, and Kitces urged a return to basics and to how the theory was originally intended to be used.
August
Building on the idea that sticking to the FPA Code of Professional Practice is a sound way of avoiding grief at FOS, Professional Planner set out 10 steps to “bulletproof advice”. FOS itself set out a 10-step plan to help advisers avoid running foul of the dispute resolution scheme. The 10 steps came to light during a national roadshow, sponsored by Professional Planner, featuring FOS and ASIC, examining the results of ASIC’s shadow-shopping exercise.
Even so, new figures revealed that in the first quarter of 2012 the number of disputes finding their way before FOS was up. Almost half were credit disputes, and about 30 per cent were general insurance disputes. Investment and life insurance disputes and arguments over the payments system made up the remainder.
John McMurdo, a former head of the AMP-owned Hillross Financial services and of Centric Wealth, re-emerged on to the financial planning scene as head of the Brisbane-based Fitzpatricks Financial Group. Fitzpatricks had recently merged with the Gosford-based Moneywise Group Australasia, and would go on to announce further mergers as McMurdo, alongside non-executive director and former Colonial First State managing director Chris Cuffe, set about creating a national footprint for the planning business.
The issue of “high-conviction” equity managers came to the forefront in a special report focusing on the growing appetite for backing fund managers with a strong track record and a concentrated portfolio of equities. And continuing the portfolio construction theme, Tim Farrelly explained why the key to building successful portfolios for clients is to have a simple plan, and ignore the noise.
On the SMSF front, AMP upped the ante by purchasing the Adelaide-based Cavendish Group, and merging it with its existing SMSF businesses, Multiport, Ascend and SuperIQ (which AMP owned 49 per cent of).
September
While change and upheaval continued unabated, in September Professional Planner consulted the experts to learn how they’d go about setting up a financial planning business today, given a clean sheet of paper and no baggage. And the message was clear: define a target audience; define what “success” looks like for the business; be patient; and develop a solid technology foundation.
They say second marriages are the triumph of hope over experience, but Mark Bezemer, of Hillross in Doncaster, showed how the second time around can open doors to providing great financial planning services. Anthony Warr explained why being just a great financial planner is no longer enough – you have to be a great business person, too. And being a great business person means having the courage and the strength of will to define a sound business plan and stick to it – even when those around you describe you as a lunatic.
The Financial Services Council (FSC) released its life insurance “churning” proposal – a watered-down version of an earlier version – and immediately ran foul of some players in the industry. Synchron director Don Trapnell claimed the FSC’s proposed claw-back provisions amounted to anti-competitive behaviour.
On the investments front, we looked at how the search for uncorrelated returns goes on as investors seek to dampen portfolio volatility. And we examined how investing in “volatility” itself can be used to smooth portfolio returns.
October
A hallmark of a true profession is its service of the public interest – and integral to serving the public interest is the provision of pro-bono services. In financial planning, pro-bono services are under-developed, but a program run by AMP in partnership with the Cancer Council provides an effective blueprint for how others can do the same. Professional Planner explained why more firms need to take a structured approach to pro-bono services.
We also examined how life insurers can engage more effectively with clients to address underinsurance. It’s a strategy that requires developments on the underwriting and product front, along with better technology support, and a clearer articulation to consumers of the benefits of adequate protection.
Selling a financial planning business can be a complicated process. Business Health’s Ray Henderson kicked off a three-part series on how to get a business in shape to begin the sale process and maximise the proceeds. Increased M&A activity is a rational response to regulatory and economic uncertainty, and tends to support the view that FoFA, in particular, plays into the hands of the bigger players.
But the architect of the FoFA changes, Bernie Ripoll, said that smaller players – boutiques and independently-owned practices – might initially struggle to compete against bigger, vertically integrated players, but increased engagement with superannuation would lead to greater demand for personalised advice and services, and this is when the smaller players may once again thrive.
AMP moved to address the perceived gender imbalance in financial planning by launching a modified Horizons Academy course aimed at women, and announcing its intention to increase the proportion of women graduating from the academy to 50 per cent from its current 25.
Joshua Blyth, from Shadforth Financial Group, showed how furnishing clients with more information leads to better knowledge and a sense of control. And Chris Appleyard explained how he’s turned accidentally becoming a financial planning licensee to his advantage and into the cornerstone of a fledgling financial services empire.
November
A simple question can transform the relationship between a financial planner and client: “What’s your idea of financial freedom?” This is the question that the Hillross CBD practice has started putting to clients, and the practice’s general manager Paul Heany explained to Professional Planner how the benefits are already being seen in greater client engagement, a better understanding of the financial planning process, and a move away from an expectation that a financial planner’s main job is to beat investment markets.
Explaining what services a planner can provide will become increasingly important as other players start to move into the space. One of the mortgage industry’s biggest players, Mortgage Choice, announced plans to push into the financial planning space, and a target of having 60 financial planners across the industry in three years’ time. Meanwhile, regulatory reforms were tipped to see as many as 1000 accountants enter the fray, offering full-service financial planning, by 2016. The Minister for Financial services and Superannuation, Bill Shorten, tipped as many as 10,000 accountants to become licensed under the limited Australian financial services licence (AFSL). MLC’s national manager of accountant solutions, Nick Hilton, said that between 5 per cent and 10 per cent of those accountants are expected to make the transition to full-service financial planning.
Investments remain a significant part of the financial planning landscape, of course, and in November Professional Planner and Zenith Investment Partners joined forces to present the Fund Awards 2012 – the top honour went to Schroder Investment Management, beating a top-quality field including BlackRock Investment Management, and Pimco (Equity Trustees). The Macquarie Professional Series took out Distributor of the Year honours, ahead of Benelong Funds Management and Grant Samuel Funds Management.
December
It was 20 years ago today … or almost, anyway. The Financial Planning Association turned 20 in 2012, and by December the celebrations were in full swing across the country. Professional Planner took a look at the progress the FPA has made to date in seeking to become the first entity to achieve “professional association” status. We concluded that while it’s made great strides, it’s not there yet.
But while we remain agnostic as to which entity should be the financial planning industry’s professional association – indeed, the industry may, like the accounting profession, be well served by more than one association – we said that any entity with pretensions to professional-association status must measure up on all relevant criteria. And Professional Planner has a duty to question any entity – or anyone – who claims the title of “professional” without measuring up – that’s what we did with the Association of Financial Advisers (AFA).
Christine Hornery, a financial planner from the NSW central coast, was named as the Association of Financial Advisers’ Female Excellence in Advice Award winner for 2012. Hornery explained how she came to the financial planning industry, and how she’d carved out a unique niche for herself. What she couldn’t apparently explain was what the award judges saw in her that set her apart from her peers.
In other AFA-related news, the association’s chief executive, Richard Klipin, announced plans to step down. Klipin will join ANZ-owned licensee Miliennium3 in the new year. It would be announced later in the month that he will be succeeded by the AFA’s former president, and current treasurer, Brad Fox.
ASIC banned another former Commonwealth Financial Planning planner – this time permanently – for forging client signatures and failing to comply with financial services laws.
And also on the legislative front, the Coalition reiterated plans to repeal key aspects of the FoFA reforms.
So if one thing seems certain, 2013 is likely to at least start off with at least as much fun and games as 2012 ended with.
