Professional Planner continues the discussion with experienced advice industry leaders about the mistakes of the past, the lessons we can learn from them and their hopes for the future.
In the second part of our series we hear from Stanford Brown’s Dave Brown and Koda Capital’s Steve Tucker, as well as long-time financial services PR stalwart Jim Pritchitt on the industry’s journey to professionalism.
DAVE BROWN
Current: Stanford Brown founder and chairman
Previously: Senior life insurance adviser
Known for: Launching Stanford Brown the week of the 1987 Black Friday market crash
PP: ARE WE ON THE RIGHT PATH?
DB: I’d say we are, unreservedly. I can see the industry contracting for a while but then coming back much stronger. Everyone’s been coming to work in this industry for some time now with a significant unknown. That’s difficult, and frustrating, but I think we’re finally starting to see what the industry will look like in the future.
Many will leave the industry leading up to the education end date but keep in mind that everything is cyclical. I remember when I was working in National Mutual, which is AXA, with about 55 people on the floor. After 12 to 18 months I would estimate that five to eight of us were left due to changes to superannuation remuneration. We’ve seen it all before, it works in cycles. You’ve just got to weather the storm, because as much carnage as there was in the industry back then the opportunities were tremendous.
On the insurance side, reinvention will take place but we need to find more customised products that can be priced appropriately. We need a stronger product range that can adequately meet the needs of the clients.
We’ve also got to educate the market on why good advice is worth paying for. If you go to see a good lawyer or accountant it typically costs $600 to $1000 an hour, and I’m not sure whether we’ve convinced the marketplace that highly competent financial advisers are worth that as well. We’ve got a bit of work to do.
PP: WHAT WOULD YOU CHANGE IF YOU COULD?
DB: Sadly, our profession has failed – both individually and collectively – to provide leadership. And consequently the task of fixing it has been taken away from us.
We’ve all had self interest in mind. We’ve had an industry that we’re trying to turn into a profession, and by profession I mean that the client out there in the marketplace perceives us as trustworthy, competent, efficient and great to do business with. In large part it would be naive of any of us to think that many businesses don’t already deliver that – there are many that do. But the end game is to have that as the benchmark.
There’s been a fair deal of shake up, and every person in this industry needs to take ownership of where we are and where we’re going. If that’s the case we’ll have a really impressive profession in the long term, but there’s still mountains to climb.
JIM PRITCHITT
Current: Founder and Mentor at Pritchitt Partners
Previously: Founder, Corporate Communications
Known for: Long-time Australian financial services PR guru
PP: ARE WE ON THE RIGHT PATH?
JP: I think the industry is probably on the right path now, but it seems to me it took far too long to recognise what the right path was. In some ways I’d say it’s only just getting started along the right way.
I remember in ’91, advice had terrific rewards and incentives and there were no questions about income arrangements or criticisms of those income arrangements. Then questions about remuneration and conflicts started to be raised. The last few years would have been difficult in any circumstances, but with the industry fighting change and reforms there has been more and more bad behaviour being exposed, and those shock horror stories probably aren’t over yet.
There is a considerable amount of lobbying being done now to water down reforms, which in some respects is understandable, but does the damage to reputation and trust outweigh the benefits of extending income a bit longer? That’s the overriding question. I understand why these rear-guard actions are being fought – people are trying to retain their income and their business value – but in the process are they doing irreparable damage to themselves, the industry and the clients?
PP: WHAT WOULD YOU CHANGE OF YOU COULD?
JP: What I would change in the industry is for the stakeholders to have gotten on the front foot years earlier.
There seems to be two indisputable facts that even critics of financial planning would agree on; financial planning has never been more needed and financial planners can make a real difference in wealth accumulation and management. That should be the key message the industry is getting across, along with evidence of good wealth management and explanations about the transparency of remuneration and the value advisers deliver.
Advisers have got to get across their worth and not argue about professional standards and what’s required and how many units they should have to do. Planners need to stand up and say: this is what we cost and this is what you get. It’s pretty straightforward really, but if you’ve got all this noise about education and grandfathering and conflicts it muddies the waters quite a lot from a consumer perspective.
STEVE TUCKER
Current: Chairman of Koda Capital
Previously: CEO, MLC
Known for: Founding father of the holistic advice movement
PP: ARE WE ON THE RIGHT PATH?
ST: Ultimately we are on the right path. The improvement in quality, the move to professionalism, the rise of the independent movement as the industry forms around the new structures that are going to suit the conditions and the community expectations. We have been talking about the push towards professionalism for 15 years and it’s taken a long time and it’s been hampered by certain groups wanting to cling to structures of the past and not recognising that to ultimately achieve professionalism we needed to tackle some of the structural issues around vertical integration which was holding the industry back. Those key things I think will define a profession: quality, independence, education standards, the formation of professional standards groups – those things are under way.
I don’t think you can manage conflicts anymore, you have to eliminate them. How long it takes to unravel 30 years of structures is the challenge. It’s not as if the industry haven’t been on notice for a decade or so. In the absence of some leadership and sensible reform, the conflicts still remain. And whilst they remain and while there is still some challenge around what is primary in our industry; is it primary we give advice? Or is it primary that advice leads to an outcome like a product?
My view is the next few years has to be about the primacy of advice where the product is irrelevant to the advice outcome and I don’t think we are there yet. I don’t think you can be both things, you either need to be an advice business or a product supplier. Ultimately there are those who think you can manage those things side by side; I don’t think the regulator will decide from those businesses, I think the consumer will.
PP: WHAT WOULD YOU CHANGE IF YOU COULD?
ST: One of the things the industry struggled with going back 10 years ago when we started talking about separating product and advice was people couldn’t work out how advice could stand on its own two feet from an economic point of view, there was always an attraction back to the subsidy of product outcomes subsiding advice and I don’t think the industry accepted the subsidy was wrong early enough. If we could have just accepted vertical integration is an issue and that it does create bad outcomes sometimes, then it would have been attacked with more vigour. Most of the time the industry spent explaining why vertical integration was a good thing.
*Part one of this series can be found online here.