Focus on investment returns a 'fallacy'

An over-emphasis on client investment returns has led to the failure of many business models in the advice sector, according to Martin Kerrigan, chairperson of CPA Australia’s Financial Advisory Services Centre of Excellence.

Also managing partner of Brisbane-based Snelleman Tom Consulting Accountants and Financial Planners, Kerrigan said many business models are “being shown to be a fallacy” because their client plans are predicated on investment returns and not risk profiling.

Emphasising he was speaking in his private capacity, Kerrigan said advisers can do a much better job of explaining investment risk to clients rather than explaining the potential returns.

“I am a long-term proponent of the concept that advisers can actually manage the risk part of investing and they are victims to what returns the markets provide us.”

Kerrigan added as long as advisers concentrate on investment returns as their biggest key performance indicator, financial advice would “remain an industry rather than a profession”.

“I think there is generation of advisers out there [who] are ill-equipped to deal with a financial downturn because they never assumed for a moment markets could fall to this level.”

He said “if there is any positive aspect about the depth of this hole we are in at the moment, it is that we may have the opportunity to change the advice industry forever”.

“I think people know what the answers are but we are not going to move it to a professional level while it suits the industry to play the game of investment returns rather than giving good quality advice.”