Idealist February 12, 2004: It’s time to get the simple things right

As we knuckle down into 2004, a quick look at last year tells me we haven’t learned much about what the Australian community wants from all financial services participants.

Despite a plethora of legislation and professional obligations, there are still financial planners who find a convenient and criminal way of not disclosing their fees and commissions to existing and potential clients.

There are still people who just want to flog investment products and yet claim to be ‘professional’ financial planners. And I can live with that as long as they don’t call themselves financial planners and/or professionals.

Most unfortunately for the community, there are still financial services participants who get the client’s money mixed up with their own.

And now the Australian Securities and Investments Commission (ASIC) is looking for proof from institutions that ‘Putnam style’ illegal, after-hours, self-interest trading does not take place in Australia.

As if I need to add more fuel to the fire, now the NAB has declared around $380 million of unauthorised currency trading losses.

The bottom line is, while many hundreds of thousands of Australians think their financial planner is trustworthy — financial planning and financial services generally is somewhat on the nose with way too many others.

And it’s not for want of trying. The FPA has been well ahead of the regulator for years in terms of education requirements and professional standards, some of which have only recently been cast into legislation.

Yet those who blame a slow regulator for all our woes do so ignorant of a very basic principle of professional relationships — which is that the professional must always act in the best interest of the client. For while the regulator has dragged its tail, there is no regulator anywhere in the world that can regulate honesty. You are either honest or dishonest.

Financial services has let the community down in so many ways. We charged commissions of 7 and 8 per cent in the 1980s and many weren’t told about it until it was already paid.

There was the Estate Mortgage debacle and the general Victorian investment crisis in 1990.

We over-allocated client monies to unlisted property trusts in the late 1980s and early 1990s.

We got caught by the world bond market crash of 1994 and we failed to recognise the overpricing of international shares in the late 1990s until it was too late.

In the mid ’90s most of us seemed to jump on the latest ‘fix’ for financial services — the hallowed master trust — supposedly to save clients’ costs and make business administration easier. Too many dealers and individual financial planners have unquestioningly believed every bit of marketing spin thrown at us by the big end of town. Spin that was supposedly all about what was best for our businesses, but not too much about all the nasty side effects (read actual costs/inflexibility) for clients of the latest concoction of technological whiz bangery.

And regular readers of the ASIC newsletter can attest to the monthly list of criminals who are convicted of stealing money from clients.

So have we done anything good these last 15 or so years? Well, we did very well through the short-lived South East Asian economic crisis of 1997. And people only had to loiter around the Stock Exchange for most of the ’90s to make their money grow. We mostly seem to be able to help clients find their way through a most abominable basket of retirement legislation.

Yes, more Australians are aware of the need to plan their own financial security both for the present and the future. Yes, more Australians do know about shares and the long-term benefits thereof. Yes, after much ‘door-knocking’ in Canberra, governments know more about what we do and how a viable and vibrant financial services sector is vital to the economic and social wellbeing of a nation.

And yes, when the excesses of the residential property price fiasco cascades into families destroyed by expanded mortgage costs backgrounded by growing provisions for bad and doubtful debts for lenders, a band of true professionals will discount or pro bono some or all of their services to help people.

People who are often unwitting victims of a scandalous two-year investment scam. A scam feasted upon by ratings and circulation hungry media outlets.

People who gorged themselves on every last bit of the latest lifestyle television show to keep convincing themselves that debt was good.

People who are regularly told to plan for financial independence because the message from succeeding governments has been that the age pension won’t be around forever.

And people who have been let down by successive governments — Federal and State — because of the failure to bring property investment advice into the real world of financial services reform and consumer protection.

So what do Australians want from the people they deal with, both directly and indirectly, when it comes to money? They want to know they can trust you and anyone who works for you.

They want to know that you will not be negligent in your duty to them. They want to know you actually do care for them and that they, as individuals, are not just one of a large number of clients who get grossed up into your total funds under management figure.

Two sentences and two keywords — duty and care. It’s the very foundation of our relationship with the people who pay us for services rendered — a duty of care. And we are all duty bound at law to exercise it in the provision of services to clients.

The Australian community wants to know that you’ll be around for a while — that is years, not months — and that you’re not just breezing through their life while intermittently feeding off the carcass of their declining portfolio with one eye on where the next meal ticket will come from.

At a time when seemingly every large investment institution — the banks and the life insurance companies — receives less than favourable dinner table discussion in many Australian households, they need to know it’s not just about the shareholders and the chief executive’s bonus.

It really isn’t that complicated. It’s simply about making every effort to care for the people who are paying us and who entrust so much of their life to us.

It’s about setting the expectations of clients in the real world. A world that can and does disappoint from time to time.

It’s about under-promising on the returns and over-delivering on the service and communication.

The sooner we all start getting these simple things right, the sooner Mr and Ms Australia will feel a whole lot better about the value we add to their lives.

Ray Griffin is a Tamworth-based planner and outgoing chairman of the Financial Planning Standards Board International CFP Council.