Civil war for the planning industry?

New journalists to Money Management often comment on the openness of financial planners and financial services professionals in general.

Planners are remarkably open in sharing their opinions, their successes, their failures and even their trade secrets. You only need to front up to a FPA lunch or conference to witness the enthusiasm with which the assembled masses impart sensitive business information to people they barely know. These are not secrets signed away by confidentiality agreements but open and frank assessments about how to prosper in the financial planning business. That's why it is such a great networking industry and such a great industry for information-hungry journalists to prosper in.

Professionals in a lot of other industries are not so lucky. Executives in industries such as food, beverage, banking, pharmaceuticals and manufacturing are usually very secretive, nervous around journalists and often suspicious of their industry colleagues.

A recent report by US-based Undiscovered Managers predicts the days of easy co-existence between financial planners are numbered. The paper argues that the reason why planners are so open with sensitive business information is that they have never faced any real competition.

At the moment, the number of clients seeking financial advice exceeds the number of financial planners. But that is about to change. The latest Money Management Top 100 survey reveals that the number of planners in Australia's biggest 100 dealer groups increased 16 per cent in the year to September last year and FPA figures point to similar growth over the past decade.

When the number of planners in practice becomes more than enough to service clients seeking financial advice, Undiscovered Managers predicts a competitive war to win the clients. This, the group says, will signal the end of open, trusting relations between planners.

Maybe in America, but it is doubtful that the same thing will happen in Australia. Sure, margins for financial planning businesses are likely to fall as costs increase and competition for clients intensifies. But it is a big leap to infer from there that this margin squeeze will create hostilities between planners.

In mature industries such as those listed above, the reason why there is so much hostility is that there are only a few key players who control most of the market. Because there are so few of them, they watch each other like Hawks and copy each original idea to destroy any competitive edge.

The difference in financial planning is the sheer number of dealer groups in the market. Yes there are 20 or so very big players and those big players are likely to get bigger, but there will also always be a huge number of small to medium sized dealer groups.

Look at some of the other mature service industries like accountants, lawyers and doctors. Sure there are a number of large firms in the industry. But there are also a number of small independent firms, some of which are very successful.

What Undiscovered Managers predicts is a rapidly maturing industry that will become increasingly hostile. Will this make all financial planners mortal enemies?

Let's all hope not.