The grass is always greener – and wages lower

Banks and telecom companies outsource back-office jobs to India, but wraps don’t and financial planners don’t — or should we say they don’t yet.

Some years ago BT Wrap set up its back-office in Adelaide, presumably because of lower wages, rent, and so on.

India easily beats Adelaide in these characteristics, so it seems inevitable that the trend to cost cutting by international outsourcing (that is, exporting jobs) will be adopted in our industry as in so many others.

As always, my main interest is financial planners, and it is interesting to speculate on future employment trends for planners and their support staff.

In extended bull markets it is not just asset prices that become excessive. Salaries within our industry can also reach unsustainable levels — and they probably have.

This will carry on while the demand for people exceeds supply, a function of the current boom conditions, which will probably continue until the next significant downturn in the share market.

Some people fantasise that the relentless inflow into superannuation removes the business cycle from our industry.

The ‘weight of money’, we are told, will underwrite stock market prices and ensure the perpetual health of financial services.

Funnily enough, it didn’t stop the All Ordinaries from declining by almost 20 per cent from June 2001 to February 2003, but that is more than four years ago, virtually in the olden days, and long forgotten now.

Financial services is indeed a growth industry.

It is not the first growth industry in history, it is not even the only one in the world today, and a business cycle impacts us as much as it does every other sphere of economic activity.

How would a downturn in the cycle impact planner employment and remuneration?

Organisations would need to get their costs down and people are their biggest cost, so guess what that would mean?

I’m also an employee of a licensed securities dealer and I am not petitioning the remuneration committee for a reduction in my salary on the grounds of sustainability.

Yet, I recognise the prevailing level of industry remuneration will not survive the next industry ‘recession’.

Various businesses will respond differently. Those whose revenues are mainly recurrent will find themselves in a far stronger position (as will their employees) than those still relying materially on transactions.

No doubt those listed businesses that focus no further than the next reporting period will launch into redundancy programs.

The old-fashioned appreciation of actually having a job may even be rediscovered, after a very long slumber through this era of full employment.

One consequence of the current shortage of people is instances of too rapid promotion into responsibilities for which people are not truly qualified.

I have seen support staff members, who still have much to learn in that capacity, offered jobs as frontline planners in large institutions advising clients on their financial security.

How much more confidence would you have in the hands of a surgeon with 20 years experience than one with two?

Yet people who are naive in the ways of the world, unfamiliar with the behaviour of markets, and inexperienced in the psychology of clients are being given responsibility for the financial wellbeing of others.

Financial planning is at risk of losing its apprenticeship culture.

The ‘apprentice’ should be introduced to selected clients under guidance and supervision, beginning with simpler situations.

With the increasing ‘institutionalisation’ of the planning process, the role of one-on-one mentoring is being replaced with more conventional management structures. Training and supervision is being provided by those with textbook knowledge only.

One parallel trend is the separation of paraplanning from the frontline adviser.

In certain large institutions there are teams of paraplanners doing plans for advisers whom they don’t know — indeed, they may not co-locate with any planners at all. They certainly don’t see the human beings whose financial lives they are structuring. They don’t get any feeling for them as people.

One of my colleagues was a paraplanner who worked closely for some years with the advisers he supported.

He then became an assistant adviser to an experienced planner and mentored through his subsequent career development.

After a couple of months being in the room with clients he commented that he now really understood what a financial plan was — for the first time.

Short lines of communication between the client, the planner and the support team that provides advice and service is very valuable.

Thus, I think much is lost in the removal of support staff from all proximity to clients, but it is the trend in some large institutions.

However, perhaps this may open the avenue to potential cost savings.

If paraplanners are separated in distance, why can’t they be in India? An Indian can be trained in Australian tax and superannuation laws and financial planning software.

Certainly, the pure back-office functions of administrative services like wrap accounts could be outsourced internationally. This already occurs in other technical fields (for example, diagnosis of pathology and radiology tests).

There is another phenomenon, related to the trend of rapid promotion, which is an undesirable consequence of the otherwise laudable development of higher educational standards. Young people with Diplomas of Financial Planning or similar often believe they are ‘qualified’ as planners.

After several years experience they may become certified financial planners (CFP) (that is, have the ‘highest qualification’ in the land).

This is certainly desirable, but it alone doesn’t make them an expert or a first-class professional.

All CFPs are not the same. For example, a CFP with five years experience is not as skilled as the same person 10 years later (unless they find a way to learn nothing over the decade).

Experience is at risk of becoming undervalued in the planning field. Perhaps the Financial Planning Association could give consideration to some recognition for years as a CFP, 10 or 20-year awards or similar.

Certainly, I am not arguing for an artificial holding back of talent.

It is one of the great joys in management to find a bright, enthusiastic person with the capacity to grow.

Any business that does not find a way to advance its best talent runs the risk of losing it.

However, nobody can perform to the highest standards at a higher level if they have not mastered the essential skills of the previous stage.

Today, the shortage of experienced individuals allied with the enduring ambition of youth is short-circuiting this process.

Inevitably, those lessons that have been skipped on the way will be learned later, perhaps by ‘trial and error’ for some unfortunate clients.

Our industry is going through a golden period and we can all enjoy it and appreciate the benefits. Yet it is only a phase. While every cycle is different, the essential elements recur, and excess is one of the characteristics of the boom phase. There have been consequences from this exceptional period on career paths and remuneration within the planning and related fields today.

Boom times require as careful management as the most difficult set of business conditions.

Robert Keavney CFP is the chief investment strategist at CentricWealth Advisory .