It happens once, you ignore it; it happens twice and you need to address it: in a room full of financial planners the idea that the media have given financial planners a very hard time, damaging planners’ relationships with clients and would-be clients, strikes a raw nerve.
Aside from “the media” in general, my sometime Fairfax colleague Adele Ferguson, came in for unfavourable mention during Q&A sessions on a roadshow with a group of financial planners.
The complaints were along the lines that planners had been painted as untrustworthy, that journalists had created a perception that scared away clients and resulted in heavy-handed government regulation, that a few bad apples etc etc.
What those complaining about the exposure of scandals in their industry failed to realise is that the relevant journalists were actually doing planners a huge favour – they were providing planners with the opportunity to become a profession instead of members of a sales force.
It seems there are only ever two ways of achieving major reform when it involves disrupting the status quo and rolling vested interests. Whether it’s tax or the financial advice system, change only happens through brave leadership or as a result of crisis. The leadership route is preferable, but it’s also rare, unfortunately.
Make change happen
As demonstrated in any number of spheres, it generally takes scandal or disaster or crisis to make change happen. In the case of changing the fundamental nature of the financial advice industry, it’s taken a series of scandals, personal disasters and outrageous behaviour.
Some planners may well be unhappy about the blow torch of exposure that’s been applied to the industry’s darker underbelly, but what were those same planners doing about reforming their industry before the scandals were exposed?
The industry has had decades to put its house in order, to deal with the structural corruption of a commission-driven, vertically-integrated model. And the industry preferred to sit back and let the money roll in.
The money was good, the commissions were fat, entry standards effectively non-existent. That was the way it was and clients knew no better. What could possibly go wrong?
Everyone now knows exactly what has gone wrong, from stuffing portfolios with dud agricultural managed investment schemes, to Storm Financial, to churning, to the infamous CBA cases, to good commission-less investments not being promoted, to an overwhelming preference for the house products however average they might be – the inevitable happened.
Throughout the disasters, there were good financial planners doing the best thing by their clients, acting professionally. There were many others doing the industry norm, which was better than doing nothing and wasn’t crooked, but it also was a long way short of professional best practice. “It was what it was.”
Spivs to greater or lesser degrees
Then there were spivs to greater or lesser degrees, as there always will be when there’s money to be had by shovelling stuff without professional oversight or standards.
Anybody who cared to know, knew. When I first heard about a mob called Storm Financial, it took one brief phone call to a reasonable old-school financial planner to find out all I needed to know about them.
And, still with the Storm example, there were good people who tried to blow the whistle, only to have the useless Australian Securities and Investments Commission fail to see what was obvious.
But what did financial planners as a group, as an industry, do about Storm and the other shonks?
Nothing.
It has taken media coverage to give planners the chance to be part of a profession, to provide some steel for politicians’ backbones in the face of powerful vested interests and to empower the industry bodies to set enforceable standards, to rid the industry of those “bad apples”.
No person or beast likes the feel of the cattle prod, but that’s what it took to overcome the industry’s inertia.
As a result, big improvements have been made. The professional bodies have a chance to actually be professional. Financial advisers have the chance to be a great deal more than glorified sales people pumping out the preferred product.
The changes have not been easy for many – more is required of people with little apparent immediate benefit flowing to them. Those whinging loudest tend to miss the point.
It reminds me of the wool growers’ conference a couple of decades ago when that industry was doing it particularly hard. There were exceptions, but the sheep farmers tended to be old and set in their ways. One of the quality improvements wool buyers wanted the growers to make was to ditch the plastic wool bales they used, as plastic fibres were contaminating the wool. An old timer rose with a touch of belligerence in his voice and asked: if he changed the bales, would the buyers pay him more for his wool?
He hadn’t comprehended the reality of the changed world. If he didn’t change, no-one would buy his wool.
What simply has to be done
There have been the equivalent of that old farmer in the ranks of financial advisers – people expecting to get some immediate benefit for doing what simply has to be done. It doesn’t work that way.
And there is more to be done. The past and present governments, with a little help from the Senate cross benchers and pesky media types, have opened the door to a genuine profession and stepped on some toes to do it. But they have pulled up well short of really antagonising the most powerful players of the financial system.
For mine, the “plastic bale” of the industry remains its vertical integration. As long as that continues, there will very reasonably remain the suspicion that the big banks and AMP still view financial advisers as their sales force.
That’s not a look a profession would want to have, or, at least, should want to have.
I don’t see the necessary leadership on either side of politics willing to make enemies of such powerful forces. Which means further change, the full blossoming of the profession, is in the hands of individual planners and their professional bodies.
You can demand all the tertiary qualifications you can think of before someone can call themselves a financial planner, but that won’t make the individual a professional, someone respected and acknowledged as acting in the best interests of his or her clients, if that person effectively remains part of a product-pushing machine.
So – are you up for further change, or do you just want to hug the status quo?
