I am not sure that Financial Planning has become a profession yet, but we are certainly on our way there. Part of being a profession is to believe and act as if we are in a profession, in all aspects and with all parties in the chain – advisors, product suppliers, regulators and consumers.
In a profession, there must be rules. These have been addressed largely through regulatory requirements that have raised standards for financial advisors over the last six years. This is good and certainly a step in the right direction.
We find that increasingly more is being said about running businesses, and that businesses should be run according to best business practices; entrenching this way of operating helps to professionalise the industry.
But there is always more we can do. I think there needs to be a lot more education and awareness amongst consumers of the importance and the benefits of advice. When they believe that they are dealing with professionals, they will recognise the value and professionalism provided. I believe the FSB’s TCF initiative will make all parties in the customer value chain think about what they’re offering and how they’re providing this. This will lead to better deals for consumers and improve the (professional) image of the players in the market. Schemes that promise high returns and ignore the associated risks detract from the confidence consumers have in financial advisors.
In terms of the financial planning landscape as we go forward, I see increasing challenges facing the industry, with value and costs as two of the big ones. They are essentially the flip sides of the same coin. Value will be driven by the need to provide more to consumers, either because they demand more or because the market is more competitive, or because regulation (through initiatives like TCF) is driving it that way. Providing more value often has financial or cost impacts, like having to trade-off cost and value. To increase value, there needs to be a drop in costs, and therefore margins. These challenges will face not only product suppliers, but everyone in the chain and therefore run through to financial advisors.
Under the new COI regulations, I see bank assurance models being faced with real decisions as to what product solutions they market and how they market these to customers.
For product suppliers, tied agency forces are an important route to market over which they can exercise control. Therefore, I believe that tied agents will have a place in the future of financial advice. We are already seeing the battle for distribution heating up, with product suppliers buying up independent advisor businesses. For advisors, the tied proposition can be attractive if they want to work in a managed environment. However, given conflicts of interest and the battle for distribution, the rules within the tied forces may well have to change.
In the independent space, if brokers can deal with the challenges facing them, they will survive and do well. There has been some consolidation in other parts of the world, with smaller brokerages merging to try to reduce or manage costs. But independent advisors are resilient and comparisons with overseas markets (especially the UK and Australia) show that with the right support though, small independent advisor businesses survive. It is exactly with this in mind that Masthead was set up six years ago. The need for that support therefore paves the way for advisor networks like Masthead. But, advisor networks also provide product suppliers with options to meet the challenges they face, as long as they are open to challenging their traditional thinking of how they get to market.