There seems to be a new article in the papers almost every day about several large financial institutions (from each end of the spectrum) and their "Wealth Management" arms. It’s enough to make some clients worried as stories emerge of conflicted advice recommending in house products, poor strategic advice that didn’t take into account needs of the client and some plane old dishonest and shonky advisers. Throw in an entrenched "sales and performance" culture within the banks and a regulator who ignored warnings from ethical advisers and now everyone is surprised that there have been problems.

Problem 1

Many advisers have been highlighting the dangers of “Vertical Integration” for some time. In a clear sales relationship, it isn’t really a problem, as both the buyer and the seller understand where they stand. It does become a significant conflict of interest however, when this relationship is not clear. It is unlikely that a CBA adviser is going to recommend a Westpac (BT) fund or that a Macquarie adviser isn’t going to use a "Silver Donut". Do clients really expect that they will be told by their bank not to invest in the in-house funds, but rather to pay off their home loan or maybe use direct shares or an ETF?

So this is the first problem – the FUND MANAGER (product supplier) is in control of the DISTRIBUTION which is sometimes dressed up as advice.

Problem 2

The minimum standards required for being 'authorised' to give advice are far too low. When specific qualifications were introduced with Financial Services reforms back in 2002, Deakin Uni (in conjunction with the FPA) were the primary education provider. A few years later there was political lobbying to allow other 'training providers' to provide courses in the interest of competition etc. Well guess what has happened? Short courses have sprung up everywhere as a great money spinner while also allowing institutions can get sales staff 'qualified' to give advice. And yes – many are now open book.

There is no way that a brief RG146 course deals with issues in enough depth. An adviser with basic qualifications may be able to give general information or deal with very simple issues, but it is highly unlikely that complex strategic advice will be within their capabilities. Of course, sometimes people don’t know what they don’t know. Which may suit some large institutions…

Problem 3

At present, the term Financial Planner or Financial Adviser is not protected under legislation so anyone can call themselves one. You can’t however, give 'advice' but this is how all the shonky spruikers get around it. Disclaimers. Oh no, THEY are not giving advice! (Just read the fine print.) They are just showing you how you can buy on overpriced house with a poor return by using your super and borrowed funds….

So what can a client do and how do you tell the difference?

Just as there is a difference in education, skills and experience between someone who has done a short ITP tax course and an Accountant who is CA or CPA, there are exactly the same differences in the Financial Planning space. Did you know that:

• There are about 18 000 "Authorised Reps" who may advertise as a Financial Planner.
• There are about 5 500 who are qualified as Certified Financial Planners (CFP) so this is about 30%. That is a good start.
• Between 80% and 90% of all Advice Practices are licensed through the Banks (and AMP).

While I am sure that there are many experienced, ethical and educated advisers working for these institutions, many clients are surprised when they learn that only 10% to 20% of Financial Planning businesses are independently owned. Yet, many clients want this. Would you feel comfortable seeing a doctor that was owned by a pharmaceutical company?

Blowing our own Trumpet?

Yes – we are one of the 30% who are CFP qualified, but also one of the 10% to 20% with no institutional ownership.

There are many challenges in running a boutique business in this space.
We value our independence – and so do most of our clients. If you have a friend or associate who may also value what we value, please pass on our details. We would be happy to meet for a chat.

And if you do have concerns about the recent newspaper articles, please email me and I will discuss it with you directly.

Regards
Brett Dillon