Big planners in big trouble

LARGE financial planning groups must reconsider the structure and culture of their businesses to avoid losing clients to more adaptable and individually focused smaller independent planning groups, Diversified Portfolio Managers general manager David Williams warns.

“Internationally and in Australia, the financial planning industry is falling behind in its ability to fulfil the changing expectations of consumers. Locked into the past by systems, institutions and the ageing pioneers of the industry — a major re-assessment is overdue,” he says.

Williams identifies the growing attractiveness of privately-owned financial planning businesses that are independent of major institutions as increasingly self-evident — both for planners and consumers.

While Williams doesn’t deny that financial product providers will continue to be major players in offering financial planning services, through their ability to aggregate commodity type services such as banking and investment, they are unlikely to ever achieve best practice.

“The big players are perhaps the most vulnerable as we see an increase in the number of independent planners in the market. Big institutions [planning groups] will have a role to play going forward, but it will be difficult to ever offer a truly open service as they are confined to offering affiliated products, despite claims of offering others,” Williams says.

According to Williams, the problems lie in the inherent difficulties of managing a large business culture.

“The problem is as you get bigger it’s hard to maintain control, this isn’t to say that the people running the big planning groups are dishonest, it’s just bloody hard to do!”

Going forward, Williams argues the ‘real’ financial planning will be done by independent planners that position themselves in a particular segment of the market, have a very strong local presence and a successful system of referrals in place.

“Being a big brand used to be good but now it’s a liability. People have always distrusted banks, it’s part of the Australian culture, but even by those standards people are nowhere near as trusting these days,” he says.

Williams believes the only really sensible future for what he deems ‘full-on financial planning’ is a future in which planners are free to pick the market they want to operate in and then develop the complete range of services needed to service that market.

“The larger groups have got to push product, even if they don’t own products they are to a varying degree mendicant to sell products, and by mendicant I mean likely to bend to their [product provider’s] will,” he says.

Williams notes that institutions behave differently to small businesses because the former often struggle to maintain a culture that properly rewards individual enterprise.

“They focus on risk avoidance. They use mass marketing techniques to manipulate relationships with individual consumers who become increasingly distrustful of their size and brand.

“Eventually the best people leave and start small businesses — alongside other entrepreneurs that realise they can compete effectively,” Williams warns.