Planners face new hurdles in 2002

Another year, another clean slate? Not quite. Legislative overhang from 2001 is set to frame the trials and tribulations of the year ahead as the financial planning industry is shaken up like never before.

This is as a result of the sheer volume of reform that either hit the financial planning industry last year (Privacy Act and Alienation of Personal Services Income Act), or is going to in March this year in the form of the Financial Services Reform (FSR) Act.

However, predicting the key challenges and hurdles for the year ahead is not just a matter of preparing for industry reform. The secret is placing the change into context and alongside industry trends already in progress.

“There are a number of developments that aren’t legislation dependent that we’ll be looking to address,” says Westpac retail business development manager Kim Cowie.

“For example, with self-managed superannuation funds (SMSF) people have become too clever in the strategies they are trying to use and the result is a lot of non-complying funds,” Cowie says.

Cowie predicts people are also going to need help this year in devising ways to get around reasonable benefit limits (RBL) problems and reducing the tax rate of companies now caught by the changes introduced in January to social security and the treatment of private and public company trusts.

“Redundancies are also going to become a huge issue, what with Ansett and Qantas, so we will be looking at ways that a person can keep their options open for as long as possible until they can get expert advice,” Cowie says.

Westpac’s head of retail business development Paul van Rooyen, says the September 11 terrorist attacks in New York last year will continue to shape people’s needs in 2002.

“While there is constant talk of terrorism in the newspapers, people are going to be reticent to take action,” van Rooyen says.

He says the industry therefore needs to be well equipped to deal with this reluctance and considers objection handling to be an art form.

“People’s sense of vulnerability is heightened since the threats from overseas, so there will be a lot more focus on insurance and estate planning,” van Rooyen says.

On an organisational level, Strategic Consulting and Training Pty Ltd’s managing director Jim Stackpool says financial planning businesses will have to be a lot more inward looking over the next 12 months.

He says dealer groups will need to place more emphasis on the culture of their business to be more in line with the demand for lifestyle considerations of their clients.

“Staff will ask, is there a better place that is listening to my lifestyle needs because this is what we do for our clients,” Stackpool says.

He says staff retention will be a key issue for the year ahead as profit margins get squeezed, productivity declines and wages increase.

“We predict management expense ratios (MER) in 2004 will be around 0.45 per cent. There will be greater need to sell advice not the product as the product will sell for free in the future,” Stackpool says.

Also, providing clients with bundled services for a bundled price while providing factory-style solutions in areas such as general group risk, corporate superannuation and basic tax and compliance work, will be the way of the future.

The Tom Collins Consultancy chairman, Tom Collins, says the new licensing requirements under PS 146 will increase the number of distribution channels operating in the industry because in the case of general insurance that now requires a licence to operate, they will be tempted to offer financial planning because they can under the licence they now hold.

Collins says the new licensing regime is more flexible than many people think.

“Not a lot of people realise that when FSR talks about one licence, that you can tailor the licence,” Collins says.

He says because of this, more people will go for dealer’s licences and thereby create niche industry players while the trend over the last couple of years for institutions to buy up distribution channels will slow.

“The industry will start to fragment because it is easier for planners to get their own licence. Institutions impose their way on advisers and a number aren’t happy with that,” Collins says.

The Financial Planning Association’s (FPA) chief executive officer, Ken Breakspear, is looking forward to a smooth transition to the new licensing regime and wants to be sure the regulator, the Australian Securities and Investments Commission (ASIC), takes each individual licence application on its own merits.

“We need to make sure the regulator is properly resourced because there is more regulation to get used to,” Breakspear says.

On the agenda for the FPA this year is to push ahead with superannuation reform and lobbying activities; conduct research into savings and retirement income; increase the lobbying resources of the FPA; review the Association’s code of ethics and rules of conduct to make them compatible with the new legislation; and establish terms of engagement between an adviser and client so the scope of the service is set out in a clear and simple way.

A more flexible delivery and customised version of education programs is also a priority.