All eyes have been on the issue of financial planning as a profession this week, with the Financial Planning Association (FPA) holding its Professionals Congress, this time in Brisbane, and the Financial Planning Standards board (FPSB) releasing results of global research into consumer attitudes to financial planning.
In a neat piece of symmetry, one of them pinpointed some serious issues that the financial planning industry still faces, while the other provided a glimpse of an important part of the solution.
The FPSB surveyed more than 19,000 consumers of financial products in 19 of the 26 countries where it licenses the use of the Certified Financial Planner (CFP) designation. It found – unsurprisingly – that most consumers lack confidence in achieving their financial goals (being debt free features highly among those goals) and that consumers who use the services of a financial planner generally feel a lot better about their situation than those who don’t.
It also found – again, unsurprisingly – that CFPs score higher than non-CFPs on a range of attributes including honesty, integrity and placing the clients’ interests first.
Significant barrier
There is, however, still a significant barrier to people using the services of financial planners, and the FPSB research indicates that this is a global phenomenon, not just an Australian one. Consumers lack confidence, they don’t trust financial planners, they’re not sure who (if anyone) is meant to be keeping financial planners in line, and they’re more likely to turn to family and friends for advice than to qualified and competent financial planners.
Consumers still don’t know whom they can trust.
“Among those surveyed, 68 per cent rate ‘trustworthiness’ as very important when choosing a financial professional – higher than any other consideration,” the FPSB says.
“Yet two in three consumers (66 per cent) agree either strongly or somewhat that they do not know whom to trust when it comes to getting financial planning advice.”
The FPSB says that 41 per cent of consumers – and remember, this is a global survey – are unsure whether governments regulate financial planning. Even so, 79 per cent believe it is “very important” or “somewhat important” that financial planning be regulated. The FPSB points out that in most territories around the world, financial planning is not regulated per se.
So the next bit makes sense. “More than four in 10 consumers (44 per cent) rely on friends and family, while another 41 per cent rely on websites for financial information,” the FPSB says.
“Fewer (31 per cent) turn to a financial planner.”
A persistent problem
This is a significant problem for a fledgling profession, and it appears also to be a persistent one – the FPSB research results mirror in large part other research that has been carried out over the years.
The mistrust of financial planning need not last too much longer, though, because a solution is coming in the shape of new – and significantly increased – ethical, professional and education standards for financial planners. The government will release draft legislation by the end of the year, and outline transition arrangements for planners who don’t immediately meet the new standards.
Many won’t measure up
It seems reasonable to expect that many won’t measure up, and a certain degree of ruthlessness is needed in the approach to cutting them out of an emerging profession. A transition period should be as short as possible; and at the end, if you still don’t measure up, you are out – as simple as that.
There were 5,450 CFPs in Australia, as at December 31, 2014 and there are more than 900 financial planners in Brisbane at the FPA congress. Attending a professional congress isn’t the be-all and end-all of being a professional, of course, but it demonstrates a certain commitment.
But the Australian Securities and Investments Commission financial advisers register has more than 22,000 names on it. If they’re not CFPs and they’re not attending their industry’s keynote events, just what are they doing? And why should they be allowed to continue doing it?
