ASIC has decided to delay work on the implementation of the exam to allow appropriate time for other reforms to be implemented in the financial advice sector, notably the Future of Financial Advice (FOFA) package.

ASIC views the exam as a very important initiative to ensure consistent national standards for advisers. ASIC will continue to explore options to implement this proposal at the appropriate time once the FOFA reforms have been bedded down.

In the coming months, ASIC will also consult on enhancements to the training standards for financial product advisers. ASIC’s proposed enhancements to the training standards for advisers underline the importance of strengthening the framework for adviser competency and thereby improving the overall quality of financial advice.

‘We want consumers to have greater access to quality financial advice and greater confidence in advisers. Having this framework in place, including the enhanced training standards, is an important element in achieving this objective,’ ASIC Chairman Greg Medcraft said.

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Brad Fox – CEO – AFA

The Association of Financial Advisers (AFA) welcomes the release of legislation into Parliament on enshrining the terms ‘financial adviser’ and ‘financial planner’ in law.

“This Bill is about the understanding and perception of financial advice,” said AFA CEO Brad Fox.

“It is an important step in creating consumer understanding of the role and responsibilities of a licensed provider of financial advice and will help consumers identify a trained, qualified provider from any other individual purporting to have this expertise.”

Mr Fox said, “We believe that this legislation is good for financial advisers and also for the consumers who rely upon financial advice. Consumers deserve to have clarity with respect to who they are seeking advice from.”

The AFA was in Canberra this week in the lead up to the introduction of the Bill and continues to play a vital role in leading licensed financial advisers/planners on the journey to embrace the significant changes being created through the Future of Financial Advice legislation.

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If you’ve dated for a bit, the odds get a bit better, though only marginally so. If you’ve been engaged for a while and everyone knows what the end game is, then the odds are pretty good that you will get a “yes” to “will you marry me?”
How does this apply to financial advice? Well…the biggest problem with financial adviser marketing is the tendency to pop the “will you marry me” question to people who haven’t decided yet whether they want to spend a Saturday night with you.

This lies at the heart of dealing with a common adviser question: “How can I make my marketing more effective?”

Before answering this question though it is important to understand a more fundamental question: What is the difference between marketing and selling?

Many advisers seem to think that these are one and the same thing. Or, if pressed a little further, “marketing” is often confused with “advertising”. Marketing does include advertising… as it also includes having a clear value proposition, understanding the target market, the branding of the individual and the branding of the business entity, and a number of other things.

Thinking bigger picture though; marketing is really about creating opportunities to gain a client or some new business. Selling is the process of converting that opportunity into an actual piece of business that your accountant can see.

To answer the question posed at the outset then, one has to understand that while there may be many components that go into creating really effective marketing, the underlying question that the adviser is really asking is “how can I create more opportunities to engage with people who would be willing to take the actions I would recommend”?

The part that really matters in this underlying question is “opportunities to engage with people“. THAT is the piece that you must concentrate upon to create “more effective” marketing. This revelation is the point where advisers often say “aha, I get it” and their marketing efforts lift as they begin to focus upon creating new opportunities to generate future new business.

It makes sense to them that if they are able to attract attention, and engage with people, then they begin to establish a relationship of trust. Surely having done this the prospective client will take my advice and work with me?

It is at this point though that the bulk of such marketing efforts fall down in a heap.

The reason? Lack of patience and understanding of the engagement process. It’s akin to having a couple of Saturday night dates and then wondering why the dream date doesn’t want to marry you yet. A lot of adviser businesses at this point are creating a lot of Saturday night dates….but there’s no follow through. It’s just lifting the initial activity level really.

Engagement (in this business sense) is really about inter-acting with people on a regular basis in a way that they feel comfortable with until they decide they want to be with you. Your marketing purpose is to get, and then hold, their attention and build their level of interest in what you have to offer in the way of valuable advice and solutions. At some point in the engagement process you – or more likely some other event unrelated to your marketing and positioning – will trigger “desire” on their part to act.

That is when the marketing process is finished, and selling begins. Although, if your marketing and engagement process is done well, the reality is that there is very little selling involved.

The necessary level of trust and credibility in you as the right adviser has already been established. The rest is process and technical competency being applied to the clients’ need.

The reality for a financial adviser business though is that engagement is forever. The actual marriage part – your client buying you or your solution at some point – is actually just a moment in time. It is a purchase. A transaction. A fait accompli….if the engagement was a fulfilling one.

Engagement with clients, for the successful advice business, is long term. Once you have them as clients, then the engagement and ongoing interaction becomes even more important, as they can add significant value to your business if you can move them from supporting you to the point where they are advocates for your business.

To make your marketing more effective – to get better results for your business – stop asking the marriage question. It’s not about the big moment and the big “sale”. Build systems and processes to engage people in a way they feel comfortable with, and share information and insights, and help them help themselves…..and they will want to take it further!

All blogs are the personal views and opinions of Tony Vidler, Strictly Business Ltd, only. They should not be attributed or linked to any other organisation or business that Tony or Strictly Business Ltd may work with at any time. For more great ideas on how Strictly Business can help your professional advice business perform better and grow, visit www.financialadvisercoach.com

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Promises promises!
A website can make pretty much anything look good. We’ve all been there – buying or booking something via a website only to find out later that the item in question is not exactly as it was portrayed on the website.  If it’s of insignificant value it’s easy to look beyond the disappointment however it’s often another matter if the money spent begins to mount up.

I was reminded of this when recently booking some accommodation the owners of which, according to the website, paid very close attention to the finer details of the small house I was renting for just a few nights.  It was with substantial surprise then that I found the house to be far less detailed than the website led me to believe. The refrigerator was filthy; the heater in the bathroom was circa 1970 and didn’t work; the ‘polished floorboards’ were actually linoleum and – you get my drift.

The so-called ‘buyer’s remorse’ emerged for me but only partially. After all, I hadn’t handed over my life savings to the landlord.  However, this example gets to the very nub of expectations and delivery. My expectations had been set at a reasonably high level due only to the information on the website – it was all there in writing.

So too is it all there in writing on financial advisers websites and it is also there in writing in Statements of Advice and related documents. In the late 1990s I marked many Diploma of Financial Planning (DFP) 8 assignments; DFP 8 was where students were required to develop a comprehensive financial plan based on a complex case study. It struck me how often I would mark assignments that contained written statements and claims with words to the effect of:

“By implementing your financial plan you will be sure to enjoy a worry free retirement.”

and

“We will ensure that your portfolio is comprised of the best performing investments…”

and

“Our projections illustrate that when you retire in fifteen years you will have accumulated $X of retirement capital.”

Can you see the expectations being created in the clients’ minds? 

“…worry free retirement”

“…best performing investments”

“…will have accumulated…” 

To be frank, some such comments were not too far removed from some of the infamous claims made by the so-called ‘snake oil salesmen’ of the 19th century who claimed certain medicines were cure-alls for everything from indigestion to tuberculosis.

The point is the planners in question were making promises – setting expectations in the clients’ minds – over which the planners had very limited control or no control at all. No financial adviser can guarantee such outcomes for clients.

Note that the assignment marking was in the late 1990s so now consider just some of the financial events that have unfolded since then.  The 1998 South East Asian Currency Crisis; the 2000 dotcom bubble; the Iraq War which commenced in 2003 the lead up to which saw large sharemarket declines and of course, the Global Financial Crisis the effects of which just keep rolling on.  What about the assurances given in those assignments? What about the promises financial advisers all over the world continue to make to their clients?

A Statement of Advice (financial plan) is just that – it’s a statement that an adviser is making. Used carefully it can help to set very realistic expectations for clients.  Used to ‘sell’ advice that the client might want to hear it can be very dangerous for both the client and the adviser.

Dangerous for the client because such undisciplined statements can embed unrealistic expectations in their thinking.  It heightens the potential for the client to experience ‘buyer’s remorse’ and for the adviser, it heightens the potential that they might end up in dispute with what could by then be a former client. Ultimately it could see the adviser being cross-examined in court.

A quick look around the Internet at sites of financial advice firms reveals that the practice of making questionable claims, about what can actually be delivered, continues to this day.

While it might be tempting to paint a rosy picture to potential clients via your website and/or SoA, the professional, disciplined, approach is to only make statements which will realistically set your clients’ expectations and which you are confident you can defend if required to. 

While your calculations might be mathematically correct, for example, that might not count for much if a former client expected you to deliver a worry free retirement or expected to have a portfolio comprised only of the best performing investments – because you wrote that in their SoA.  Such a client’s legal adviser might be very interested to view copies of SoAs and the like.

Consider the following as alternate statements for the above claims:

“ By implementing your financial plan you have taken another step toward enhancing your financial position in retirement.”

and

“We cannot promise you that your portfolio will always be comprised of the best performing investments; indeed we believe that such an outcome is impossible to achieve. Rather, in managing your portfolio, our aim will be to review the investments regularly, mindful of changes in the Australian and world economies and investment markets, and to then make suitable recommendations for change as the need arises.” 

and

“The projections are an exercise in mathematics and to conduct them, as a means of having an insight into potential financial outcomes for you, we have used the assumptions which follow. However, please note that we cannot guarantee the forecast outcomes because they are dependent on future events such as interest rates, inflation, economic growth, actual investment returns and a host of other economic events and circumstances which are beyond our control.”

The point about statements like the above is that they are aimed at not setting clients’ expectations above what is realistically possible.  No financial adviser can guarantee very much – they cannot guarantee where a portfolio will be in one year from now let alone twenty years and beyond. And no adviser can guarantee to have only the very best performing investments in just one portfolio, at all times, let alone promising the same to each and every client who engages the firm. 

There is no guarantee that such words would protect an adviser in a litigation scenario after all, negligence is neglect and that isn’t confined to words. However, words such as these are more likely to keep your clients’ expectations grounded. None of us are ‘investment gurus’ – we’re planners who try to design and navigate a more secure path forward for clients in full knowledge that the future is uncertain.

The simple, professional, approach is to only promise what you can guarantee and if you cannot guarantee an outcome don’t promise it.

The only promise you should make is to yourself and that is to promise not to give false hope to people who are going to trust you with their financial security.

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The FPA initiative, which was held last week (20-26 August), aimed to encourage, educate and empower Australians to address their financial situation, and highlight the importance of seeking professional financial advice.

As part of Financial Planning Week, the FPA launched several tools for consumers looking to gain more understanding about financial planning.  In just one week, the tools have had an overwhelming response from consumers, receiving:

• Almost 10,000 hits to the new ‘Ask an Expert’ online forum
• Over 4,000 hits to the Find-a-Planner directory
• Almost 700 hits to the Real Life Stories consumer web page

FPA CEO, Mark Rantall, believes the large amount of consumers accessing these tools is proof that Australians are willing to improve their financial literacy and address their financial situation.

“Having such a large number of visitors to the website in only one week reveals Australians are eager for this information,” said Mr Rantall.

“If we want to change behaviours and help Australians make better decisions about their financial future we need to make sure they have access to the right information.   The tools the FPA has created were designed to provide clarity and simplicity for consumers around the financial planning process. 

“Recent research findings show that almost half of Australians say they have made no preparations for getting older and hadn’t thought about it1 so the importance of seeking financial advice from qualified, professional financial planners has never been so relevant.

 “The FPA, and our 10,000 members, are committed to helping Australians discover the benefits of sound financial advice and we view the tools as an important means of achieving this.”

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“While all available research shows that investors have been focused on cash as the best safe haven to protect capital, falling interest rates are making such a strategy increasingly unsound. 

“Having some investment in cash products such as term deposits may be sensible for some investors, but it should always be as part of a balanced diversification strategy. 

“Falling interest rates and inflation combine to reduce both the value of capital and income – exactly what investors seeking a ‘safe haven’ are trying to avoid,” he said. 

Mr Bryant said that an urgent rethink is needed by many investors to redefine what a ‘safe haven’ means to them and what the cost might be of the various options, as well as the opportunities other asset classes offer. 

“Now is not a good time to be over-invested in cash products.  They might offer surety of capital being repaid on a due date but the cost can be considerable, and this together with other factors shouldn’t be ignored by investors. 

“Ease of access, income stability, inflation protection, capital growth as well as security, can all be important to investors depending on their circumstances and financial needs,” he said. 

Mr Bryant says that investors need to understand circumstances change and at the moment an over-cautious approach – such as having all their savings in term deposits – now comes with a major opportunity cost. 

“For example, fixed interest funds have performed better than term deposits in the last four years (since the flight to cash started in earnest) and equities have given better yields than term deposits over the same period, particularly for investors on higher tax rates. 

“Indeed, an investor who put some of their wealth in bank shares in June 2008 rather than depositing all their money in interest-bearing term accounts, would have received excellent yield as well as capital growth. 

“For example, if an investor had deposited $10,000 in a one-year term deposit in June 2008, and reinvested maturity proceeds along the way, this would have increased in value to $12,519 by June 2012. However, if an investor bought $10,000 of CBA shares in June 2008 it would be worth $18,819 including franking credits, in June 2012 – and we have seen even more increases in sharemarket value in the last couple of months.” 

Mr Bryant added that diversification is always the best approach no matter what the economic situation is. 

“There is currently a notable degree of optimism in the main growth asset classes that investors should factor into any portfolio rebalancing. 

“While there is still volatility in equity markets, and although markets are still experiencing frequent falls, there appears to be the beginning of an underlying trend upwards,” he said. 

“In addition, property markets appear to be shaking off the stagnancy of recent years as an inability to satisfy future demand is becoming apparent in some sectors, for example office, healthcare and retirement living. 

“Investors who have remained in cash over the last several years now need to reassess their priorities as they face falling returns coupled with an erosion of capital value. 

“Moving to a more diversified investment approach at the moment is likely to provide the access, income stability, protection and capital growth that have become the priorities for many investors,” Mr Bryant said.

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Total estimated assets, which includes the assets of self-managed superannuation funds and the balance of life office statutory funds, rose by $49.6 billion (3.7 per cent) to $1.40 trillion over the 12 months to 30 June 2012, taking into account an increase of $3.8 billion (0.3 per cent) in total assets over the June quarter.

Over the June quarter, the total estimated assets of public sector funds’ assets increased by 1.9 per cent ($4.1 billion) to $222.2 billion, industry funds increased by 0.6 per cent ($1.5 billion) to $266.0 billion, retail funds’ assets decreased by 1.3 per cent ($4.7 billion) to $372.1 billion and corporate funds’ assets decreased by 2.0 per cent ($1.1 billion) to $55.8 billion.

Contributions to funds with at least $50 million in assets over the June quarter were $29.9 billion, with employers contributing $24.2 billion and members contributing $5.6 billion. Other contributions, including spouse contributions and government co-contributions, totalled $141 million.

During the June quarter, public sector funds received 38.2 per cent ($11.4 billion) of total contributions, retail funds 30.9 per cent ($9.2 billion), industry funds 27.5 per cent ($8.2 billion) and corporate funds 3.4 per cent ($1.0 billion).

Outward rollovers exceeded inward rollovers in the June quarter. Industry funds received $151 million of net rollovers. Corporate, public sector and retail funds had negative net rollovers of $477 million, $728 million and $762 million, respectively.

The annual industry-wide Rate of Return (ROR) for quarterly reporting funds for the year ending 30 June 2012 was 0.4 per cent. The quarterly industry-wide ROR for the June 2012 quarter was -1.4 per cent. The quarterly RORs for each fund type as a whole for the June 2012 quarter were -0.9 per cent for public sector funds, -1.2 per cent for industry funds, -1.5 per cent for corporate funds and -1.8 per cent for retail funds.

A copy of the publication is available on APRA’s website  – click here.

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The brochure is available on the FPA’s new consumer website, fpadifference.com.au. The site was launched this week as part of Financial Planning Week, an annual initiative held by the FPA to raise consumer awareness about the positive difference sound financial advice can make. 

Mark Rantall, FPA CEO, said the brochure speaks to the FPA’s fundamental commitment to supporting ordinary people’s quest for financial security. 

“The FPA has always been an advocate for consumers receiving sound financial advice from qualified, professional financial planners. Ensuring Australians understand what the financial planning process entails by providing clear and simple information such as that contained in this brochure is one way the FPA is reaching out to consumers to make sure they’re well informed,” said Mr Rantall. 

The brochure, which both consumers and FPA members can order to be sent to them free of charge, includes a range of helpful jargon-free information, such as:

•  ‘Things to consider when choosing a financial planner’ – highlights the importance of using a qualified financial planner
• ‘Why would I need a financial planner’ – outlines the benefits of seeking sound financial advice and addresses the different needs of consumers at different stages in life
• ‘How the financial planning process works’ – a step-by-step guide of what to expect when seeing a financial planner.

In addition to the brochure, the FPA has also created the first easy-to-understand guide on the Future of Financial Advice (FoFA) reforms for consumers, which is also available on the website. 

Mr Rantall added, “The FoFA reforms have been a major focus for the entire financial planning industry over the past year or more. Whilst these reforms were designed for the benefit of consumers there’s a much lower level of awareness among consumers about their practical effect. Our guide to the FoFA reforms will hopefully increase this level of awareness among consumers.” 

Mr Rantall went on to highlight another important feature of the FPA’s consumer awareness initiatives: choosing a qualified professional, who is a member of the FPA and preferably, who enjoys the CERTIFIED FINANCIAL PLANNER® (CFP) designation. He welcomed research findings that reported increased acceptance and understanding, among consumers, that CFPs must meet high levels of professional training and competence. 

Initial recent research findings, from Investment Trends[1], into the public perception of CFPs reveal, for example, that:

• If they were looking for a new (or additional) financial adviser today, a CFP designation was the most commonly cited qualification desired in a financial adviser (35%)
• 87% of those who currently use a financial planner as their main source of advice say their adviser made a positive or significantly positive difference to their life
• Among those who currently use a financial planner as their main source of advice, 89% said their most recent discussion with their financial planner was valuable or very valuable.

“Ensuring Australians are aware of what professional standards to look out for when choosing a financial planner and providing them with clear, simple information about financial planning are two important prerequisites to improving public trust and confidence in our profession.  In the end, we hope our initiatives will empower and encourage Australians make informed and therefore better financial decisions,” said Mr Rantall.

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• While capital flows associated with safe haven demand and foreign central bank reserve diversification have no doubt played a role in terms of recent $A strength, it is also easily consistent with the long term relationship to the terms of the trade, high relative interest rates in Australia and an improvement in confidence in global share markets over the last two months.
• As such, there is little justification at current levels for the RBA to directly intervene to limit the $A. A better approach would be for the RBA to continue lowering interest rates as this would help struggling cyclical sectors of the Australian economy and take some pressure off the $A.
• The $A is likely to remain strong over the medium term but the best of the gains are probably behind us.

To read this edition of Oliver’s Insights, click here.

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Next time you’ve got a few minutes to spare, enter the following words into your favorite search engine –investment portfolio management software. You’re likely to get in excess of ten pages of site listings which could be relevant even after you narrow down your search to Australia websites. While there is a substantial variation in what such software can achieve, the vast majority are aimed at ordinary investors on a DIY kick.

So what? You might well ask! Spend a bit more time checking out what functions some of the myriad offerings can carry out for the user and you’ll see that for just a few hundred dollars a year, it’s possible to buy software that does everything a financial adviser’s administration service offers – everything except, of course, the advice component. 

Admittedly such software won’t open the envelopes that contain the dividend statements and the like but some of the offerings are highly sophisticated.  And for a lot of ‘bored out of their tree’ retirees, for example, opening envelopes or emailed statements is hardly a stretch of intellect.

One thing that is certain, as with all facets of software, especially that with a daily interface with internet sources, investment portfolio management software will only get better; become easier for a much wider range of users to operate.

Estimates of the number of financial planners practicing in Australia vary depending on who is quoting the numbers and on how financial planner/adviser is defined.  That said, it could be as high as 15,000 or so and you can be sure, whether it be 10,000 or 15,000, they won’t all be able to outperform the market year in year out – no matter how well educated and experienced they are.

So, from that standpoint alone, GFC or no GFC, any financial planner basing a business service model on superior investment returns to the adviser ‘down the road’ is on the proverbial ‘hiding to nothing’. It’s a doomed model. The fact that retail investment portfolio management software is so widely available and with such high levels of functionality, suggests that more and more consumers – people who might otherwise be clients of financial planners – are across the fact that professional advisers have their investment return limitations. The bottom line is that it’s an expanding market.

There will always be people who want to manage everything for themselves; always has been and always will be the case. However, increasingly, people who might not have otherwise had a predilection for managing their money will have heard and read enough bad press about financial advisers/planners to have no qualms about doing it themselves.

With very cost effective, high level, software readily available; with public perception dented by the GFC, the outrageous ‘Storm’ debacle, crooked advisers and incompetent advisers, why won’t more and more consumers see managing their money themselves as a real option?  It’s easy to retort that most retirees won’t know how to use the software and you would be right – for now.  Looking ahead, the tail-end of the baby boomers is far more computer literate than their parents – and the Gen Xs and Gen Ys, generations raised on keyboards, will have no issue with using retail money managing software.

Let’s throw in another barrier to entry for people becoming clients of financial advisers – an emerging view that the role of equities in the global financial system will be reducing over the next ten years. As the McKinsey Global Institute (MGI) recently stated: As emerging-market households attain a level of income that enables them to purchase financial assets, they are becoming a powerful new investor class, whose choices will help determine global demand for different asset classes. The actions of these new investors will, in turn, shape how businesses obtain the capital they need to grow, how other investors around the world fare, and how stable and resilient economies will be.

So how do financial advisers stake out a claim to their share of an increasingly competitive environment; an environment seemingly making way for more and more with new entrants all chipping away at the market? They very neatly fit into the face to face, high level, personal service space, delivering so-called very ‘high touch’ service to clients is the one area where software cannot gain ground on financial advisers.

Some things we can be sure of…people:

• Can get tired/bored
• Can get sick or injured
• Can become widowed
• Die
• Can get scared of making financial decisions
• ….and so on.

And this is where advisers fill a breach that software will never be able to. It’s that one to one human communication; the capacity to show genuine concern, to have empathy, to personally sign letters, to telephone and strike up a conversation and the like that only an adviser can provide.

Financial planning in Australia is going through another major transition driven by the ongoing effects of the GFC and the Future of Financial Advice Reforms.  These are forces are full-frontal in adviser’s face and easy to identify.  But advisers cannot afford to ignore the threats lurking away at the edge of their ‘peripheral vision’ which have the potential to weaken their businesses over the longer term.

Nothing will forestall software development but advisers who get on the front foot with service delivery will better withstand a diminution of their market share as investment software becomes more widely available and more user friendly. However, don’t be lulled into thinking that service delivery is simply a regimented programme of when certain things are done for clients.  While having service systems in place is vital, the overarching theme is about building, fostering and retaining relationships with your clients.

As the old song says: “People who need people – are the luckiest people in the world”.

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