The separation of product from advice is a critical tenet of professionalism in financial planning. A profession has to operate independently of product considerations, and independently of the influence of product providers. That much must be obvious to all by now.
But influence is not the same thing as support, and product manufacturers have a valuable role to play in supporting financial planners in developing the best-possible investment solutions for clients.
A major part of the thinking behind Professional Planner’s partnership with Zenith Investment Partners in the Professional Planner|Zenith Fund Awards is that financial planners need access to the very best investment capabilities there are, and they need to know who’s cutting it and who’s not.
(The 2015 fund award winners were announced last month and full coverage of all the winners and Zenith’s manager and sector commentaries is now on the Professional Planner website.)
Thankfully, it has been a long time since any fund manager could secure the support of financial planners simply by cranking up the commission on an investment product and then getting out of the way of the inflow torrent, or by funding some overseas junket dressed up as a conference.
Product manufacturers need to be a bit more sophisticated in the way they approach and interact with planners, so that their role is perceived as supportive or collaborative rather than as directly influential or coercive (or, dare we say, corruptive?)
A line that cannot be crossed, however, is where there may be an unspoken or unwritten expectation that a financial planner will reward a product manufacturer for its support by placing client funds into the product.
Fund mangers are not, after all, charities, and altruism has its bounds. However, the head of wealth management research for Investment Trends, Recep Peker, says the direct influence that fund managers and product manufacturers can have over financial planners is not only diminished, it is also almost constantly in the spotlight.
Investment Trends’ latest Adviser product and marketing needs report, released yesterday, shows that the fund managers most favoured by financial planners – or, at least, the managers that best satisfy financial planners’ needs – are driven by how well the fund manager communicates with the financial planner.
“What we’ve found is that since we’ve transitioned into a fee-for-service environment, for financial planners it’s become even more important to demonstrate, a) the value they are going to be adding upfront; and b) the ongoing value they add for clients,” Peker says.
“Financial planners are turning to product providers to support them with this. They have become more demanding of the availability and the quality of information they get from fund managers.”
Some financial planners have taken the fund manager relationship beyond just information. For example, James Walker-Powell, the founder of More4Life Financial Services on Sydney’s northern beaches taps into fund managers’ expertise to help with portfolio construction.
Earlier this year, Walker-Powell told Professional Planner: “I show [fund managers] my portfolio and I say: give me a good reason why you should be in it. Every time someone comes to see me, I’m giving them the opportunity to [put their] case; but they’re basically doing my work for me – by coming back and showing me why [they should be in].”
Matthew Newham, investment director of wholesale business for Standard Life Investments (SLI), which is one of the managers Walker-Powell works with, said fund managers are happy to take on the workload.
“We’re there to do some of the grunt work,” Newham said.
Any way you look at it, the relationship between financial planners and fund managers has shifted in recent years, and continues to shift.
Information needs met by fund managers
Peker says, “Almost half of all financial planners have unmet information needs from their fund managers.”
“They want stories and insights that they can share with their clients to show how things are progressing for them, and to show what the planner and the fund manager are doing to meet [the client’s] objectives.”
This evolution helps to explain why a fund manager like Magellan – the winner of the Professional Planner|Zenith Fund Manager of the Year award – has caught up to a fund manager like Platinum in terms of how it is perceived by financial planners.
Peker says much of Platinum’s communication and “story telling” is directed at its investors; Magellan, on the other hand, directs its information at financial planners to support them in their conversations with clients.
Peker says there is a high level of sensitivity around how fund managers interact with and support financial planners, and many of them do so in ways that cannot be perceived as directly influencing planners’ decisions.
“Overall, there would be concerns about how that may backfire,” Peker says.
“I think the whole industry has become a lot more wary of being conflicted, and [more conscious] of acting in the best interests of clients.”
|Top fund managers by share of primary financial planner relationships:1.Vanguard2. Colonial First State=3. Magellan
Source: Investment Trends, Adviser product and marketing needs report, 2015.