Chris Craggs believes his thirst for knowledge has given him an edge over many of his peers. Simon Hoyle reports
When most kids his age were into comics and swap cards and marbles, Chris Craggs was discovering financial planning. Something clicked, and it became a lifelong fascination.
“I’ve been reading books on financial planning since I was nine,” Craggs says.
“My father had Noel Whittaker’s Making Money Made Simple. I read it, and I was interested in it.”
Whittaker’s book started Craggs down a path that led, last year, to being awarded a Financial Planning Association of Australia (FPA) Value of Advice award for pro bono work with the family of a mentally disabled child.
Craggs believes passionately that financial planning must continue to improve its professional standing and image. Its number one priority must be to address the conflicts of interest that arise from a system where planners are paid by product manufacturers, and where many planners work for businesses owned by product manufacturers.
of clients did not know their financial planning practice belonged to someone else – for example, Godfrey Pembroke belongs to MLC, Hillross belongs to AMP. They didn’t know that,” Craggs says. “That is a huge conflict of interest.
“But 25 per cent of clients did not know their adviser was owned by an institution, even when their adviser worked for AMP, or worked for MLC. So I’m looking at that and thinking, my god, how stupid are some people?
“How do we design a conflict of interest system around naivety? I don’t have the answer for that.
“But I do know that when you go to see an accountant you do not have to worry about conflict of interest. And when you see an engineer, you don’t worry about conflict of interest. And when you see a doctor, you’re not asking about conflict of interest.
“Why are we asking the question of financial planners? And I think that’s the number one question we have to ask: Why do clients have to ask that question? It’s because there are conflicts of interest. How do we get rid of them all?
“A survey the other day said 60 or 70 per cent of clients did not know their financial planning practice belonged to someone else – for example, Godfrey Pembroke belongs to MLC, Hillross belongs to AMP. They didn’t know that,” Craggs says. “That is a huge conflict of interest.
“But 25 per cent of clients did not know their adviser was owned by an institution, even when their adviser worked for AMP, or worked for MLC. So I’m looking at that and thinking, my god, how stupid are some people?
“How do we design a conflict of interest system around naivety? I don’t have the answer for that.
“But I do know that when you go to see an accountant you do not have to worry about conflict of interest. And when you see an engineer, you don’t worry about conflict of interest. And when you see a doctor, you’re not asking about conflict of interest.
“Why are we asking the question of financial planners? And I think that’s the number one question we have to ask: Why do clients have to ask that question? It’s because there are conflicts of interest. How do we get rid of them all?
“It’s the perception that there are conflicts of
interest. We have to do things to get rid of that perception. One thing we can do, of course, is to ban any manufacturer from owning an advice business. For example, Pfizer are not permitted to own medical practices. But AMP has got 1400 licensed advisers.AretheysalespeopleforAMP,orarethey financial planners? I know lots of people in AMP, and they’re good people who give good advice. But there’s a conflict there.”
This is not a theoretical issue for Craggs. Last year, his own dealer group, AFG, was sold to Sentry.
“Behind Sentry is ING, and behind ING is ANZ, which gives me an area of concern, because I have liked the independence AFG have got,” Craggs says.
“AFG was, I think, 20 per cent owned by ING, Tower and Macquarie, so we’ve always been owned in small part by a large institution, but there’s a big difference between 20 per cent ownership from a large institution and 100 per cent ownership by a large institution.
“So I’m just trying to get my head around that and what our next steps are. I’ve been very, very happy with AFG. They’re a very good licensee; they give you a lot of support and they’ve got very good people in there. I just don’t like being owned by a bank.”
“ANZ…have their OneAnswer product. If I recommended OneAnswer to a client, their question has to be: Did you do that because it was the right thing, or because you’re owned by ANZ?”
Craggs says that when he worked for Godfrey Pembroke he deliberately avoided recommending MLC products.
“Not that I thought they were bad – I think they do a very good job – but I could not recommend MLC products because MLC was owned by National Australia bank and Godfrey Pembroke was owned by National Australia Bank, and I wanted to be able to put my hand on my heart and say, I’m recommending this product to you.
“And they would go,‘You could recommend MLC, but you’re not, therefore this must be a more independent selection’. I wanted the perception to be right, not just the reality.
“I was still conflicted – what if the MLC product was the best one, and I dismissed it because I did not want to appear to be conflicted? I couldn’t get away from it. It was a real bugger. “We use a lot of Vanguard in our practice.
A benefit of doing that is Vanguard do not own any advising group, so there’s this appearance of independence. But that sucks – I hate the fact that I have to do that, but the problem is, how are we going to say to all the big banks and AMP and the like,‘Guys, you’re going to have to sell your financial planning businesses’, which they’ve paid billions of dollars for?
“I think everyone should have on their business card who your licensee is, and not just who your licensee is, but who owns them. I can put Sentry on my business card; who the hell is Sentry? And what product are they recommending? They’re recommending Compass. What the hell is Compass? Well, drill down in both organisations, and you get to ANZ.
“All of a sudden, I’ve got Sentry recommending Compass recommending OneAnswer balanced fund. And the client is going,‘Excellent: we’ve got an independent adviser recommending an independent platform recommending an independent fund manager. This is good – this is what I wanted’.
“Then we find out Sentry is owned by ANZ, Compass is owned by ANZ, OneAnswer is owned by ANZ.‘Hang on a sec, you’re telling me everything is with ANZ?’ Yes. ‘And that’s the most appropriate thing for me? Er, hang on a sec – who are you again?’
“But if everything had big bold letters:‘Ultimate owner-ANZ’, the client would say,‘Well, hang on a sec…’.
“But that’s the perception. In reality, is it any different [whether I] recommend a NAB balanced fund instead of an ANZ balanced fund? Long- term, there’s not going to be any difference. It comes down to perception versus reality.”
Craggs says that notwithstanding the structural conflicts in the industry, the Government must bear some of the blame for the fact that only a tiny proportion of Australians use the services of financial planners.
“I get people in the office, they need advice, and the Government makes it too costly for me to give them advice,” Craggs says.
“I had a gentleman in a share-based fund, the poor bugger is going bankrupt, after a divorce. He was making excellent money – we’re talking $150,000 to $160,000 a year – but he lost his job, can’t repay a loan, and he’s now sitting there and saying,‘What can I do?’
“I’m saying, you’ve got to sit down with the bank and explain that you can’t afford to make your repayments any more. House values have fallen; you’re insolvent.
“He’s got $40,000 in his super fund and all I want to do is tell him he’s got to move it to cash. I’ve got to go and write a bloody Statement of Advice (SOA), outlining his goals and objectives, his current situation. That’s $2000 of time to tell the guy to move his super fund to cash.
“For goodness’ sake – where is the logic in this? Iwanttotellthisguywhattodo,buttodoitina compliant fashion I need an SoA. This guy hasn’t got $2. He’s in tears. He knows he’s going to lose his home; he turns 60 in February and his family are flying over from the eastern states with his grandchildren for a party, and he’s sitting in my office with tears in his eyes, going,‘How do I have a party without the house?’
“Bloody hell. Forget about money and everything else. This guy just wants to not look bad in front of his grandchildren. He’s 60 years of age and lost everything, and the Government is saying,‘You need to write a statement of advice, Chris’.
“And why? Because some bast … sorry, some
person … is charging a commission and that’s a conflict of interest, and the Government wants to stamp out conflicts of interest, and so I have to write a Statement of Advice.
“If there’s no conflicts of interest I could just tell him what to do, and we could do it, and there’d be no problem. So I see conflicts of interest as the number one issue in financial planning, and I do not know how to solve that problem.”
The path that led Craggs into financial planning was not always a direct route. After finishing school, Craggs faced the choice of pursuing studies in economics or computer science. He chose computer science.
Characteristically, though, Craggs put this experience to good use later in his career, after it became clear that financial planning was what he wanted to do.
“A friend of mine showed me the Diploma of Financial Planning,” Craggs says.
“I thought, this looks great, but requires more study and lots of money to pay for it – because it was not free education – so I thought, no, I’ll do computer science.
“After I’d met my wife, one day at a party I spent several hours explaining to a gentleman how he could get into the property market and buy his first investment property and make money out of it. She said,‘You really are in the wrong field – you should be involved in finance.’ ” Craggs thought it through, and agreed. He landed a job at Westpac – though not the job he initially expected. He signed up to be trained as a mortgage salemsan, but after a change of mind by the bank, found himself in an administration role. It didn’t last long.
“ I can’t sit in a back room filling out paperwork,” Craggs says.
“And I did some silly things – like, a mortgage document had a hyphen in the person’s name, but when we got their passport we found there was no hyphen, so the documents had to be redone. Because settlement was tomorrow, I redid the documents, drove out to the client’s place, got them to re-sign the documents and brought them back into the office so we could do settlement tomorrow.
“I was told off:‘We don’t do that sort of thing; the client comes to us.’ But she’s a new mum and he works full-time, and it was on my way home, so I didn’tseetheproblemwiththat.‘Yes,butyoutook off work 10 minutes early’.”
Craggs had developed a relationship with a Westpac financial planner, Jim Stewart, who arranged an interview to see if Craggs had what it took to be a financial planner. To no one’s surprise, he did.
Craggs realised early that improving his knowledge would set him apart from other financial planners. But as the saying goes: knowledge isn’t the same thing as wisdom. Wisdom is what comes when knowledge is married to experience. And you can’t gain experience from a book.
“I’m a knowledge junkie,” Craggs says.
“I decided that if I was going to be an adviser I’d be a good adviser, so I started to read the Master Tax Guide.
“My first posting was in Kalgoorlie, and I was alone for three months because I could not get my family up there. I took to the job, and thought the quickest way for me to get knowledge in financial planning – because back then, you did product exams, you didn’t actually study financial planning, per se – was, if the average adviser saw five people a week, I’d see 15 people a week; because then I could see three times more people and get three times more experience. In one week, for example, I did 25 meetings.
“I saw clients up until 11 or 12 o’clock at night, which you could do in Kalgoorlie because of night shifts, and things like that. My wife wasn’t around, so I had three months of just seeing one client after another. It was a crazy time.”
Kalgoorlie was an interesting place to work for other reasons, too, Craggs says, and taught him a lesson about the need to combine sales ability with
technical knowledge. “Then, early in my career, I’m talking about
within the first six months, I had the opportunity of speaking to a painter. He had $30,000 in his bank account and he wanted to park it somewhere, and he [asked] what to invest into, and I’ve gone, ‘Mate, a cash management trust is the only place you’d put the money – this is your business capital; why would you risk putting it anywhere else? Here is a CMT.’
“CMTs are unit trusts, with big disclaimers on them [saying] your money’s not secure, you could lose it. He’s gone,‘I need you to talk to my father, he knows something about money, can you come and have a word with him?’ So I did.
“The father went,‘It’s a CMT’, and I said,‘I know it’s a CMT, I don’t know what he’s worried about’, and the father went to his son,‘Look, stick your money in this, mate, don’t worry about it. Sorry to waste your time, Chris’.
“I said,‘Not a problem. Look, while I’m here, can I help you?’ And he chuckled a bit, and said, ‘Sure. I have $3 million in cash. You’re going to tell me I should diversify my investments. I have 22 houses and $3 million in cash.’
“I’ve gone,‘OK. Can I have permission to come back to you in a couple of weeks’ time with any recommendations I think might be useful to you?’ – and he said yes.”
This conversation coincided with the introduction of allocated pensions. Craggs saw an opportunity to use the then-new product. He went back to the client and told him he could put his $3 million into a cash fund in an allocated pension and all earnings on the cash would be tax-free.
“I didn’t get the sale,” Craggs says.
“He looked at it in the end and said,‘No, I’ll keep paying the tax; it’s too much of a hassle.’ I’d mismanaged the relationship. But I later found out he did do it; he did it through his accountant.
“But what it taught me was that I have knowledge and I can help someone. Here was someone worth millions and millions and millions of dollars, and Chris Craggs has knowledge that can help. I wasn’t intimidated by him, or anything like that.
“That really made me [realise] that knowledge is where I want to be.
“And I’ve built my business off the back of [being] better technically than everybody else.”
