The exact birthdate of financial planning is hard to pin down – it wasn’t born, as such, it just sort of evolved.
Financial planning’s mother, though, was certainly life insurance – an industry that functions by consumers buying financial products sold to them by an incentivised sales force. The selling of life insurance, however, was most often not as clear and simple a transaction as that. It was more a process that ultimately resulted in a transaction.
Most of the insurance salespeople I knew in the early 90s (and I was one of them) went to great lengths to conceal their role, armed with business cards that had “consultant”, “lifewriter” or “risk adviser” below their name – anything but “salesperson”. After all, who wants to be sold something?
In any event, the process of a sale began when a “sales agent” would persuade Mr and Mrs Average to paddle around in the shallow end of an idea about planning a secure future for their family. With skill and technical knowledge, the salesperson would soon have Mr and Mrs Average swimming at the deep end and ultimately the happy owners of a new life insurance policy. That’s life insurance.
As a baby, financial planning functioned in precisely the same way: financial products (and strategies) were sold to consumers by an incentivised sales force through a process called “planning”. The problem was that the sales force called themselves “advisers” – but they held on to the incentives.
Being advised v being sold
For a consumer planning the future, it’s crucial to know when you’re being advised and when you’re being sold product. As you could well imagine, it can be dangerous to rely on a product salesman when you believe they’re an impartial adviser. This might not have been immediately obvious when financial planning was a baby. But in time it became apparent: large losses were being suffered by consumers who got the two roles confused (or had it confused for them).
Time goes on. Financial advice is now a teenager – no longer a baby, but not quite an adult.
Adolescence is a painful time of life. Some teenagers still clutch onto the toys of childhood (incentives) while still wanting to be treated like a grown-up (an impartial adviser). Others, though, embrace adulthood and all the responsibilities that come with it.
In 2010, the then-new Independent Financial Advisers Association of Australia (IFAAA) launched the “Gold Standard of Independence”. The march towards independence continues at the pace of bureaucracy.
We continue to show financial planners how to abandon conflicts of interest as a strong platform for delivering impartial financial advice. These efforts are applauded behind the scenes by regulators, governments, consumer lobby groups and the media but, for political reasons, not enough support is shown publicly. Ironically, many of these folk are our clients.
Still more needs to be done to clarify how an independent advice practice is different, the unnecessary dangers of operating with conflicts, and the “uber-benefits” of practising the Gold Standard of Independence.
Drop the shackles of conflict
For instance, a much broader and deeper pool of respect exists for those who drop the shackles of conflicts in their financial advice practice. Other professionals are far more co-operative and approachable when you’re independent. It’s much easier for a lawyer or accountant to “get” you when you operate in much the same way they do.
It’s also refreshing to no longer be competing with other practices. We work collaboratively with our colleagues, particularly when we’re at full capacity or have a case that’s outside our core business. Much like any other professional law or accountancy firm.
Make no mistake: we are still in practice to grow our business and be profitable doing it. We are still selective about who we offer service to; and we don’t win everyone over either. Business still has its challenges, but the issue of conflicts and all its problems isn’t one of them. And it’s remarkable just how much energy that frees up.
Those who defend conflicts on the grounds that independent advice is too expensive for the average Joe clearly have no experience operating an independent practice – because, in fact, the opposite is true. Nothing is more expensive than losing everything. Naturally, if Joe’s sole focus is on price then he will never appreciate value, the currency of a professional services firm.
I applaud the push for improved education standards. I applaud the push for higher ethical standards. So much heavy lifting is done for you when your platform is genuine independence.
People call the Gold Standard “purist”. It’s not. It’s just good business.
The Independent Financial Advisers Association of Australia will hold its second annual symposium on Friday, October 30 at the Park Royal, Melbourne Airport. The symposium is designed as a forum for independent financial planning businesses, and as an opportunity for principals of other businesses to gain a greater understanding of how independence works in practice.
