Many rivers to cross

MM: Recent research has suggested that the Financial Planning Association is not as well regarded by members as it should be. As planners and members of the FPA, why do you think is the case?

JB: I should declare an interest, shouldn’t I, and say that I am on the board of the FPA. Not that that changes my view at all.

Why do we have a negative view of the FPA? I think that our communication about what we are doing as an organisation has not been as strong as it should be and so we are actually doing a lot more than planners who are not heavily involved in the committees realise, and that is something we need to work pretty hard on.

We do put communication out there, but I’m not sure that it is a form that everybody gets or reads.

DW: Ninety-nine per cent of practitioners out there are good, honest, professional people, and it seems that all you hear about are guys that get banned for whatever reason.

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JB: Perhaps we should speak to the media about that, rather than the FPA. We certainly try very hard to put the good stories out there. That value of advice campaign was a prime example where we tried to promote the value of advice.

RO: I think that is the issue. The average adviser, they don’t like it. As a campaign it was a dud, and they think it presented the wrong image of financial advisers, they think it was cheap.

It does not capture the imagination or portray the more positive side, like a family sitting down, for instance, with the husband who was injured and getting an income protection payment. I must say though the new FPA ad is the best thing that has come out of the FPA in 10 years.

JB: See, we do listen.

RO: Well that’s right. That is the important bit. But the Dazza ad, you are still trying to defend it and tell us it is great.

JB: And I will tell you why. It was never for us, as the professionals, it was for the consumer who has no idea what financial planning is, or is about, or anything like that.

Now, okay, maybe financial planners felt it did not hit the mark, but the consumer research certainly showed differently. It was significantly market researched and tested, both with consumers and financial planners, and then it went out and sure, I guess we are not going to please everybody. I agree with you, the [FPA’s] ‘compare the pair’ is a far better campaign as a financial planner.

RO: Within our group already, people are saying: ‘We will help fund that type of campaign, we will put our hand in our pocket and do that’.

The other issue we have with the FPA, and I think this goes to the heart of it from a practitioners’ point of view, is that we believe the FPA’s issue is that if we all substantially increase our academic qualifications, if we increase all these ethics, disclosures and disclaimers, the world will suddenly feel that we are great people and will come to us. We don’t think that is the fact.

We think that we as an industry over-emphasise things like soft dollar and disclosure of remuneration. We think we are the industry, and the FPA are the ones who are actually making it an issue out there.

The average client we come across doesn’t care. They understand commercial reality. What they want to know is are they getting a good deal? Are they being looked after? And do they know where there is a real conflict of interest in the game?

Soft dollar is throughout the community. It is accepted. It is there. The doctor being the classic example. The doctor does not have a register sitting on the desk. No one cares. Yet, we in the industry seem to think this is the biggest thing we have got to tackle.

JB: Well I agree with you, but I think what is a big issue to tackle is the ‘bad news’ thing. Somebody does the wrong thing and everybody jumps on that. Everybody wants to know how can that wrong thing be prevented from being done in the future even though the majority of us aren’t even doing the wrong thing, and the clients are happy? We have this discussion all the time when it is not the clients who are bringing it to the fore.

RO: I think the problem here is that the people who read 90 per cent of those stories are us. We are the ones who see it. All the time. We see it far more than the average client out there in the street. They don’t really know it. You are still going to get your 60 Minutes or Today Tonight that are going to run the bad stories anyway. All we do is reinforce their problems with people like the consumers association because we say it is a problem, because we create all these registers and disclosures and all these things.

DW: I think historically it has probably been seen by practitioners as not really representative of the practitioners’ interests largely, and it is driven a lot by the major institutions, but I think, in its defence, ‘compare the pair’ is something we are going to see more of in the future.

MM: You were saying the media look at the negative when, in fact, most of the media stories about the negatives with respect to financial planners are generated by media releases issued by the regulator when they undertake a prosecution.

RO: They are the ones that should go. That’s what the media picks up on. Whereas when the FPA puts out good news stories or relate good news stories, it doesn’t get picked up.

MM: So my question is, what is your view of the way the regulator handles those things? Do you think the regulator overplays its hand in terms of saying, ‘look what we have done’. The regulator, I guess, is not unlike the FPA in this way.

RO: No, the regulator is fundamentally different, because the FPA is us. The regulator is the government body there to enforce the regulations. I do not think you can object to what the regulator does. Their attitude is that if we publish these things and tell you what is going to happen if you are a bad boy, it is going to have an effect on the rest of you to stop doing it. That is all there is to it. I think that is probably fair.

DW: I think they do take the view that if you disclose everything, and you have great ethic and you have got this and you have got that, it is good advice to follow. I tend to think that they are really trying to interpret the legislation and protect the dumbest consumer.

JB: And also, if we don’t, as planners and as a profession, put in some disclosure rules and regulations, they will put them on us, and they won’t be ones we like. We only like the ones we put on ourselves, so imagine what we would be like if we only got to put theirs on.

RO: There is no question that disclosure had to come and it was a good thing, with a positive image. How much further are we taking it now? We are taking it a lot further than the regulator said we had to. I think that is where we are going wrong.

JB: I think with the regulator, maybe they spend a lot of their time dealing with what’s gone wrong, and they forget that maybe something out there has gone right… They are not going to go away, and the Government is not going to let them go away, because someone has got to be held responsible for the standards of advice, and do we want to be self-regulating and to be wholly responsible for that ourselves? I do not know the answer to that, but I think we need to accept the fact that they deal with negatives every day.

RO: The irony is that we are pushing hard that they should take over control of the mortgage business.

JB: And we do want them to regulate real estate.

RO: So, they do have a role in the world, and I think I have had my issues at different times. However, their role is there and it is an important role, and unfortunately that is the way that they are going to do it.

JB: One of the things that I want to see is that we get to the point in the future where a client or a potential client walks in and says: ‘So are you a member of the FPA, are you a CFP?’, and you need to get across that hurdle before you do anything with them and that will make it much more valuable to members and valuable to the public.

MM: You mentioned that the FPA was pressing to have the regulator have carriage of the mortgage broking industry. To what degree are planners actually lobbying for that?

JB: Why shouldn’t they (mortgage brokers) be covered by the Financial Services Reform Act? It’s recommendation, it’s money, it’s investment, it’s about your future.

RO: We’ve had several meetings with pollies and we push the same issue. We’re telling them that we can see from experience that all the problems that were bad in the life insurance industry are happening in the mortgage industry.

And if you don’t do anything — a lot of the same cowboys that we got out of the (financial planning) industry are heading into the mortgage industry. Also, there are all the financial planning practices out there that want to include mortgage broking. And to have it as part of you business and maintain your professional standard, it needs to be regulated.

MM: How hard is it to find the right people to come into the industry to be of value to clients and of value to accounting practices?

DW: Well I don’t know about the industry, but I can see part of my role at Macquarie is to be responsible for recruiting planners, and this calendar year I’ve had 132 initial interviews with prospective employees and I’ve employed 12.

JB: I’m right behind you there. I’ve got a regional practice in Port Macquarie, and I’ve been looking for an experienced senior planner in Taree for two-and-a-half years.

I’ve interviewed a few people, not many, but they all want everything to do nothing and have limited experience.

I think it would be fair to say there’s a lot of new entrants, a lot of people who want to grow up to be financial planners, but in a small business you’ve got to have the resources and time available to train them.

So a lot of people are going to have to go to the larger institutions and banks to get their training, and we are going to steal them later on and bring them into a small business.

RO: That is exactly true. So you are obviously not having success getting them out of those big institutions either, because I would have thought up around that neck of the woods there would have been more.

JB: ... some of them you wouldn’t want to anyway.

DW: Is there an underlying cause?

RO: I think there are two things. There was a period, when there weren’t many people coming through in the 90s, therefore, you are going through an era where you don’t have those people who are 10 years into this.

They are now starting to come back into the industry, because this is seen as a career scenario, but as Julie said, most of them are inexperienced, want the world, think they know the world.

JB: I do believe that young people should come from uni and start in either admin or paraplanning, because you just get so much out of that. I don’t think you should walk out of uni and be a planner.

You used to be able to decide you want to be a financial planner, put your hat on and open up a shop as a financial planner.

But now there is so much to know technically and strategically that you cannot get away with that and you also have to be able to work with people, and have people tell you their life story. Not too many people will tell a 25 year-old their life story.

MM: How much value does the CFP designation really have, and are people getting the message about how valuable it really is?

DW: I think it goes back to our earlier discussion and as it goes on it is going to become more and more beneficial. At the moment, I think it is a mixed view in the world.

JB: There is well over 100,000 CFPs around the world. We need this special designation to sort out who is who and what is what. And I think the CFP does it well.

RO: Our problem is that in our firm we have a few CFPs, we also have several experienced planners, several who have university degrees, a couple have a masters degrees, they can meet all their PS 146 compliances, they are not a CFP.

JB: Why ever not?

RO: Because they have not gone that next step to complete all your exams, and the things you have got to do within the exercise. And they are saying, ‘I am not as good as him?’ And this is what the industry is saying, and what the FPA is saying, that they are about to go out there and promote the fact that a CFP means you are getting the best planner.

JB: Okay, well what about the CA and the CPA then, who promote the run across the bridge and all that? They’re professional level accountants, we are not saying they are not good accountants, we are saying they are not at the highest level.

RO: No, just on that basis I will quote you an example. First, that people still don’t quite understand the difference between a CPA and a CA, they still just understand ‘an accountant’, they don’t then go and say, ‘Which one has a masters of accounting or which one has a masters degree?’

See, these guys are saying, ‘We have the basic designation the industry has told us we have to have, and we have a university degree in finance, or whatever, we can have a masters degree in finance, we have met the PS 146 requirements, we have done a lot of training in the industry, we have got 20 years experience, but because we don’t meet this specialised bit, which is purely academic, you know another four or five exams or so’.

JB: Well, the first one is ethics and standards.

RO: Fine, but I have done that in my accounting degree. Why are those people considered not as good as the young kid who has come in, spent three years in the industry, and has gone through your CFP program?

IS: I might just add on the CFP thing, I think it is not a question of who is better or who is worse, because having a CFP doesn’t necessarily help a person be a better financial planner.

There is a lot that goes into financial planning, beyond just knowledge — there is a marriage, a relationship that continues over time.

The other thing, is having a CFP in my mind, is certainly something one should aspire to. Why are people afraid to go for a CFP qualification? I have a business degree, I want to get a masters, I want to get a PhD. It’s a personal thing. It is that actual ambition. I want to improve myself, and to convey to my clients that I am qualified to the best I can be.

So I don’t think people should be afraid of getting a CFP. I think it’s good. It helps people to understand that you have gone that extra distance to become one.

RO: I have nothing against CFPs and I think it is something that the industry needs to promote. The issue we have at the moment is, particularly, say, through the FPA, that they are proposing to go out there and promote the fact that a CFP is the best financial planner.

JB: No, it is a professional designation.

RO: Well, they are not the most experienced.

JB: Well, from July next year you have to be degree qualified before you can even go into the program.

RO: Three years and a degree. What you are talking about are younger people coming into the business, who have no people skills, have no understanding, and there is nothing in the CFP course about that. I don’t see anything in the course about running businesses either.

JB: Practice management is in there.

RO: Practice management and not cash flows and the whole thing.

JB: They do have to do a clear presentation of a financial plan and talk that through with a…

RO: Yes, but that is not running your own business.

JB: But they do have to have people skills.

RO: No, they don’t have to do it. My bigger issue is the fact that they need to know how to handle relationships, and how to handle clients.

JB: No, but you don’t get that in a masters degree do you?

RO: No, that is exactly right, you get it from experience in the industry and that sort of thing.

Our argument is simple: We do not believe that the people who have a CFP are better planners than those people who have everything else and who have met all the standards in the industry.

JB: It is the highest professional designation available today in the financial planning profession across the world. That is what it is. Now, when we are going out to a consumer, we take our practitioner hats off, and this is where I think the qualification does become more valuable, when the consumer walks in and asks, ‘Are you a CFP?’ And they understand what that means, then maybe that adds more value.

RO: Why must they do that. If they have been in the industry for 25 years, built a successful business, have got their university degree, maybe, maybe not. Maybe they have met all the PS 146, they are doing 50 or 60 hours a year of regular training, why do they need to go and do another? They are not going to learn anything out of those three or four courses.

MM: Is it too much to ask that financial planners become a one stop shop and provide more than just advice. Is there any more that they can be doing?

JB: I think a lot of financial planning business do all those things. I think that one individual might not do all those things, but there is a lot of practices out there that do the one-stop-shop thing. Or they have relationships with people who can do the other things, like estate planning, risk and mortgage broking. They have those relationships so that they can do the professional referrals for that.

I don’t think in financial planning you can close your eyes to those things just because you don’t do them yourself. And also, people are really busy. People don’t want 16 different people, they want convenience. They want to go somewhere and know that it is all going to be fixed.

IS: We see it a little differently. Years ago, 18 years ago, the differentiation was drawn from an adviser and a financial planner. And a financial planner does a total financial plan. Everything that affects the financial life of a client, be it mortgages, their taxes, their accounting, their estate, their wills, their social/charitable giving, and meeting their needs.

One person cannot do everything, so like Phil has done, we got branches. But even within accounting, or legal, you can have estates, or you can have tax, and divorce, there are so many parts of legal and how far do you go?

So a financial planner, in my book, is one who looks after the total financial life of a client, and brings to the client those services that no one person can be a specialist in.

Now you could get specialists in each field, and I agree with you that people don’t want to go to 16 places. But in our sphere of influence, in terms of a client’s financial advice, it is really estate, risk, accumulation of wealth, retirement planning and investments, and you can bring that together, from the specialist in mortgage, then you are a financial planner. Otherwise you should be an investment adviser, or a risk adviser, or something like that.

JB: Or a product salesman.

PG: Yes, I agree, the other thing you do get out of this is retention. Once you have that client, and you are seeing that client a hell of a lot, as against, say, just investment. So as soon as the market comes off, you are not valuable any more. When you have the holistic (approach) you tend to keep them.

IS: When we sold the product, then we might as well go back to the 1980s where we would get 6.5 or 7 per cent from an unlisted property and say, ‘See you later mate, I don’t want to know you again’.

Now it is a relationship thing where you continue for many, many years. That is where the money comes.

RO: It is a ‘no-brainer’. A financial planner who doesn’t have contacts in accounting, law or estate planning, he is really a threatened species.

PG: It is also a good thing to protect your clients. So that if they go to another accountant, and it is not someone you referred them to, the chances are that accountant has another financial planner and they will go somewhere else, same with a lawyer.

RO: What they need, I think, is that you know how to find a lawyer, to find an accountant. Of course, if you can get to that scale and build it.

MM: As planners, do you really want to be in the business of giving advice about superannuation, given that you have got a regulator that is out there shadow shopping, and quite possibly going to catch someone out on what might even be just be a misdemeanour?

RO: Your guy won’t advise on smaller cases, under 30 grand or 40 grand, particularly if it is coming from an industry fund. It is so hard to get the information on the other side of the fence, to meet the ASIC [Australian Securities and Investments Commission] rules, you are conscious of the client’s aspect.

You are also aware of at least one industry fund now, as a matter of policy, that every time a client moves it writes to ASIC and says we do not believe the advice was appropriate and then ASIC has to follow it up, right? I wouldn’t like to say which fund. It is happening. They are doing it. And, therefore, we just stopped giving those people advice. We just say no. We will say if you want to switch over, then here is the prospectus, and we have nothing to do with it.

JB: That should suit us. Who does give those people advice? Who does tell them what is right? But if it gets to be too hard for everybody, I mean people come in with five — $200 in that one, $17 in this one, you know somebody has to be able to provide the advice. Or does it fall back to the banks who can afford to provide low cost advice. Who does give them the advice?

IS: It depends on the levels. The reality is someone with superannuation entitlement, particularly going into the future, is going to be an integral part of their financial planning future, and going forward, you will find that probably the majority of life insurance will be owned by the superannuation fund, in the future. So the bottom line is superannuation is an integral part of financial advice.

RO: It is also true to say in most of those cases there is not a lot of value there. You know the people who’ve got 30 grand in their super and their SG contribution, who don’t want to do anything else, not interested in other investments, they are better off keeping their basic industry funds, stick in a balanced fund, that is the best advice you can give them.

PG: It is going to be a bigger issue than it is now with this new legislation coming in on the 6th or 7th December. And the fact that you can have a trust that pays little tax internally, then pays no tax and produces a tax free income.

At the higher level, what we have found is if you have a self-managed fund, and bearing in mind you self-manage a fund pretty inexpensively, the fees are subtwo thousand a year, and even at a wholesale level, it is a lot less than a wrap account. I have found that the clients have become much more interested in that subject.

JB: And looking at a standard fund, generally speaking, they are paying full tax as the unit price increases, whereas if you manage that process, as you know, you don’t pay taxes on non-realised capital gains, you do pay tax on income, but then you use it to offset it. I don’t know if it is fair to say, but the perception is that ASIC don’t have a clue about strategy, they don’t look at strategic advice and looking at product. It is all about form versus substance.

RO: They are more interested in the form in which the advice is given as opposed to the substance. And this is the worst part of FSRA. It has now taken people’s time away from giving quality advice and working on strategies like that — making sure that all my dots are dotted and all my tees are crossed, and the actual SOA format meets the compliance aspect. Because the ASIC officer who comes along has no idea about this strategy, and to be honest, is not all that interested in the strategy.

PG: You know, in our office, we have about 28 on the financial planning side, so we are just a small Sydney-based office. Our compliance cost is now just about to hit $500,000 a year. That is ridiculous. And that is exactly what you are saying, making sure of your ASIC compliances. Are people getting better advice today than before? The answer to that is no.

IS: I think to answer your question, if someone came and asked for advice, we would probably give it. It may well mean starting an industry fund, provided they are willing to pay, and if they are being asked to move, then they would clearly be told that this may cost you more, and these are the reasons why we are doing it. No one knows everything.

ASIC may believe in this pristine thing — that we know everything. They say a human being understands five things — now financial planners have a very short memory shelf life, because we have so much information coming to us every day, plus we are disseminating that information to different people … all I am saying is that if a person comes, that I understand my product. I understand the products well, and I can explain that ‘this is what I use, this is how it works, it may be different to what you have, I do not know about that. If you are looking at fees, this may be more expensive. This is how I do things. You are welcome to stay or go where you like, or use this.’

What I worry about is the fact that ASIC believes that this is not a free world — that when a client walks in, we beat him up with a whip to sign. This is a free country.

MM: I would like your views on shelf space fees at the wrap level whether companies should be paying a premium to get their product under the noses of planners.

RO: I think it is a commercial reality. There is not a problem there.

IS: See, we are an administrator too, and we have our own platform, and our own administration, so it is really a cost of doing administration. We haven’t charged anybody yet, under a platform fee, but I think it is a commercial reality that if people want a product to be administrated then there is a charge for it. There should be a cost for it, and that ultimately, the client always pays.

You know, no matter what we think that the fund manager pays us, or the dealer pays the adviser, that is all nonsense. The client is always paying us. At the end of the day it is the client’s money. They are the only one who is paying, so the client will eventually pay, so if it is a service that is provided, people will be paid. But the market will decide. It is a free market, as I keep saying, and the market will decide, not the Government. The market should decide that we don’t want to pay for this, or we don’t want to invest in this, or we don’t want to invest in that, for this reason. That is the choice people will make.

RO: And if the platform doesn’t put enough product on it, then the advisers won’t use it.

JB: Well, that’s right.

IS: Well that is the other question I have, how many products do you eventually use for a client?

JB: And I think it’s a platform that’s an administration service. It is not a product, it is an administration service.

IS: That’s right.

JB: The product is, for example, Deutsche or BT or whatever, that is the product really. The admin service is there to make my life as a planner easy, so I can give my client succinct, consolidated reporting, make my client’s life easier, because they can get it online, and they can see it all together, and they can get tax reports. It is really exacting.

IS: This was asked of me at that Master Planners’ conference, and I said, ‘Well, just tell me, what a platform does to the financial life of an investor?’ Nothing, except provide administration at a cost. The financial life of an investor can be affected by the underlying assets within the platform. Those are the products that you need to worry about. Not a platform.

PG: I agree, actually, I’ll go one step further than that if I may. It is really an important subject, in that ASIC’s view is that, in advice land, we should be offering multiple platforms.

Now our argument is, like you said, it is purely an administration system. That is all it is.

IS: That’s right.

PG: It is an investment admin system. Now for us to train our guys, our people, in multiples, and also when you are doing a review, and software downloads, it is ridiculous, so we’ve said, ‘We have got one platform, in our little co-op round the place’. End of story. That’s our admin system. If they don’t like it, well they go somewhere else, or if the client really doesn’t want to use it, including direct shares, they don’t like it, that’s okay, that’s our admin system.

JB: And you say what you get for your money and what the reports look like.

IS: I have been questioned on this a number of times, because we offer the Phoenician Platform. We trust it, we know how the administration works. We know perfectly that it will be on the dot and accurate, unlike some of the others that I have used in the past, and our people actually swear by it. In fact, it is a selling proposition for the division, the Phonetician Platform.

RO: And you make a few dollars out of it. What’s wrong with that?

IS: Well, we are all in business to make money. If you don’t, why are you there? Unlike the industry funds, I asked a lady from South Australia, and she said: “We do it this way and it is so cheap.”

And I said, ‘So why do you do it? What is your motivation for being in business?’ “We in South Australia are very cheap,” she said. “We don’t pay staff much.”

And I said: ‘Why don’t all of you go on minimum wage and really do a service for your clients? Why do you do it if you don’t want to make money?’ This is capitalism. This is a capitalist society. What’s the purpose?

PG: This is going to be very important because ASIC doesn’t understand that. And if I could expand on that, because for us, we use a BT platform, and then we use software that costs a bit over a million dollars, for the co-op, so that we can produce a review, a proper comprehensive review document that can be that thick or it could be that thick. Something that you can be really proud of in about 14 minutes.

Now in the past it took us, genuinely, four to five hours and we are able to pass those cost savings on to the client, because again, if you’re working on time sheets, and we are working on a 30 per cent margin, that’s a saving. If somebody decided that you had to offer multiple platforms, it would effectively increase the costs in our office by about 50 per cent.