Share trading, financial planning – an uneasy duo

With the Telstra II share offer just around the corner, it is worth contemplating the uneasy relationship between share trading and financial planning.

Even in the two years since the first tranche of Telstra shares was unleashed on the market, there has been a noticeable shift in the attitude of financial planners to direct share trading.

It is not hard to see why this change has come about. Nearly half of all Australians are now shareholders, and the proportion is higher among the rich which are the bread and butter for advisers. Not only have some of the large public floats of the past five years been popular, they have also been extremely lucrative. So there is an appetite among retail investors for more and one of the first point of call is advisers.

And not only is there a swelling demand for advice on shares, but financial planners are gaining unprecedented access to shares. Third party clearing has opened up the way for cheaper share transacting and the boom in Internet broking has made transacting much easier for advisers.

Some advisers are also looking to shares as a way to add value to clients; as a reason to give a client a call and remind them that you still exist. Planners looking to take a wholistic approach to financial planning argue it is important planners offer advice on the full gamut of financial services, whether that is home loans, risk insurance or stock broking.

As a part of the strategy, some advisers are hooking up with stock brokers to offer clients privileged access to some of the hottest floats. In fact, the Financial Planning Association bought a huge parcel of Telstra shares for members when the first tranche was offered for this very reason.

But share trading is not without its detractors. This paper was openly critical of the FPA's foray into share trading when Telstra shares listed. We have since softened our view, but a number of the industry's brightest continue to hold definite views on the subject.

They argue advisers should stay well clear of share trading because they do not add any value to a client's long-term investment plans. In many ways, the critics are right. It takes a long time to research stocks before recommending them to particular clients. Most advisers do not have the time or expertise to ascertain this expertise. Financial planners should not try to be all things to all people but should concentrate on what they do best and outsource the rest. At the same time, they must be the point of contact for the client to ensure the relationship remains with them.

Another argument often cited is the focus for planners must look at the long-term financial ambitions of the client. The stock broking industry is renowned for a short to medium term outlook where the focus is on transactions; precisely the tag financial planners are trying to lose.

It appears the industry will remain divided on the issue for some time to come.

We have to make sure our reasons for entering into stock broking are for our clients long- term lifestyle ambitions rather than another spike on Telstra shares.