Paul Tynan

Connect Financial Service Brokers (Connect) CEO Paul Tynan has reflected on the 2014 fiscal year and the financial services sector and described the past 12 months as one of continuing evolution that will result in a future of consolidated advice driven by regulation, vertical integration and the need to control Australia’s ever expending retirement assets.

Looking back at the financial year, Tynan says that it’s no surprise that as a consequence of the Future of Financial Advice (FoFA) reforms and the ongoing financial system inquiry that consolidation of financial planning practices which are institutionally owed has been one of the major outcomes.

Another observation by Tynan is the continuing contest for ownership of Australia’s superannuation assets and as a consequence what has emerged in the advice space is that the larger institutions (banks, industry funds) are more comfortable working within the area of general advice.  Yet at the same time, individually owned financial planning practices have become more focused on providing personal advice.

The unfortunate and unintended casualty in this struggle has been the consumer who has become an afterthought and as a result, this has led to confusion, lack of choice and institutions dominating advice distribution.

According to Tynan, the cost of advice will see the industry split into two sectors:

1. The affordable sector (non-aligned) – which will be serviced by financial advisers providing personal holistic high touch advice.
2. The non-affordable sector (aligned) – serviced by the banks, direct and industry funds providing personal advice using proprietary product.

The accounting profession has never really embraced financial planning says Tynan, “However as they see their core disciplines (namely tax and compliance) come under closer review from the regulators and need to obtain licensing for SMSF advice, they are going to be forced to renew their qualifications to protect revenue and clients”.

“One personal observation of the accounting and financial planning industry over the past ten years is that I find that the majority of financial planners hold more tertiary qualifications than accountants…now that might shock some accountants and industry bodies”.The move to fee for service for advice will continue the trend of accounting and financial planning businesses joining together to form new business models.

The Australian superannuation system now has $1.8 trillion in assets and is playing a more active role in corporate and industry policy decision making.

“I only wish that government authorities would appoint to their boards, industry people with real business familiarity to provide all important input, especially in the area of advice.  To be taken seriously, management in the superannuation industry, fund management and industry funds should at the very least have had some experience sitting in front of a client or running a self employed planning practice if they are to give commentary about advice or dispensing lectures to the industry.”

The industry funds have over the past decade run a very clever marketing campaign against commissions (higher fees means less retirement benefits).  However this simplistic message does have a buyer beware warning – lower costs do not always lead to greater benefits!

Industry funds in the next few years will have a huge task to implement advice into their service provision models.

Tynan added, “It’s no wonder that the consumer’s voice in this environment has responded by seeking more independence and greater self-reliance reflected in the growth of self-managed super funds that today represent a third of all super assets”.

With the increase in life expectancy and the age pension now being the largest single cost to the Federal budget everything now must enter political circus – how do we balance revenue and costs to continue to deliver a retirement income for all Australians?

Tynan concluded, “In this environment the Baby Boomer accountants and financial advisers have built substantial businesses and are looking to capitalise their lifetime of work and move into retirement.  However succession planning has never been more difficult due to regulatory changes, lack of capital, growing uncertainty and the new generation of employees and prospective buyers having different priorities and changed views on ownership”.

“However, it’s not all gloom and doom as I have never seen so much organic growth opportunities that present itself to the Australian advice industry.  The future will see increased demand for high quality and trusted face-to-face advice as the institutions focus on direct consumer distribution”.

“In addition, technology is a great leveller and smaller businesses will be able to respond far quicker to changes in consumer expectations/demands, legislative and investment opportunities than larger businesses – I would not like to be anywhere else.  Maybe retired!”

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Paul Tynan

Connect Financial Service Brokers (Connect) CEO Paul Tynan added this voice to the many that responded to the news that the Federal Government had decided to ‘pause’ the FoFA amendment process.  Like others in the industry, Tynan agreed that the legislation was far too important to rush and additional comment and scrutiny would ultimately be beneficial for all.

Commenting further on the Federal Government’s decision, Tynan believes that the FoFA reforms still require some changes and fine tuning to raise both consumer awareness and ensure that their (consumers) interests are safeguarded.

“It’s an unfortunate reality that the overabundance of special interest groups lobbying so intensely in the support of their specific sector, business or association is not helping the situation and regrettably many are putting their own interests far ahead of the industry and consumer,” said Paul Tynan.

A strong advocate for a sensible and balanced approach, Tynan continues to lament the plight of the financial adviser that suffered so much during the stalemate at the end of 2013 and who thought that at last the process was underway and advancing towards a reasonable outcome – must again endure another period of uncertainty.

Tynan believes that the general advice exemption from FoFA’s ban on conflicted remuneration will result in the reintroduction of commissions back into product – and if this does become a reality he recommends the introduction of a full disclosure regime (‘buyers beware’).

His solution is to ‘brand’ general advice as aligned advice – where the advice is given by a person who is aligned to a product.  For example bank employees, industry fund and Superfund employees.  The term personal advice would relate to non-aligned advice where the adviser charges a fee for service and owns the client rights.

An interesting fact in the FoFA debate is that both the banks and Industry Super Australia are in the same camp of general advice. The banks want to ‘incentivise’ their employees to sell products and ironically, ISA wants to restrict higher remuneration.

In Tynan’s opinion, the amended conflict of interest reforms are fair and wholeheartedly supports moving on as consumer rights are enshrined in common law, FoFA and professional standards and all financial advisers must act in the best interest of the client.

Furthermore, Tynan contends that the changes to assist institutions design remuneration structures are inherently wrong.  He has no doubt that it will inevitably create a conflict of interest between clients and adviser interest – so get rid of it!

“The need to move forward has never been so important or paramount.  I can only repeat that it is the financial advisers that continue to be the main casualties – especially those that have been unable to buy and sell businesses because of the grandfathering issue.  This too is having an effect on consumer confidence and the reputation of the sector as a whole.

“It’s time for the lobby groups to stop their campaigns of scaremongering and exaggeration and to put the interests of the consumer and industry first,” concluded Paul Tynan.

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A balanced approach to FoFA legislation is required: Connect

Connect Financial Service Brokers (Connect) CEO Paul Tynan says that through all the commentary and opinions currently being expressed by industry in relation to the Federal Government’s proposed changes to the FoFA legislation, what is really needed is a balanced approach and outcome.

When reflecting on the goals of all stakeholders, Paul Tynan notes that their objectives are basically the same with the end goal being a strong, viable, profitable industry to professionally service and support the financial, investment, retirement and protection needs of Australian consumers.

In order for this to be attained, Tynan advocates the need for a balanced approach and end result in order to ensure that the interests and requirements of all stakeholders are addressed in terms of:

• a balance of robust regulations without over regulation and administrative burden
• a balance between cost, remuneration and consumer protection
• a balance between large institutions and boutique providers
• a balance between vertical integration and independent advice
• a balance between the interest of all parties and the ultimate objective of providing professional advice to consumers.

“Everyone has endorsed the new world of FoFA and the intended outcome of a fee transparent client focused infrastructure with a professional industry delivering advice,” said Paul Tynan.

“In my opinion, it’s not Government that’s the cause of the problems and complaints that have been directed towards FoFA but the overabundance of self interest groups lobbying intensely to ensure that the interests of their particular sector, company or association are met – even if above those of the industry or consumer”.

In the end, there’s no point pointing the finger of blame at Government and the legislators when the other fingers on the accusing hand are pointing directly back at the real cause and root of all the problems – the industry itself!

Paul Tynan continued, “I am not naive and it’s there for all to see why all the special interest groups comprising institutions, advisers, associations, fund managers, etc have been so active through their lobbyists and lobbying activities – because Australia has a pool of retirement savings of $1.6+ Trillion in assets and has the fourth largest fund management industry in the world.  So there’s a lot at stake.”

With respect to the provision of advice, Paul Tynan offers a very simple solution to enhance the proposed FoFA legislation so it is unmistakably transparent for all consumers that the advice they are receiving is either aligned or non-aligned.

Aligned advice is where the adviser is in a salaried position and licensed via a bank, industry fund etc.  There is a restriction of ownership of client and buyer of last resort (BOLR) terms in place.

Non-aligned advice is where the adviser is a self-employed business owner and there is no restriction with respect to client ownership and if the adviser wishes to leave a licensee the clients are clearly transferable.

Paul Tynan concluded, “As an industry we should all be supporting the enhancement of the proposed changes and make FoFA ‘workable’ and more transparent for Australian consumers”.

“Currently nearly 70% of consumers don’t or cannot afford advice and if over regulation and ‘red tape’ drives up ‘costs’, comprehensive personalised advice will only be available to individuals who can afford it.  The rest will have to rely on call centres and hope that an off the shelf / one size fits all solution will provide them a protection or wealth creation outcome to meet their needs.”

“It’s time to take a balanced approach that ensures the needs of clients are paramount and met.

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Paul Tynan

Irrespective of the countless articles that have been written and published on strategies to ensure that sales, mergers and acquisitions are successful and realise their potential, Connect Financial Service Brokers (Connect) CEO Paul Tynan is certain that the financial service industry as a whole will again get the process wrong in 2014.

“The financial planning sector has a 30 year track record of failed acquisitions which today is reflected in the loss of client value, advisers, management and capital investment written off”, said Paul Tynan.

Furthermore, this failure to achieve a successful outcome and get it right was not restricted to one segment of the industry – it was prevalent from the largest corporate to the small one person suburban practice.

Paul Tynan continued, “Large corporate businesses do not have a monopoly on failed transactions, I have also seen small businesses and individual financial planners make the wrong decisions based on their last BDM/PDM conversation or whoever has the biggest cheque book”.

For advisers, wrong decisions include joining a badly chosen Dealer Group, leaving the right Dealer Group, taking on an unsuitable partner, selling when they should not and list goes on.

Reflecting on his extensive experience in this field, Paul Tynan said that the people/businesses that make the wrong decisions have one or more of the following factors in common:

• Thinking only in the short term
• Lack of industry knowledge and insight
• Lack of networks and resources
• Did not have M&A experience or expertise
• Did not plan properly
• Focussed only on the bottom line
• Personal or unforeseen circumstances saw them rush to do the deal

Another critical factor can be attributed to those instances where the financial planner or dealer group principal is simply not mentally engaged in the process and as he / she wants to exit and move on as quickly as possible.

Paul Tynan said another reason for sale, M&A failure can be attributed to an overemphasis on the transaction and bottom line and not enough attention placed on the very important cultural and staff fit – the things that are hard to measure!

In the past buyers have focused on FUM or bottom line numbers and neglected to factor in the non-measurable issues such as:

• Key person risk
• Business culture
• Management issues
• Compliance
• Is the owner ‘ready’ for sale

These are the soft people issues that are so important to the success of any sale, merger or acquisition.

Paul Tynan also pointed out that Australian companies have a particularly bad track record with overseas acquisitions – again reflecting this lack of understanding and appreciation for the non transactional aspects of a business such as the impact of ‘cultural issues’ and has led to commercial disasters in this area.

Experience has confirmed for Connect that the best outcomes can be seen when firms have enlisted professional help to assist them throughout this process. The cost of engagement is a small price to pay compared to the loss of capital, clients, business disruption, etc.

Paul Tynan concluded, “Whether selling, merging or acquiring, it is important to understand that the process takes time in order to achieve the desired outcome and in many cases, the parties will only have a single opportunity to do it right.”

“So irrespective of size, businesses would be better off outsourcing their selling, merging and acquisition activity as the cost of engaging a consultant can never match the loss of shareholder capital and opportunity cost for bad decisions”.

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Paul Tynan

Reflecting on 2013 Connect Financial Service Brokers (Connect) CEO Paul Tynan has described the marketplace as one that has been filled with shifting dynamics that will be the source of countless conversations during the Festive Season about FoFA; the new Federal government; the spectacular comebacks and flameouts; the unexpected dismissals and the ‘Lazarus’ like re emergence of old faces; business closures, mergers and buy outs; and so on ad infinitum.

As he does each year, Paul Tynan creates a subjective round up for Connect’s clients that summarises the key events that both characterised and had the greatest impact on the financial services sector over the past 12 months and his personal insight into the year ahead.

“There’s no doubt that 2013 will go down in history as ‘the change year’ – but on reflection, has the world really changed”, asks Paul Tynan.

“The global marketplace is constantly shifting with economies facing uncertainty on many fiscal, political and social fronts.  The Australian financial services sector is not immune from these challenges and all participants must confront these trials at a pace never been experienced in past history”.

Together with new FoFA legislation and Federal Government in Canberra, Paul Tynan documented the following Australian changes:

• The latest version of the FoFA legislation has resulted in a halt to the sale of Financial Planning businesses as the interpretations of the new regulations put doubt on the transfer of grandfather revenue.

• The institutions have more orphan clients on their books than ‘real clients’.

• ‘Son of Wallis’ is coming as a result of the Federal government commission of audit.

• Financial Planners are struggling to implement Financial Disclosure Statements.

• Consumers continue to be conservative in their investment focus and still prefer to save.

• ASIC is going to monitor vertical integration and the SMSF market will be the next focus of Government review as property ‘opportunists’ enter the superannuation ‘honey pot’.

• The pressure on technology providers is relentless as the demand grows for IT solutions needed to underpin service / advice delivery for Financial Planners and dealer groups.

• There have been many changes within the financial services and mainstream media with changes of personnel, ownership and new entrants.  Traditional newspapers continue to lose circulation.

• The promised pre Christmas amendments of Assistant Treasurer Arthur Sinodinos have still not eventuated.

Irrespective of Australia’s geographical position, many international factors continue to have an impact on the Australian economy and financial service sector. Paul Tynan listed the following as the most important:

• We are living in the Asian century and China maintains its position of global economic prominence as the world’s leading economic powerhouse.

• Europe is a continent of two distinct halves with northern countries benefiting from economic boom and Southern European countries struggling with the burden of debt.

• The USA’s dysfunctional political system is the source of the country’s escalating nightmare as the gap between the Democrats and Republicans is becoming a chasm due to their inability to agree on a real budget and major economic decisions about job creation.

• The US Federal Reserve persists in buying bonds in an effort to stimulate the local stock market – but how long can his last?

• The quantitative easing (QE) or more appropriately ‘the money-printing policies’ of central banks have been the big driver of world economic markets over the past 12 months.
• Companies have enjoyed the low interest rates and this has been mirrored in increased strong profits.
• The incoming US Federal Reserve Chairperson Ms Janet Yellen has been a big supporter of the QE policy.  The question for the future is when will she turn off the tap?

• The climate change debate goes on between the sceptics and supporters of the science resulting in political impasse.

As he reflected on the year that was and then looked to the future, Paul Tynan identified two key factors that will have the most profound impact on the industry over the coming decade in particular.

The first key factor is the single greatest issue confronting not only the Australian economy – but the economies of most mature developed countries will be the exit of the Baby Boomers into retirement.

In Australia, this is going to place tremendous pressure on the tax system, infrastructure and families in an environment where retirement and wealth transfer has never been more complex or important.

“The need for the services of Financial Planning and Accounting practitioners will be immense as Baby Boomers turn to these professionals for assistance and guidance as they seek to transfer a lifetime of savings, investments and value of businesses into funds required to fulfil retirement aspirations and lifestyles”.

“The need for Financial Planners and Accountants to work collaboratively will be a paramount imperative”.

The second key factor will be the almost certain move away from the institutions by Financial Planners and into the self-licensed environment.  In doing so, Planners will take back the ownership of clients from platforms by utilising new and innovative investments instruments that will be developed to address this demand.

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