There is indeed passion within the LICG. We must not doubt that. We in fact should not deride it. Passion in times like this is critical. Even when, however, it is misdirected. The current arguments of the challenge to the rights of advisers, the failure of leadership of industry bodies to represent their constituents and the challenge to leadership of those very same bodies is an all too familiar story throughout history. It is a shame that we as a collective, as an industry, as a species do not learn histories lessons well

You see this type of rhetoric is characteristic of any period of change. It is actually natural when the status quo is challenged. It reminds me all too well of another time in history. 1964. Specifically the United States Civil Rights Act of 1964.

After Kennedy’s assassination, President Johnson sought to maintain the promise and pass legislation that would see the passing of a bill that outlawed discrimination based on race, color, religion, sex, or national origin. At that time the most fervent opponents were 18 “Dixiecrat” senators from the South, who labelled the legislation “unconstitutional, unnecessary, unwise and extend beyond the realm of reason”. This opposing block sought to break the legislation by blocking it “filibustering” it, over weeks, including an address by Senator Robert Byrd of some 14 hours. The bill ultimately passed, and never in history had the Senate been able to muster enough votes to cut off a filibuster on a civil rights bill.

Why fight it so hard? The world had changed. The South good ole boys, Jim Crow way of doing things was something they wanted to protect.

While the core topic is remarkably different, the similarities in process are the same. Something is changing and needs to. A group protecting its interests does not want to change and is clothing that in democracy and the rights of consumers. Leadership is questioned and challenged. But as President Johnson pondered in 1964, “A president’s hardest task is not to do what is right, but to know what is right.”

So in the current argument what is right? As Tom Reddacliff wrote on 2 September[1] “advisers can focus that energy on a business model that will have less reliance on legislation and life insurers in the long run, and jump on board the first glimmers we’re seeing of product and technology change from life insurers and the underlying advice processes”. Ian Knox challenged us[2] “The whole planning industry is on the right wave at the moment and arguing about the need for a longboard isn’t what’s needed in the world championships”. And our industry bodies are on the abyss of losing it all, “The association would lose years of hard earned respect and relevance”.[3] And someone we have not heard from for a while wrote back in February 2016 “I know you are battle weary.  Your livelihoods and business model and retirement plans and careers have been challenged and shaken and in some cases ended.  It has been awful.  I get it.  But it is now, in this moment as the legislation hits parliament that you need to say “enough now”.  And look deep into your business and shift it.  Do it for you, your families and your clients.”[4]

The answer is not to destroy the establishment. The answer is not to fracture the advice community. The answer is to hold the ship steady whilst charting a new positive course. That’s action, that’s in the best interests of consumers, and with a strong and intact association we as a collective can shape the change for real benefits for consumers by leveraging that position of power to shape the agenda of the insurance and advice industry starting with the product providers who in fact are the groups with the potential and motive to create efficiency, product simplicity and advice engagement. They will not do this from a status quo position. There is simply no motive or reason for them to do so under the conditions where a fractured association with no power and a one policy agenda team is the landscape they find themselves delivered post 15^th September.

So it is vital that AFA members vote in this election. Voting is done on-line this year and you should receive E-Voting instructions via email from the AFA. Voting is reported to close at 4pm Thursday 15th of September.

Now is not the time to leave it to others to determine the outcome. You have the power in your opinion and if you have an opinion, vote, and unlike other legislative changes this industry has faced where advisers had not even read the legislation this is an issue where you should have an opinion.

Now is not the time for apathy. The US faces an abyss themselves right now.

“Donald Trump may dominate television and social media in the United States, but he’s not exactly crushing the electorate. Really, no one is. In the 26 states that have held primary and caucus elections for both parties, Republicans have cast 20 million votes, and Democrats have cast 15.1 million. But there’s a third force that has once again dwarfed both of these numbers: the great American tradition of disinterest and apathy.”

Right now, at this moment in the advice landscape, we do not need a Donald Trump Presidency. We do not need apathy. We do not need to build a wall between advisers and consumers. With only 1 in 5 Australians engaged in the advice process there is enough of a wall already. With disruptors moving into our space it is the time to be relevant and progressive and not the time to cling to processes of the past.

We need a multidimensional leadership team, such as the one currently in place. We need strong relationships with legislators at all levels, on all sides of politics and with product providers.

We need to change to evolve and grow and to be relevant to todays and tomorrow consumers.

As we stare into the abyss, we need your vote, we need your positive voices and we need you to do what is right. After all without that, what is the point?

By Ross Johnston

———-

[1] http://www.financialobserver.com.au/articles/opinion-accept-lif-and-embrace-change#sthash.IxNkkJZn.dpuf

[2] http://shedsocial.com.au/project/afa-battle-challenges-associations-relevance/

[3] http://www.linkedin.com/pulse/afa-being-defined-today-brad-fox?trk=prof-post

[4] http://www.linkedin.com/pulse/time-wake-up-disrupt-perish-andy-marshall?trk=mp-reader-card

The post Staring into the Abyss: the death of financial advice? appeared first on AdviserVoice.

But at some stage it will be worthwhile taking the time to improve your practice management.  It’s about working on your practice as well as in your practice.

The benefits of doing so include higher revenues and profits and a higher business valuation.

There are a number of key goals you should strive for when designing your practice management methodology, which I call the Ten Commandments of Practice Management.

Drive down costs by Increasing efficiency;

1. Increase revenue without increasing costs, e.g. increase fees;
2. Improve systems and processes, e.g. simpler SOA process – 15 pages.
3. Grow the size of the client base, by attracting more of your preferred type of clients;
4. Increase the profitability of each client, e.g. pricing relevant to the service you provide;
5. Reduce the reliance on a key person (i.e. the planner);
6. Develop and implement marketing and business plans;
7. Improve conversion rates for the first interview;
8. Increase conversion rate at seminars.
9. Highest possible compliance rating.

In order to succeed at achieving the Ten Commandments of Practice Management you need to develop a plan that is measurable, achievable and reviewed regularly.  To do this you need to focus on each of the key areas of the management of your business, and while all these areas are interlinked they can be broken down into five key areas of management:

• Commercial
• Marketing
• Client
• Operational
• People

Commercial management is ensuring that you have systems and processes in place that include cash flow management, capital and debt management, business planning, management reporting, financial management including management of expenses etc. With effective commercial management of your business you will be able to manage and drive down costs. (commandments  1, 2).

Marketing management includes developing an efficient and cost effective marketing plan, pricing, service offering, referral management, managing relationships with centres of influence, client retention etc. Many financial planners have marketing strategies that are costly and ineffective, and can significantly curb the success of the business.  The goals of the marketing function of your business should be to increase the size of the client base, increase revenues, increase the profitability of your clients, implement  effective seminar programs and other business development initiatives. (commandments  1,3,5,6,8,9,10).

Client management is primarily how you service your clients on an on-going basis and the information you provide them. Developing an ongoing private client services program that is focused on keeping clients informed, making on-going adjustments to their financial plans and re affirming they are on track to achieving their goals and objectives and doing this efficiently is a must. (commandments 1,3,6,)

Operational management is focused on product selection processes, recommended lists, compliance, use of technology, and administration. Without effective and efficient operational management all the other areas of the management of your business are unlikely to succeed. (commandments 1,2,4,7,).

People are the key assets of a financial advice business as with all professional service based businesses.  People management should focus on HR management, communication, STAFF RETENTION, key person dependencies etc. Remember losing a key person in this business may mean losing a large part of your client base – this is one of the biggest risks in our industry.

Implementing Your Practice Management Methodology –

What You Should Expect from Your Dealer

The management team of your dealership should have the skills to assist you in your practice on all issues – if they do not you are aligned with the wrong dealer.   The following is a guide as to how your dealer group should be able to help you:

Dealership Head:

The head of your dealership should be able to spend time with you defining and refining your business strategy and be able to assist you with its implementation. This implementation includes working with you to win over and activate centres-of-influence who can refer pre-vetted and pre-sold prospects. Remember it is in the dealer head’s interest that your practice is successful.

Practice Manager or Dealer Business Relationship Manager:

You should be able to utilise the services of a practice manager or BDM-type person to run a diagnostic over your practice to identify issues and deficiencies and work with you to coordinate the required expertise from within the dealership. This person won’t have all the expertise you require but should be a good starting point.

Marketing Manager:

Your marketing manager should be able to work with you to develop a marketing strategy aimed at growing your business via a lead generation program that targets higher quality prospects who fit into your preferred client profile.  Your marketing manager should also help you build your own profile in your local area as a financial planning expert.  They should also provide you with the tools which assist you to generate leads, educate clients and win centres-of-influence.

Legal and Compliance Manager:

The legal and compliance manager exists not only to protect the dealer group, but also to deliver a service to you that ensures your practice is running compliantly and in an efficient manner. This is a crucial component of practice management as practices with a poor compliance record will have their sale value discounted.

Dealer Services Manager:

Your dealer services manager should be able to assist you in implementing systems with the aim of making your practice more efficient, including client review processes, efficient SOA writing processes, work flow systems, efficient portfolio reporting, and so on.

Technical Services Manager:

The technical services manager is a resource to help you improve your technical  skills.  They should also help you win clients by being available to review and/or design appropriate planning strategies.  In addition, they should help you work with centres-of-influence by developing technical strategies that may be used by the centre-of-influence to market to their client base.

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However, parties who’s sole interest is in seeing the destruction of the financial advice industry to improve their own competitive advantage such as directly marketed industry superannuation funds and other directly marketed funds management business seem to be the main players driving the reforms.

The overwhelming majority of advisers are concerned the proposed reforms will not achieve a positive outcome for the industry and feel that the major participants in the industry, “the Financial Planner Practitioners”, have been mostly ignored in the consultative process.

Financial planners feel that any reform needs to be implemented in a positive way that adds value and makes the Australian Financial Planning Industry a world leader. They don’t feel this is the likely outcome of current discussions.  Imposing reforms – such as some of those currently in play – that are designed to give a competitive advantage to one sector of the financial services industry over another will not only damage the entire financial services industry but will also be detrimental to the future wellbeing of our economy and the retirement incomes of many Australians.

Financial planners feel they are the minority opinion in how their industry should be reformed. Financial planners also feel that many of the major industry bodies who lobby Government on behalf of the financial planning industry are dominated by funds management companies – some of which are possibly conflicted in regard to the desired outcome of the reforms and may not represent a balanced view of the entire financial advice industry.

I have put together a reform wish list on behalf of – and based on feedback from – my industry colleagues.

So, in the interests of getting out a point of view which represents the thoughts of a good portion of financial planners, here is a good start to The Financial Planners’ Reform Wish List:

1. A level playing field for all participants in the financial services industry. Financial planners feel that some sectors of the superannuation industry are favoured over others. This creates oligopolies within the superannuation industry and is not ultimately good for competition or the end consumer.
2. A fair approach to transitioning from commissions to fee for service. Financial planning practices need to be given time to implement this change as it is no small task to transition clients to a new fee structure. At the end of the day when many long term financial planners built their practices, commission payments were a legitimate method for being paid for services – as it still is for most other industries in Australia in one form or another.  Look at how these people are paid: the legal profession, real estate agents, advertising companies, general insurance brokers, funds management and so on.  And don’t get me started on how the entire tax system is based not on a flat fee but on a percentage basis.
3. A level playing field for financial planner remuneration. If financial planners can no longer receive commissions paid from client’s fees in superannuation and other investment products, why is it okay for industry fund financial planners to be paid salaries that are funded by client’s fees? Isn’t this the same as – or worse than – a commission? Won’t this lead to the bulk of financial advice being provided by product manufacturers and take us back to the bad old days of 100% biased advice?
4. A consistent legal framework and consumer protection. Financial planners feel that the result of the reforms could see financial advice predominately being provided by product manufacturers especially where product manufacturers can run advice practices that provide 100% biased advice, pay commission-like salaries funded from clients’ fees and in many cases be exempt from the consumer protection rules under the intra fund advice provisions. How can this be good for the end consumer? Exempting some sections of the advice industry from complying with the consumer protections for advice will result in a race to the bottom.
5. A balanced approach to reporting from some sections of the media. The proposed reforms, when announced by the Minister, coincided with another bout of negativity aimed squarely at the financial planning industry by many commentators. Some of the negativity has been justified in small pockets of the industry where there has been some disappointment, however I have never heard of any financial advice industry in the world that has had to endure such a sustained barrage of criticism and negativity. Financial planners feel they are being unfairly targeted to the benefit of other sectors of the industry.
6. Make advice more accessible, affordable and independent.  Financial planners feel that the Financial Services Reform Act already provides adequate consumer safeguards and that much of the proposed reforms to improve consumer protection only drive up costs. The reforms need to help in driving down costs while at the same time improving the quality of the advice.
7. Positive support for the industry from Government. The Government is openly supportive of most of Australia’s industries, and it would be nice to see  the Government also supporting the financial planning industry.  Clearly the lobby groups need to do more work in this area to win the support of the Government, possibly by explaining how much clients can benefit – financially and emotionally – from having a financial planner who develops a solid strategic plan for the client and then ensures the client sticks to that plan.
8. Less paternalistic approach. Financial planners feel we are seeing more prescriptive  approaches that treat advisers and their clients like children.  Examples are the proposed annual opt-in for financial advice fees and the My Super concept. The implementation of the opt in arrangements will only result in increased costs and complexity for clients. At the end of the day every client receives an annual statement and it is glaringly obvious on these statements what fees are being paid to the financial adviser.  If the client wishes to discontinue the service all they have to do is pick up the phone.

The financial planning industry plays a major role in building the retirement savings of Australians and in properly structuring people’s financial affairs to help them become financially independent and make them less reliant on the social security system in retirement.  As one of Australia’s most important industries in delivering economic wellbeing for ordinary Australians, financial planners feel they should have the opportunity to provide feedback on any proposed reforms.

The post What do financial planners want from industry reforms? appeared first on AdviserVoice.

Reasons for the increased barriers to practice ownership include the following:

• Increasing costs
• Downward pressure on upfront fees
• Constant negative media coverage of the financial planning industry
• Increased competition
• Cost / risk of purchasing practices
• More discerning prospective clients.

To obtain the holy grail of practice ownership, your two choices are to build, buy or a combination of both. If you have the funding, the quickest way to practice ownership is to buy, however this comes with considerable risk including:

• Compliance – is the book you are buying a compliance risk? What risks are lurking in the filing cabinet?
• Cost – is the cost reasonable, or would it be cheaper to build from scratch?
• Alignment – are the clients aligned to your style and value proposition?  Will you retain them?
• Poaching – will the exiting financial planner set up shop elsewhere and poach the clients back?
• Has the client base been burned by the existing adviser?

If your preferred option is to build your practice, here are some tips to help you succeed:

• Partner with a dealer that will help you achieve your goals via their practice management program.  Advisers generally place a larger emphasis on the level of fees or splits they pay to the dealer but very little attention seems to be given to what you get in return for your fees. If you join a dealer that generates good quality leads, does it matter if you are paying them more than the amount you pay your current dealer that generates no leads?
• Differentiate yourself by developing a strong and unique value proposition that will make you stand out from the crowd. In the current market, clients are looking for financial planners that can demonstrate they have a strong value proposition in managing investments and investment risk. Advisers who are strong in this area are the ones currently writing the bulk of new business.
• Build your business on the back of a diversified marketing plan.  This includes developing referral relationships with centre-of-influence and building your profile via advertising, seminars and so on.  Getting the marketing ‘mix’ right is important – because every piece of marketing impacts on the success of your other marketing efforts.
• Wholeheartedly believe in doing the right thing by the client – no matter what. If you genuinely enjoy looking after your clients, and demonstrate a passion for helping them, you will win the client almost every time. This comes naturally to good financial planners.
• Ask every client and prospect for referrals, usually using a ‘softly softly’ approach (as recommended by marketing guru Stewart Paul) such as “If you have any friends or colleagues who also need advice, I’d be pleased to accommodate them. Please feel free to give them one of my business cards.”  Turning your clients into advocates of your service will result in a steady stream of prospects that have already been sold on you prior to your initial meeting with them – so you can expect higher conversion rates from client referrals.  Note that some clients may not refer to you because they think you are too busy – so make sure you let all of your clients and prospects know that you will always accommodate referrals from them.
• Target those people who not only have money to invest but also are motivated to invest it. For some planners, this means targeting retirees and people accepting redundancies.  The key is that you choose target markets which fit your skill & knowledge set – and as a result you will become known as an expert in that area.

The proposed reforms will make the future more challenging for professionals wanting to establish their own practice, but with the right approach the new environment might just work in your favour.

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What is the role of research houses now? Following the performance of the majority of research houses over the last three to four years – combined with the financial ombudsman ruling last year that now implies financial planners must conduct their own research – a lot of advisers are wondering if they even need to use a research house.

Are research houses now redundant? Or can they change with the times and actually start adding value to the financial advice process?

What value do the major research houses really provide to financial planners anyway? They did little or nothing over the last few years to assist financial planners and their clients to navigate their way through the financial crisis.

The role of a research house should be to scrutinise fund managers and their products, and exclude them if they are sub-standard, and to then let financial planners know the basis of their recommendations. It should not be the aim of research houses to appease fund managers by making it easy for them to get on the recommended list.

Research houses may need to consider to stop taking money (or is that bribes?) from fund managers for ratings so they can be unbiased and transparent in how they develop their recommendations.  Of course, they will then need to increase the fees they charge financial planners.  But this would then result in planners demanding a better service and more accountability from the research houses.  That would be a good result, but I can’t see it happening soon.

Financial planners feel there are a number of anomalies surrounding the output they receive from research houses, including:

• Asset allocation recommendations seem to remain static no matter where markets are placed.  They are the same today as they were during the bull market – shouldn’t there be some adjustment to take into account the value of markets today based on future forecasts?
• What have research houses done to beef up their research capability so that toxic investments are not recommended… or at least are weeded out in a timely fashion?

Most financial planners feel that research houses have not added value to the financial advice process, in fact many of their recommendations put financial planners and their clients in harm’s way.

For example, in 2006 and the first half of 2007 you didn’t need to be Einstein to work out that equity markets and commercial property markets (both listed and unlisted) were generally extremely over-valued.  And yet financial planners had little or no guidance from the research houses, and their asset allocation recommendations to planners didn’t change. This resulted in clients being hit hard when the inevitable correction came.

Further, the so called defensive portfolios contained within some research houses’ model portfolios proved to be not so defensive, with clients taking significant losses on the defensive portion of the portfolio, with no chance of a rebound on lost capital (as is generally the case with blue chip equities following a crash).

Why did this happen?  Was it because those research houses were chasing high returns on high risk fixed interest vehicles such as Basis Capital? I would love to know how some research houses justified shoe-horning  Basis Capital and other high risk investments into the defensive portfolio of their models.

Why chase high returns on the defensive portfolio anyway?  If the client needs higher returns, consider allocating more to growth assets provided they are not overvalued. Defensive assets should be exactly that – defensive.

Over the last 12 months many bond funds have continued to perform poorly due to a combination of interest rate risk and credit risk – and yet they continued to be recommended by research houses.  And still are.  Why be in these funds while interest rates appear to be only going one way – up. Consider that term deposits have proved to be very effective defensive assets over time, with the added advantage that clients know exactly what return to expect from term deposits. I find that there is a certainty about the outcome with term deposits that provides clients with a lot of comfort.

Financial planners and dealers alike recognise they are liable for the advice they provide to clients.  Therefore, if they can’t rely on the support and recommendations provided by research houses, they may as well do it all themselves by developing in-house capabilities.

Surely this option wouldn’t provide a worse result than the one we experienced over the past four or so years when we relied on the research houses?

To be honest, I would still prefer to rely on the research houses… but they need to lift their game first!

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