15 December 2016

The year 2016 may be looked back upon as the year in which the foundations for a financial planning profession were finally put in place. Two events in particular stood out: the passage of the Life Insurance Framework (LIF) legislation through Federal Parliament, and the introduction of professional standards legislation in the lower house.

Taken together, and in the wake of the Future of Financial Advice (FoFA) laws passed earlier, these pieces of legislation bring the risk industry more closely in line with the broader planning profession, and raise the bar on education, professional and ethical standards right across the industry.

It’s true what many in the industry say, that you cannot legislate a profession into existence, but the changes that have taken place and those coming in the next couple of years will go a long way towards establishing public trust and confidence – a prerequisite for any profession.

Change is rarely smooth, however, and there are inevitably winners and losers. In this case, it seems clear the winners will be those financial planners who willingly embrace the changes and the opportunities they present, and view them as something more than just a compliance exercise or an unwelcome intrusion of regulation.

The losers will be those who will not or cannot adapt to change.

New legislation isn’t the only thing that drives the evolution of a profession. Another clear theme emerging from the experts Professional Planner invited to contribute their views to this end-of-year round-up is changing consumer preferences.

Perhaps it’s a hangover from the global financial crisis, perhaps it’s a reaction to ongoing advice scandals, but consumers appear to be starting to express a clear preference for advice as a professional service, separate from and not influenced by product. How quickly advice networks respond to these changing preferences will largely determine how successful those businesses will be, at least in the short term.

Here, the experts give Professional Planner their big-picture review of the events that shaped the profession in 2016. Early in the new year, we’ll publish the same line-up’s thoughts on what the greatest influences on the profession during 2017 are expected to be.

The association

Dante De Gori, chief executive, Financial Planning Association (FPA)

2016 has been an interesting year to say the least. With upsets in sport and in politics, there has been much to make each of us question whether all is right with the world.

Yet for many financial planners, it has been a big year. The FPA is very much aware of the disruption and change we all face; however, there is also great optimism in the profession.

Specifically, 2016 further reinforced that technology will deliver efficiencies and access to advice, professional standards and education legislation will improve our standing in the community, superannuation changes have created a greater need for financial advice, a Life Insurance Framework will reduce the perception of conflicts, and ASIC’s long-awaited approval of the FPA Professional Ongoing Fees Code will provide FPA members with an alternative to the draconian opt-in laws.

It has indeed been an interesting year!

The non-aligned licensee

Joel Taylor, managing director, Fortnum Financial Advisers

2016 was the first post-FoFA year when financial planning practices’ stated intentions matched their behaviours, driving many conversations with advisers from across the landscape regarding switching licensees.

It’s also the first year when a reasonably well-funded regulator emerged and stamped its authority, increasing its surveillance and intervention programs.

From Fortnum’s perspective, 2016 was a year of transformation. We looked at the financial planning market and realised at least 90 per cent of advice frameworks are engineered and/or owned by product manufacturers; there is still a strong agenda for product distribution lurking just beneath the surface of a client conversation.

We realised if we wanted to lead the advice market we had to have an advice framework that puts the client first. The result was a professional advice framework built on three pillars: professional principles; professional process; and professional judgement. We’ve set about negotiating lower product fees on platforms for clients to back-end our framework and re-engineered our business model for the future. It’s FoFA-proof and client-centric, which has led to us attracting top-quality advice firms this year.

The business owner

James Wortley, principal, Enlightened Financial Solutions

Finalist, 2016 FPA Professional Practice of the year

It’s that time of year again, when we all ponder and reflect on another busy year. From a financial adviser’s perspective, it’s a relief that we finally have some certainty in regards to the new superannuation rules the government has legislated in the last month. Uncertainty regarding those changes since the May budget announcement has made 2016 one of the more difficult years for providing financial advice to our clients. A key development in our business has been the recent switch to no commissions on insurance.

More than 12 months later, it has been one of the best decisions we have made since moving away from platform rebates three years earlier. Our business now runs on a pure fee-for-service model. There has been minimal change to our upfront revenue, referral partners are more committed to providing referrals and, more importantly, clients are saving more than 30 per cent on their insurance premiums each year.

The fund manager

Brett Lewthwaite, regional head, Macquarie Investment Management

What a remarkable year 2016 has proven to be! Most of us are looking forward to a break over the festive season. The year started with volatility, driven by a steep decline in commodity prices relating to growth concerns in China. This, in turn, affected the outlook for the global economy, including credit and equity markets. And, of course, 2016 will be remembered as the year when populism became a market theme with the surprise results of Brexit and the election of Donald Trump as US president.

Looking back on investment markets this year, we think the theme of containment endured; central banks continued to provide extraordinary support to counter any stress in financial markets or economies – even increasing their efforts. In this environment, where interest rates have been low, we have seen investors forced to continue the chase for yield.

The market environment of 2016 offered investors both opportunities and cause for concern, making communication with clients essential. Cognisant of this, we have pursued a balanced position in our portfolios, enabling us to participate in the market’s continued move higher, while remaining true to our philosophy of capital preservation and a strong liquidity focus.

The independent licensee

Paul Heath, chief executive, Koda Capital

Across the globe in 2016, the voting public comprehensively rejected ‘business as usual’. Brexit, Donald Trump’s election win, European referenda and, to a lesser extent, the Australian election, all signposted a lurch away from the establishment and its institutions that are perceived as unresponsive and self-serving.

Signs of similar pressure created by shifting consumer demand appeared throughout the Australian wealth management industry. A series of scandals has combined with unsustainable industry economics to trigger a number of commercial and investment banks divesting all or part of their wealth businesses and changing their adviser compensation models. The pressure for even more fundamental change is evidenced by continuing calls for a royal commission and increased regulatory oversight, and a rising chorus against the ethics of the vertically integrated wealth model.

It certainly isn’t business as usual.

Whilst the public policy debate has drawn the most attention so far, without a doubt 2016 was the year when clients – the real consumers of wealth management – also voted with their feet against business as usual and began looking for alternatives.

The adviser

Tony Sandercock, owner and financial adviser, wetalkmoney

2016 FPA CFP Professional of the Year

I pay little attention to things I can’t control, like royal commissions, robo-advice and the Life Insurance Framework. Something that has grabbed my attention in 2016, though, is that more and more advisers are attempting to break the nexus between product and remuneration. Whilst not everyone will meet the strictest definition of independence as outlined by ASIC, or may only be part way along the journey, it seems to me that more advisers are making that transition than ever before.

Conflicts of interest exist because they work; a reduction in them will mean better outcomes for clients and is a step forward for next-generation advice. I have noticed more and more people I talk to want to break the nexus between product and remuneration. It’s coming from advisers – probably in response to consumers’ queries – saying, ‘If I walked in my clients’ moccasins for a mile, what would I look for?’ That’s been happening for a while but in the past 12 months there’s been more and more. There has been a change in clients’ expectations. I’ve had a couple of examples in the last couple of weeks of clients leaving advisers. One of these clients said, ‘I’ve been with my adviser for 20 years, but in the end, I don’t believe anymore that his organisation will deliver what’s best for me, and I’m just not getting the advice I want.’

The institutional licensee

Michael Guggenheimer, managing director, AMP Financial Planning

Over the past 12 months, the industry has been working hard to re-build trust and confidence in financial advice, amid a period of market scrutiny.

One of the key parts to re-building trust is increasing the professionalism of our industry. To do this, we recognise the need to invest in further education so advisers are appropriately qualified, much like lawyers and accountants.

While it can be difficult for advisers, who are running their own small business, to take the additional time to complete further study, it’s a step that many are ready and willing to take to ensure financial advice is recognised as a quality profession by more Australians.

More broadly, proposed changes to superannuation in 2016 were top of mind for many Australians. Combined with ongoing market volatility, many customers were working more closely with their financial adviser than ever before to understand the implications for their financial position and retirement. It showed the important role financial advisers have in guiding and supporting their customers through periods of uncertainty.

 

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