US FPA says financial planning’s future remains uncertain

Nearly 2500 people from the financial planning community from around the world descended on Denver for the US FPA conference. It covered almost 5 days of education, networking, recognition and socializing. The big question for Australians attending and there were around 30  of them was are the current issues being faced in Australia as financial planning reinvents itself also being faced in other countries and regions of the world. And if the answer is yes then what are the parallels and what can be learned from what is happening in the US and around the globe.

Well the answer is yes – around the financial planning world most if not all regions are facing similar issues albeit they may be further advanced or behind on the journey. In the US it is the big question of planners operating as a fiduciary which sounds very similar to Australia and the one of the recommendations from the FOFA proposals. The only difference is that in Australia we are not sure how to define what fiduciary will mean to clients and planners while in the US they seem to know this but are very concerned about the potential liability to the planner from working in a fiduciary capacity. Could have something to do with the litigious environment that exists in US.

The other topic that is clearly on the agenda for all countries is what to do with commissions.   The position taken by Australia to ban commissions on wealth and investment products lead by the FPA and FSC has positioned us strongly in the eyes of the rest of the world. There was great interest as to how we are making the transition and the potential effect on planners. The fear in other jurisdictions is that planners will see their economic business model flounder and this will lead to a strong reduction in planner numbers at a time when the need for advice will grow strongly. The strange point of this view is that it hasn’t been the experience where planning groups have made transition to a fee based business. The fear is alive and well however around the world.

And what of the mood of the planners at the event – it was only 2 years ago in Boston at the same event that planners watched the Dow plunge below 10000 points and the whole system teeter on collapsing fueled by the likes of some big names like Lehman Bros. Well their mood hasn’t completely recovered and some nervousness remains. They are clearly looking for more certainty in the US economy and equity market and would look to attend any workshop at the event that may give them that hope.

How do Aussie planners compare to their US colleagues. Well clearly there are some very good planners in US and the same can be said about Australian planners. Do American consumers get better quality advice that Australians. I don’t think so – if anything one gets the feeling that there is more consistency in the planning model in Australia simply by the fact we do not have the plethora of advice models that exist in US ( broker dealers,wire houses, IRA, IFA, life agents etc etc) which have the ability to confuse the consumer as to the breadth and quality of advice being provided.

At conferences like this there are always a few quotable quotes – Denver 2010 is no exception.

• goal is for FPA members to thrive not just survive in a fiduciary environment.
• there is a difference between being trustworthy and being trusted.
• hurricanes are now caused by people and the credit crisis was an act of god.
• the issue for clients is not risk tolerance it is loss tolerance.
• some consumers hire planners to take the risk out of planning which they cannot do.
• planners must prepare clients financially for the certainty of uncertainty.
• need to prepare clients for uncertainty not getting them to buy what is emotionally easy for them to buy.
• overtime investments work better than Investors.
• through the eyes of the client the financial planner must be a leader.
• may not know the question but the answer is of course you need to be a fiduciary.

What is clear is the passion for financial planning to be recognized as a profession around the world – for planning to be recognized and regulated as a profession. The journey has started and how fast we arrive at the destination will be determined how quickly reform and change is embraced by industry participants.  We will get there – hopefully sooner rather than latter.