Grabbing the education initiative

It is June 2007 and the consumers of the financial services industry have been rocked by a third collapse of a property investment and development company. They may not have known that they were investing in property but rather ‘high interest’, ‘secure’ investments that somehow went south.

The response from advisers to these and other collapses are key because good advice is a primary ingredient in Australians achieving their desired financial and lifestyle outcomes.

The key ingredients in providing good advice are education, experience and the right practice model for clients.

However, in a world of do-it-yourself, many consumers are doing it for themselves, online, via the Internet and through organisations offering ‘good, safe’ investments.

As a result, the issues of getting good advice, making informed decisions and getting the right outcomes have never been more important.

So, if getting good advice is a key factor for Australians achieving their financial and lifestyle outcomes, then adviser and consumer education are key components of this puzzle.

Adviser education

Adviser education has been on the agenda since companies started creating products and distributing through advisers.

The better educated the adviser, the better the client outcome. From the foundation of the Association of Financial Advisers (AFA) in 1946, then called the Life Underwriters Association, a core part of the association has been education and professional standards.

When Financial Services Reform (FSR) came through in the early 2000s it looked to address the issue of minimum education standards through PS 146.

In effect, it was a step in the right direction because it has set a minimum entry standard in the industry. This is now currently under review with the latest proposed changes to FSR.

The AFA recently refined and formalised its policy educational framework, which includes the four pillars of education:

1. Formal qualifications

No one argues with the need for strong qualifications in our industry. The AFA supports the range of programs available across the industry and various academic institutions.

The AFA has a strong history of providing advice, practice management and risk training. We are considering what options may be needed to provide more focused education to build the next generation of advice professionals.

2. Peer-to-peer learning and ongoing training

Peer support is important; learning from your colleagues is a critical part of becoming a successful adviser.

The AFA is on record as supporting a range of programs and initiatives in this arena. The GenXt program, the AFA National Forum and the AFA National Conference are good examples of this. The AFA is committed to this kind of training, not only in the capital cities but in regional areas as well.

3. Expertise comes from real experience

The business of learning while doing: building real, in-depth experience by solving client problems as they serve their needs. That is real expertise which is learnt on the job, with more experienced colleagues. Many long-term AFA members have been providing quality advice to clients for many, many years. These long-term relationships based on trust, expertise and competence have been built over many years.

4. The gaps in adviser education

The AFA is committed to addressing the education gap in two main areas:

1. Advice, client engagement and sales skills.

These skills, which are often seen as ‘soft skills’ are no longer part of the national adviser curriculum. As a result, many newer/younger advisers struggle to engage with their clients, clearly identify needs and opportunities, so their clients miss the opportunity to get a broad, holistic, all encompassing plan.

2. Insurance and risk specific skills.

There is a dearth of competent specialist risk advisers in the industry that is contributing to the underinsurance problem in Australia.

The AFA is committed to facilitating a range of programs to better educate advisers in the specialist area of risk insurance.

So the important debate today is not to educate or not, but rather what kind of education will get desired outcomes for clients and consumers.

This in turn asks the question of an ideal adviser skill set for which the industry can focus and the current curriculum falls short of achieving this outcome.

So what are the core skills an adviser should have and where are the current gaps? This, of course, is a matter for broad debate, however, we would suggest the following.

Financial planners have a huge responsibility to know their clients and know the products and one that includes the following skills:

> strong numeracy skills;

> strong client engagement skills;

> strong technical skills in area of speciality;

> clear understanding of markets and products;

> coaching and mentoring skills;

> detailed product knowledge;

> strong client empathy skills; and

> strong business management skills.

This list is a start and not exhaustive, however, there are clear gaps in the industry that, for too long, have not been addressed.

In addition, there are a range of skills and knowledge that have become obsolete because of legislative changes, for example reasonable benefit limits (RBL) and RBL strategies, once a huge part of retirement planning, are about to become obsolete.

So the key issues in designing curriculum for advisers is to focus on sustainable ongoing skills that become part of the toolkit of advisers for their careers.

Sue Laing wrote early in 2007 in relation to the lack of skills around insurance products and strategies.

These issues are relevant not only for advisers today but for the generation of advisers who have just entered the industry. For these GenXers, university and PS 146 training are the basics.

However, as an industry, they need to be equipped to work closely with clients in good and bad times to ensure that as the trusted adviser they will be there for their clients long-term.

Education for consumers

The relationship between adviser and client can be very productive.

Like any professional relationship, the more involved and educated both parties are, the outcomes are likely to be better.

So clarity about expectations is important, as is the need for consumers to have access to education and information that will allow them to better engage in the process of advice.

This leads to the broader issue of consumer education and literacy.

A meaningful financial education and literacy campaign are the keys to prevention of more Westpoints and Fincorps because there has to be more engagement with the consumer. By working together, the adviser will get a better outcome for the client.

The Financial Literacy Foundation is an excellent starting point for this topic given that the curriculum will be part of the schools program from 2008 onwards.

Richard Klipin is the chief executive of the Association of Financial Advisers.