Global planning industries sharpen up

In the past few years, members of Australia’s Financial Planning Association, (FPA) have happily thought of themselves as a cut above the international market in both product development and practice management.

However, financial planners in Japan, the US and the UK are working with their industry associations to make sure they are not left behind.

The Japanese Association for Financial Planners (JAFP), five years older than its Australian counterpart, has made great inroads into increasing the standard of its industry.

Earlier this year the JAFP implemented ‘Qualified Plan’, a plan based on defined contributions, similar to 401(K) pension plans in the US, to help create opportunity for financial planners to expand their planning network.

As well as implementing investment vehicles, Japan is experiencing a boom in planner numbers, with the JAFP recently reaching the 110,000-member mark.

But despite the JAFP attempts to open more client avenues for planners, the industry is still struggling to attract the masses.

Unlike Australia, Japan does not have a large proportion of independent planners, so it is more common practice for planners to work in institutions.

This characteristic of the Japanese financial planning industry means people are often targeted by the advertising campaigns of the major financial institutions.

“Public awareness in financial planning has not yet reached the average Japanese. Therefore, it is harder to become independent,” a JAFP source says.

According to the JAFP source, the financial planning industry’s target markets include insurance, pensions, business and real estate succession and education. At present, the industry’s greatest threat is the competition with other designations and professionals.

High profile US industry consultant, Bob Veres, says the US financial planning industry is also experiencing an alarming crossover in professions, with insurance companies often posing as financial planners.

“Nobody is really talking about this out loud, but the insurance industry in the US is starting to call itself the financial planning profession, and the untrained eye would have trouble telling them apart,” Veres says.

“Insurance agents tend to be highly relationship oriented and they are able to take a keen interest in the client’s personal circumstances. Then, at the end of the ‘relationship’, the client has an insurance policy and little follow-up, and feels like he/she was taken advantage of by a member of the financial planning profession,” he says.

The US financial planning industry has more than 50,000 planners operating in a market of over 300 million people.

“The strength of the planning profession [in the US] is that it is distributed among thousands of solo practitioners who are flexible enough to adapt to new practices and service standards as they evolve, and who are constantly searching for competitive advantages — that is, new practices and service standards,” Veres says.

He says the main trends that are now appearing in the US financial planning market include the search for the next evolutionary stage of the traditional mutual fund; the consolidation of planning practices; a shift from commissions to fees; and the emergence of lifestyle planning — the next hot issue in the US market.

While the debate over fees and commissions is a constantly evolving one, it is currently one of the key challenges facing the UK financial planning industry.

Skandia Australia business development executive Martin Morris says the UK financial planning industry is going though a host of changes at the moment, including a switch across to fee-based advice, and a greater emphasis on both trail commissions and succession planning.

“The UK has historically been regular premium biased and from that, commissions were taken upfront as a percentage of the annual premium. For those established practices that have followed this route, the switch to a new structure, which is being pressed upon them by the industry and clients wanting to see lower upfront commissions, is proving an economical headache,” Morris says.

He also says the inclusion of master trust and wrap services, along with online technology are key trends in the UK.

A main difference between Australia’s and the UK’s planning industry, is that superannuation is not compulsory in the UK. Therefore, a major market for UK planners is corporate super, personal super and director super.

A further difference between Australia and the UK is that in the UK, there is not one but three classifications for a financial planner. The first category is an independent financial adviser who is not tied to any one company’s products but can advise on the products from any company subject to licence. A tied agent on the other hand is an adviser that runs their own business, but has signed a contract to sell the products of only one company. Finally, a direct salesman is an employed adviser of an insurance company.

It is from these various classifications of a financial planner that a major threat has now emerged in the UK financial planning industry. Morris says the increasing number of avenues for financial advice, for example banks, is one of the largest threats to the industry.

“[Further weaknesses in the industry] would be the current reliance on high upfront commissions. The public at large still has a perception that a financial adviser is a commission hungry salesman rather than a professional lifestyle planner.”