Regional planners still making hay

The challenges for the financial planning industry are well known.

As planners work to protect their clients’ assets, they also face greater client demand for communication and the uncertainty of numerous government inquiries into remuneration and the state of the industry. Meanwhile, their reputations remain under fire in the wake of corporate scandals such as the collapse of Storm Financial.

In this context, regional planners — who are isolated and often have limited resources — face even greater challenges. Even the simplest of tasks can involve enormous challenges. Even so, the sector has proven surprisingly resilient during the financial downturn, with regional planners reporting no change in the relationship between them and their clients.

The financial crisis and resulting economic downturn has hit rural areas hard, and regional planners are grappling with clients who have been made redundant from their mining jobs or no longer have the investment funds that they once relied on for an income.

Mining has been hit particularly hard by the downturn, and former mining workers make up a significant number of regional planning clients. Norm Jupp, a representative of Garvan Financial Planning in Geraldton, Western Australia, has had to counsel clients who have been made redundant from their mining jobs and are facing high debt levels.

“Some of these people have had a tax problem and have focused too much on fixing that tax problem [using] debt, and when that tax problem is no more, sometimes it’s very hard to unwind that debt quickly if their cash flow drops out,” Jupp said.

“Say someone at a top marginal tax rate buys investment properties to get some gearing benefits, [like] prepaying interest, all of a sudden the mining industry has dropped off, maybe they’ve lost employment, but they still have the interest bill without the tax problem,” he said.

“It’s a big lesson that people shouldn’t focus on tax reduction as a long-term investment strategy [and instead focus] on the core fundamentals of investment.”

Ray Griffin, former managing director of Griffin Financial Services, based in Tamworth, and a director of Capricorn Investment Partners, said the drought was still affecting farmers’ incomes, but their non-farming investments should be doing well in terms of providing supplementary income.

Vicki Hagley, principal of Metro Midlands Financial Planners in Perth and a representative of Matrix Planning Solutions, agreed that farmers who diversified their off-farm assets would get through the financial downturn and the drought relatively easier than others.

“A lot of the areas that we deal with, they do have bad years, but over the long term there’s good quality farms [out there].”

Despite the financial crisis and its resulting impact on clients’ investment assets, most farmers are realistic and understand that regional planners can not control the market, just as they can not control the weather, Hagley said.

They were also open to change and willing to try new things with their investments to counter the double impact of the drought and the financial crisis, she added.

Griffin pointed out that most regional planners maintained a broad base of clients, and with less than 5 per cent of them in the mining or farming industries, financial practices would not have been heavily affected by the challenges in these sectors.

What is clear is that the ability of a regional planning practice to get through the downturn often comes down to a question of location.

Peter Roan, the head of Roan Financial, said his planning practice was somewhat “immune” to the financial crisis thanks to its location in Orange.

“We’ve got Newcrest mining [in Cadia Valley], we’ve got the State office block for the Department of Primary Industries, we’ve got Electrolux ... we’re nearing completion of a brand new hospital, the university is expanding … there’s a lot of optimism and progression in the area.

“It’s probably helped us a bit.”

The location of Jupp’s practice also mitigated much of the effects of the economic downturn.

“Geraldton, where I’m based, out of a lot of Australia, is really, really well placed [in relation to] what has happened over the last 12 or 18 months, so it’s probably different for a planner based here,” Jupp said.

“[Redundancies in the mining industry] have not been a real big issue because of where Geraldton is. Geraldton has two or three small-tier miners that are moving forward very quickly at the moment, and that will take up a lot of the slack.”

Comunication delivers its share of challenges though.

Research earlier this year by Fidelity Australia found investors believed that client communication was one of the worst performing areas for financial planners.

While most financial planners are conscious of the need for close relationships with their clients to ensure they don’t make poor short-term investment decisions, for regional planners, maintaining face-to-face contact with their clients is a bit more complicated. With huge distances between a regional planner’s office and his or her clients’ common, face-to-face meetings can take hours and even involve interstate travel, often limiting meetings with a client to two or three times a year.

“My clients are anywhere from two hours up the highway to two hours down the highway and three hours out. So there is that issue with distance and making sure that you are in touch with all of those clients,” said head of Berry Financial Services in Port Macquarie, Julie Berry.

Jupp said while it was more important than ever to stay in close contact with clients, regional planners generally have to rely on emails and newsletters to make up for a lack of one-on-one meetings.

“The ideal solution is face to face, [but it] is not always possible,” he said.

Despite the lack of one-on-one meetings, clients are not complaining, simply because there are no alternatives for them, he said.

For many regional planners, maintaining close contact with clients involves good time management and some original thinking.

Hagley said most of her clients live 300 to 400 kilometres away, which is a two to three-hour drive.

“What I’ve found is that if you do three appointments in a day, which is all you can do, it’s not very efficient. And with the compliance and paperwork, it becomes a bit hard.”

Hagley uses accountants’ spare offices, located in towns close to her clients, as a halfway point to meet.

“When you go to a farm, you might be going from one end of town to the next. You’re going down gravel roads, you have to book the review in for where the farm is situated … you could be doing another 100 kilometres just servicing farms.

“Time-wise, it’s not efficient.”

At a time when clients want reassurance from their financial planner, Berry said being located in a small town actually has its advantages.

“Regional planers have very good face-to-face [contact] with their clients, mainly because you see a lot of them, even if you’re not seeing them in a work environment.

“So I think it’s a different kind of face-to-face relationship, and what that has done is maybe built a tighter relationship.”

For clients who are too far away, Berry suggested that regional planners negotiate with those clients to ‘drop in’ to their practices whenever they are travelling on holidays.

“We just manage our time really tightly. A lot of our clients travel around, caravanning and stuff. Perhaps they [can] call in here and see us,” she said.

According to Jupp, the relationships between regional financial planners and their clients are far more valuable for getting referrals than any money spent on advertising.

However, Hagley added that being in a country town meant you had to be careful about managing client relationships.

“There has to be trust there. But when you’re working in country towns everybody knows everybody, so you have to manage the relationship and ensure they’re getting what they want,” she said.

It is clear, however, that the damage done to clients’ investment income during the financial crisis has wreacked havoc with their long-term goals, and regional financial planners are among those scrambling to cope.

Berry said the financial crisis was impacting on her clients’ income margins, and the number of clients coming in to discuss their debt management was unexpected.

“It’s surprising the number of people who are coming in to look at their budget and how they can manage their debt better.

“There’s a stronger focus on trying to generate an income from what assets you may have, there’s also been a lot of debt consolidation or debt management, and I have seen a little bit more in the last year of clients coming in with the need to have budget management.”

Berry said maintaining her clients’ income in the face of plummeting investment value is one of the biggest problems she has to deal with at the moment.

“It’s not all about growing your portfolio, enough of it can be about generating enough income to meet your normal living expenses.

“A lot of our clients have some exposure to Centrelink, whether it’s a part payment or not, so how that income is going to be affected [is an issue]. That’s probably going to be an income question rather than a growth question: will I run out of money now?”

According to Hagley, the financial crisis has decimated the funds her clients were accumulating for long-term goals, particularly their children’s education.

“Definitely in my age group [education is] a big issue and it’s getting to the point of when they’re having the baby, [we’re] starting up a savings program.”

In regional areas the cost of education can be double the cost of urban areas, up to $30,000 a year.

Many farming clients had been using their farm’s assets to pay the cost of their children’s education, but in the wake of the drought, farmers have had to turn to other investments to fund the cost.

“At least they’re diversifying off the farm, so if the farm does not have a good year, they have alternative incomes, or alternate assets that they can sell down to help fund education,” Hagley said.

“It’s such a costly exercise, and if succession has not gone through yet, if the grandparents are still living on the farm and the farm might not be handed over, the [children’s parents] are looking at it and asking how are we going to fund [education] if the farm is not going to pay for it?”

Jupp said his practice had its hands full dealing with clients who having seen their funds drop during the financial crisis, desperately wanted reassurance that their long-term plans were still viable.

“This, in a lot of cases, is the first time they’ve seen such a big drop in their investments, and working with them and counselling them as to the big picture [is an issue].

“The main focus that we have ... is on working back to their objectives and looking forward to see that they’re going to have longevity and be able to meet their lifestyle needs over the long term.”

Despite the negative effects of the financial crisis, Griffin maintained that people have remained positive.

“We’ve had a very, very good outcome with what’s gone on. Our clients were incredibly well prepared for it, both in terms of our communication to them and their portfolio construction. Clients are incredibly positive about that, and that’s resulting in more client work.”