Voices Of Experience: Advice Legends Tell Their Stories

Ultimately we are on the right path. The improvement in quality, the move to professionalism, the rise of the independent movement as the industry forms around the new structures that are going to suit the conditions and the community expectations.

The below article is a two part series published on professionalplanner.com.au 29 Nov 2019 and 2 Dec 2019. 

The series shares the voices of “advice legends” who have built businesses, who have lived through market crashes and recoveries, and who have the context of history to guide them into the future at a time when such wisdom has never been so valuable.

Voices of experience and measure can often be drowned out by the day to day noise of product announcements and market prognostications so Professional Planner has asked a handful of individuals who have a wealth of knowledge in the advice industry to speak up about where we have come from and where things are heading.

This publication aims to encourage others with a wealth of knowledge and experience to share their stories in the hope these lessons will be written into the next chapter and not relegated to the past.

While those who lived through the formidable stages of this evolution will say that necessary changes were delayed too long, it’s the culmination of their experiences that got the industry to where it is today.

LAURA MENSCHIK

Current: WLM Financial Planning, director/adviser

Previously: FPA board member

Known for: Founding member of the Financial Planning Association, 1987

PP: ARE WE ON THE RIGHT PATH?

LM: I think pushing towards degree qualified candidates coming through their tertiary studies is a good thing because things are centred on having the appropriate education standards. It doesn’t mean that just because you have done the DFP equivalent in universities that you can be a planner, it just means you know the basics of economics and insurance, super and estate planning. It just means that for those who want to embrace it as a career path, it gives them a good grounding.

I think more and more of an effort is being put in by the FPA to understand what financial planning is and I think the hardest thing to get across is that it’s not just investment advice. Financial planners are much more than people who just tell you whether to buy BHP or CBA shares. Questions around income, growth, risk and return – all of the things we are now disciplined to inquire about.

PP: WHAT WOULD YOU CHANGE IF YOU COULD?

LM: The royal commission should have come sooner. If it did we would already be further on the way to gaining peoples’ trust and respect.

I think the other thing is people sometimes forget the past or they haven’t lived through it and a lot of the younger financial planners who are very bright, and very good and very contentious haven’t been through a GFC, they just don’t know what it’s like – day after day people coming in and saying ‘what happened to my savings’. I think there will be a great challenge when the next recession hits, which we’re really due for. I’m not saying it’s going to be as long and as deep as the GFC but it’s going to knock a lot of people around, and if advisers haven’t prepared their clients and their business for what could unfold then they’re in for a rude awakening, and I have seen that unfold before. So I think dealing with clients when portfolio values went down is always something we can be better at if that situation comes around.

BARRY LAMBERT

Current: Chairman of Ecofibre; investor, Ignition Wealth

Previously: CEO, Count Financial

Known for: Selling Count to CBA for $373 million; rich lister

PP: ARE WE ON THE RIGHT PATH?

BL: There’s no other path you can go down now, you can’t turn back the clock. It’s inevitable we’re heading towards professionalism more and more. I think something a lot of people are missing in all this is the industry needs to become more efficient. It’s one thing to charge fees – price is one thing but value is something different. If you are inefficient, have high overheads, spend a lot of time still prospecting you might say, then maybe the value for clients is still not what it should be. Professionalism might be a step in the right direction, but practices and advisers need to become a lot more efficient. Particularly for smaller investors. For young people the first thing they really need to do is learn how to save. You can’t help these clients if you have an inefficient business.

PP: WHAT WOULD YOU CHANGE IF YOU COULD?

BL: At the time when I started out you had life agents, friendly society salesmen and that was about the extent of it. I took the view then I thought advice should be given by professionals, not sales people. That’s why I started an accounting-based group. The royal commission all those years later discussed a similar thing – that advice shouldn’t be a commissions-based industry. We would cap our fees and accept a commission – that is we would dial down the commission to equal the fee or get rebated because that’s what was built into the system and of course trailing commissions came along as well. We weren’t big enough to change the system; you could only really change that from the outside – either a government or a royal commission. The only way you could compete with the others back then is if you charged on the basis of what people understood and what was normal you might say. People don’t like being charged large fees to be told to put money in a cash management account, which was of course the correct thing to do back then when inflation was 10 per cent and cash was paying up around 18 per cent. Unless you change from the outside it was impossible for one person to change from the inside because you wouldn’t have got any business. The AMPs and others would say ‘come to us and we won’t charge you anything.’

RAY MILES

Current: Founder and director, Fortnum Private Wealth

Previously: Associated Planners, Genesys Wealth

Known for: Straight talker; responsible for growing Genesys to its halcyon days.

PP: ARE WE ON THE RIGHT PATH?

RM: Absolutely, I think we’re on the right path. We’re moving towards a conflict free advice environment where the client can go into a practice and know their best interests are being looked after. If you truly want to be a professional financial adviser you can’t have conflicts; you’ve just got to be paid by the client, that’s all. We haven’t been on that path for 30 years and we’re on it now and that’s a great step.

The other part is this education bit; I don’t think as an industry we can call ourselves a profession unless you’ve got professional qualifications for people giving advice.

I just hope that people don’t find ways around this path we’re on like they have in the past. There’s a lot of talk about section 923a of the Corps’ Act. They’ve got to fiddle around the edges with it because there are some anomalies, but watering it down does not make any sense.

PP: WHAT WOULD YOU CHANGE IF YOU COULD?

RM: We got everything wrong in my view. We did, we got it all wrong. There were some good things that the industry did, and by and large most advisers set out to do the right thing by their clients.

We got that bit right. But boy oh boy, all those compromises. We’ve got to make sure that the self-interested parties don’t have a say this time.

If you’re not speaking in the interests of the client and the profession then you should keep your mouth shut.

I’d also change the greed. The industry has been filled with a lot of people trying to make a lot of money and not delivering a lot of value. There’s a lot of people on big salaries in some of these institutions that have generally stuffed up those institutions.

The one lesson we’ve got to remember is that you’ll eventually get found out if you do the wrong thing. This is an industry where people save up their whole life and then they go to an adviser and they expect the adviser to do the right thing by them.

We need to get to a genuine advice environment where the client’s first and everyone uses their buying power to drive down the prices on the underlying platforms so we can deliver some really high-quality advice at a decent price to consumers.

DAVE BROWN

Current: Stanford Brown founder and chairman

Previously: Senior life insurance adviser

Known for: Launching Stanford Brown the week of the 1987 Black Friday market crash

PP: ARE WE ON THE RIGHT PATH?

DB: I’d say we are, unreservedly. I can see the industry contracting for a while but then coming back much stronger. Everyone’s been coming to work in this industry for some time now with a significant unknown. That’s difficult, and frustrating, but I think we’re finally starting to see what the industry will look like in the future.

Many will leave the industry leading up to the education end date but keep in mind that everything is cyclical. I remember when I was working in National Mutual, which is AXA, with about 55 people on the floor. After 12 to 18 months I would estimate that five to eight of us were left due to changes to superannuation remuneration. We’ve seen it all before, it works in cycles. You’ve just got to weather the storm, because as much carnage as there was in the industry back then the opportunities were tremendous.

On the insurance side, reinvention will take place but we need to find more customised products that can be priced appropriately. We need a stronger product range that can adequately meet the needs of the clients.

We’ve also got to educate the market on why good advice is worth paying for. If you go to see a good lawyer or accountant it typically costs $600 to $1000 an hour, and I’m not sure whether we’ve convinced the marketplace that highly competent financial advisers are worth that as well. We’ve got a bit of work to do.

PP: WHAT WOULD YOU CHANGE IF YOU COULD?

DB: Sadly, our profession has failed – both individually and collectively – to provide leadership. And consequently the task of fixing it has been taken away from us.

We’ve all had self interest in mind. We’ve had an industry that we’re trying to turn into a profession, and by profession I mean that the client out there in the marketplace perceives us as trustworthy, competent, efficient and great to do business with. In large part it would be naive of any of us to think that many businesses don’t already deliver that – there are many that do. But the end game is to have that as the benchmark.

There’s been a fair deal of shake up, and every person in this industry needs to take ownership of where we are and where we’re going. If that’s the case we’ll have a really impressive profession in the long term, but there’s still mountains to climb.

JIM PRITCHITT

Current: Founder and Mentor at Pritchitt Partners

Previously: Founder, Corporate Communications

Known for: Long-time Australian financial services PR guru

PP: ARE WE ON THE RIGHT PATH?

JP: I think the industry is probably on the right path now, but it seems to me it took far too long to recognise what the right path was. In some ways I’d say it’s only just getting started along the right way.

I remember in ’91, advice had terrific rewards and incentives and there were no questions about income arrangements or criticisms of those income arrangements. Then questions about remuneration and conflicts started to be raised. The last few years would have been difficult in any circumstances, but with the industry fighting change and reforms there has been more and more bad behaviour being exposed, and those shock horror stories probably aren’t over yet.

There is a considerable amount of lobbying being done now to water down reforms, which in some respects is understandable, but does the damage to reputation and trust outweigh the benefits of extending income a bit longer? That’s the overriding question. I understand why these rear-guard actions are being fought – people are trying to retain their income and their business value – but in the process are they doing irreparable damage to themselves, the industry and the clients?

PP: WHAT WOULD YOU CHANGE OF YOU COULD?

JP: What I would change in the industry is for the stakeholders to have gotten on the front foot years earlier.

There seems to be two indisputable facts that even critics of financial planning would agree on; financial planning has never been more needed and financial planners can make a real difference in wealth accumulation and management. That should be the key message the industry is getting across, along with evidence of good wealth management and explanations about the transparency of remuneration and the value advisers deliver.

Advisers have got to get across their worth and not argue about professional standards and what’s required and how many units they should have to do. Planners need to stand up and say: this is what we cost and this is what you get. It’s pretty straightforward really, but if you’ve got all this noise about education and grandfathering and conflicts it muddies the waters quite a lot from a consumer perspective.

STEVE TUCKER

Current: Chairman of Koda Capital

Previously: CEO, MLC

Known for: Founding father of the holistic advice movement

PP: ARE WE ON THE RIGHT PATH?

ST: Ultimately we are on the right path. The improvement in quality, the move to professionalism, the rise of the independent movement as the industry forms around the new structures that are going to suit the conditions and the community expectations. We have been talking about the push towards professionalism for 15 years and it’s taken a long time and it’s been hampered by certain groups wanting to cling to structures of the past and not recognising that to ultimately achieve professionalism we needed to tackle some of the structural issues around vertical integration which was holding the industry back. Those key things I think will define a profession: quality, independence, education standards, the formation of professional standards groups – those things are under way.

I don’t think you can manage conflicts anymore, you have to eliminate them. How long it takes to unravel 30 years of structures is the challenge. It’s not as if the industry haven’t been on notice for a decade or so. In the absence of some leadership and sensible reform, the conflicts still remain. And whilst they remain and while there is still some challenge around what is primary in our industry; is it primary we give advice? Or is it primary that advice leads to an outcome like a product?

My view is the next few years has to be about the primacy of advice where the product is irrelevant to the advice outcome and I don’t think we are there yet. I don’t think you can be both things, you either need to be an advice business or a product supplier. Ultimately there are those who think you can manage those things side by side; I don’t think the regulator will decide from those businesses, I think the consumer will.

PP: WHAT WOULD YOU CHANGE IF YOU COULD?

ST: One of the things the industry struggled with going back 10 years ago when we started talking about separating product and advice was people couldn’t work out how advice could stand on its own two feet from an economic point of view, there was always an attraction back to the subsidy of product outcomes subsiding advice and I don’t think the industry accepted the subsidy was wrong early enough. If we could have just accepted vertical integration is an issue and that it does create bad outcomes sometimes, then it would have been attacked with more vigour. Most of the time the industry spent explaining why vertical integration was a good thing.

 

Read more at professionalplanner.com.au (part I and part II)