Right on the money

Without a doubt, the introduction of the Financial Services Reform Act (FSRA) on March 11 was a watershed for the industry. In our initial ‘Business Blueprint’, Bridges chief executive Chris Wren predicted that two of the key issues in financial planning this year would be transitioning to FSR — “there will be issues for groups not transitioning in time, fallout for those which don’t transition, existing planners adapting quickly and regulatory follow-up” — as well as “increased scrutiny by regulators and increased noise from interest groups. There will be heightened focus on disclosure and transparency, and soft dollar arrangements, as well as increased on-site audits validating compliance with FSR”.

Wren’s predictions were straight out of the crystal ball, with the Australian Securities and Investments Commission (ASIC) ramping up its audit activities both in metropolitan and specifically regional and rural areas, and the Financial Planning Association (FPA) and the Investment and Financial Services Association (IFSA) releasing guidelines on disclosure, soft dollar commissions and conflicts of interest. With the soft dollar code and its accompanying register to come into effect on January 1, 2005, it is just one example of how these issues will continue to garner attention into the new year.

Related to these is the issue of consumer confidence in the industry — with many of our experts predicting it was a crucial year for restoring faith in the profession.

AXA Australia general manager financial advice network Andrew Waddell believes there has been positive progress on this front during the year, with benefits to the consumer flowing on from the implementation of FSR.

“There are signs the public are becoming more confident about the value that can be provided by quality advisers. The challenge ahead will be to maintain this momentum,” Waddell says.

Macquarie Funds Management head of retail Bruce Murphy believes that the bull market has also contributed to more faith in financial planners.

“This positive sentiment ‘free kick’ comes with the emerging challenge of managing investor return expectations carefully going forward. The industry has also become much more transparent and worked well with the regulators to get on a sounder footing,” Murphy says.

However, in terms of ensuring consumers understand the value of financial planning, flagged as an important hurdle by Waddell, Murphy and Brillient! director and publisher Graham Rich at the beginning of the year, there is still more work to do.

“I still do not believe that financial planning has established its value proposition strongly with consumers. The introduction of super choice is a one-off ‘make it or break it’ opportunity for planners to highlight the value they can add,” Murphy says.

An increased focus on quality advice and improved client relations has been apparent during 2004, according to Waddell, coupled with a renewed interest in practice management.

“The leading dealer groups are providing a broad range of practice and client management training and resources. They have also set new performance standards for financial planning practices. This is a result of dealer groups wanting to improve the overall quality of their advice networks,” Waddell says.

Strategic Consulting and Training’s Jim Stackpool forecasted this resurgence of interest in practice management once the compliance headache of FSRA had subsided, and it seems this has come to pass with practice managers hotly pursued by recruiters and business development managers expanding their roles to focus more on helping advisers to build their businesses.

The year has even seen the emergence of a new ‘in-demand’ role — the chief client officer, who oversees and manages the various levels and types of advice the client receives.

In terms of the barriers to growth for planning businesses, our experts predicted that some of the big problems would be compliance, consumers turning to do-it-yourself investing, the continuing poor perception of planners, and adequate practice industrialisation and succession planning arrangements.

True to the prediction, the compliance burden imposed by FSR, particularly in the form of statements of advice, has had a marked impact on practice productivity during 2004. And in recent weeks it has been flagged by ASIC executive director of financial services regulation Ian Johnston as an area that will be revisited to find a workable solution for both consumers and the industry.

On the question of taking financial planning from a ‘cottage industry’ to a more robust industrialised approach, Murphy stands by his earlier views.

“I was on the money with the need for a much stronger industry image. People need advice and the industry needs to be able to offer it more cost-effectively to investors with smaller amounts.”

Recent research by Business Health on succession planning also shows that planners still aren’t doing enough to secure their future and that of their practice. The research found that one in two planning principals said they do not plan to be in business in five years time, yet only one in 10 had an agreed and documented plan to address the situation — ensuring this will be an issue far beyond 2004.