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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The tools are two of several initiatives rolled out by Securitor this year to give its advisers an even stronger and better-resourced offer.

The first tool helps advice businesses budget and project the results they want to achieve in their business and monitor how they are tracking against these targets.

According to Securitor’s Managing Director Matt Englund, in a tough market planners are looking for market-leading services tools and support that will help them achieve their business potential and the best results for clients.

“Advisers are telling us they want to step it up, and that with our help in developing the right services, tools and programs, we are helping them do this.”

He adds: “They know, with our experience and reliability, we can deliver them what they need. They trust us to listen to their needs and respond.”

Feedback from business leaders and advisers about the tool highlights better decision making and staff engagement, as well as richer information to use when engaging with financiers.

“All the business productivity surveys point to a direct correlation between managing the financials of a business and achieving success. This tool helps advisers bridge that gap,” says Mr Englund.

In another initiative, Securitor has partnered with industry consultant Bstar to provide advisers with a comprehensive business valuation methodology. This gives business owners in-depth insights around their service delivery, client propositions and profitability.

Mr Englund says by working closely with their Practice Development Manager, advisers can implement an action plan on how to increase the value of their business, further maximising the benefits of both of the above initiatives.

“This program is about taking control,” says Mr Englund. “By using metrics, and having business leaders coached, they are more empowered to achieve business success.”

These initiatives follow the release of two very successful programs launched earlier this year. The first was a pricing program to help businesses more accurately assess the value of their advice and ensure they price fairly for it. The second was the Accountants Offer released in June for accountants looking to provide advice in the new regulatory landscape. This offer encompasses a comprehensive education program to support accountants wanting to enter the financial planning arena.

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The draft legislation, released today, follows extensive consultation with the financial planning industry and acknowledges the protection and certainty this will provide to the Australian public.
 
The FPA has led the pathway to professionalism in the financial planning industry and the protection of all Australians. In April 2011, the FPA originally called on the government to restrict the term “Financial Planner” under law.
 
Mark Rantall, CEO of the FPA said:
 
“This is a fundamental public confidence issue. Only 1 in 5 Australians currently get financial advice and some of this is due to consumers not knowing who to trust. Consumers deserve the right to differentiate between a qualified, professional financial planner and anyone who happens to hang out a shingle calling themselves a financial planner. The FPA has long called for ‘truth in labelling’ and this draft legislation from the government responds to those calls.”
 
Currently, under the Corporations Act 2001, there is no constraint on individuals calling themselves financial planners irrespective of their training, competence, and even licensing.
 
“Whilst FPA members hold some of the highest educational and ethical standards in the industry, there are those in the industry who call themselves financial planners but are seemingly unaware of the specific competency, training, licence, professional standing and services provided. This legislation should put a stop to those bad apples who have misled the Australian public and tarnished the profession by wrongly using this title.”
 
“This is a great win for consumers and strengthens the benefits of the FoFA reforms, in particular the introduction of Best Interest and the removal of conflicted remuneration,” said Rantall.
 
The draft legislation states that only those fully licensed and authorised to provide personal financial advice can call themselves a financial planner/adviser but did not propose that financial planners should be a member of a professional association, as per the original FPA proposal.
 
“Membership of a professional body, like the FPA, provides additional safeguards to consumers in terms of the professional integrity and accountability of their financial planner. Though, this is a significant first step the FPA will continue to advocate for membership of a professional body and/or an ASIC approved Code as the ultimate criteria for restricting the term financial planner/adviser.”

The FPA also welcomes the draft regulations released today to confirm the removal of the existing accountants’ exemption. The FPA has long advocated that in order to provide greater consumer protection then all providers who want to provide personal financial advice must be licensed.

Submissions for both papers close 21 December 2012. 

The papers can be accessed by clicking here.

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Minister Shorten released draft legislation this morning which restricts the use of the terms ‘financial adviser’ and ‘financial planner’.  The legislation will limit the use of these terms to people who have an Australian Financial Services Licence (AFSL) or who are authorised by someone who has an AFSL.

AFA CEO, Richard Klipin said enshrining the term financial adviser is a win for consumers and the professional advisers who serve them. It will help protect consumers from unlicensed advisers, who, under the new legislation, will be prohibited from using the term.

“This will go a long way towards protecting consumers from unlicensed operators who have until now been able to call themselves financial advisers,” Mr Klipin said. “Consumers will now know that the people they seek advice from are genuine financial advisers, who are licensed or authorised to provide financial product advice.”

AFA President, Michael Nowak, said the proposed legislation is a win for the industry.  “It is a particularly good outcome for the financial advice industry,” he said. “Advisers can now use the term ‘financial adviser’, confident in the knowledge that consumers will understand that they are licensed or authorised to provide financial product advice.”

The AFA’s Back to Basics research released in 2010 demonstrated that while people who are in an advice relationship are better off financially; happier, more engaged with their finances and have a feeling of certainty and control over their financial future, only around two in 10 currently get advice.

“This may have something to do with the fact that consumers don’t know who to trust when it comes to financial advice,” Mr Nowak said. “Enshrining the term financial adviser will help resolve that issue.”

Mr Klipin also acknowledged the consultative approach the Government had taken.

“What the industry now has is a very practical solution which will help raise the perception of the financial advice profession and help restore consumer confidence in financial advisers,” he said. “We look forward to working with the Government to finalise this legislation and to see it passed by the parliament into law.”

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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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Much of the discussion is merely hypothesis.

The reality is that financial planning and the financial services industry more broadly have not done a good job of managing relationships with accountants.

Why is this?
Historically, four issues have generally plagued the relationship between accountants and financial planners:

• Trust
• Client ownership
• Expertise
• Sharing revenue streams and costs

More recently, independence has become a major issue, in particular, independence from major financial institutions.

The majority of accountants in practice, and we’re talking over 90% of accountants, are not involved in the provision of financial services.

They are certainly involved in superannuation and self-managed superannuation funds (SMSFs), but this is largely in the form of providing advice on the most appropriate tax structure for a client. An SMSF generally forms part of this tax structure.

The changes announced by Minister Shorten will see, over the next three years, a number of accountants moving into the provision of financial services and advice.

Our expectation is that accountants will become authorised to provide advice, in a limited or restricted form, in superannuation and SMSFs.

Do accountants want to expand their advice capability into other areas such as investment and life insurance advice? Our research indicates that the majority will not.

Would accountants prefer to work with financial planners who offer advice across a range of specialisations such as life insurance, investments and retirement planning? Preferably, not.

So, where is the opportunity for financial advisers?
Firstly, it is worth noting that there are over 60,000 accountants in practice in Australia. That’s a big market!

Secondly, there are two very clear opportunities for advice, particularly for advisers specialising in:

• Investment advice, particularly on direct assets (e.g. Australian shares), and
• Life insurance specialists.

The ATO introduced measures on 7 August 2012 as part of the suite of measures announced within Stronger Super. These measures are intended to address potential risks and strengthen the regulatory framework in which SMSFs operate.

These measures mean that trustees of an SMSF, are:

• Required to conduct a review of the fund’s investment strategy on a regular basis
• Required to consider insurance for fund members as part of the fund’s investment strategy
• Required to value the fund’s assets at market value for the purposes of preparing financial accounts and statements.

From our research and discussions with a large number of accountants, a clear preference has emerged to work with specialists in their respective fields.

For example, most accountants manage the day to day administration of SMSFs for their clients. They do not manage the assets within the SMSFs and are generally not authorised to advise on investments, asset allocation and portfolio construction.

The most recent SMSF statistics released by the ATO to the end of March quarter 2012 shows that the majority of investments invested in SMSFs are direct assets such as Australian shares, cash, term deposits and property, both commercial and residential.

The table below outlines the asset allocation of SMSFs as a whole as at March quarter 2012.

Direct investment accounts for over 75% of the total assets of SMSFs. Only 5% of the total assets are invested in managed funds.

SMSF members clearly have a preference for direct investment rather than through an investment platform.
Is the SMSF asset allocation appropriate to the needs and risk profile of SMSF members? Maybe. Then again, no one has tested this. The SMSF may be concentrated in direct property and it is debatable whether this would meet the ATO requirements for diversification.

A trusted relationship with an accountant may give you access to valuable information on a fund’s asset allocation.

Investment specialists, particularly in direct shares and portfolio construction, have a genuine opportunity to assist and advise the SMSF clients of accountants on the most appropriate portfolio for their clients.

In terms of insurance, a recent study indicated that over 90% of SMSFs were either underinsured or did not have life insurance.

The ATO statistics indicate that the average number of members in an SMSF is two. Let’s call them “mum” and “dad”. Both will need advice on the most appropriate type and level of insurance cover.

Specialist advisers in life insurance – those with 10 or more years’ experience advising in life insurance – would add significant value to an accountant’s clients in assessing their current insurance coverage, through other super funds or outside of super.

The challenge, though, is not just for financial advisers. The challenge needs to be laid down to accountants as well. By not expanding into financial services they may be missing out on valuable opportunities, not just to increase the value of their business but also to provide greater assistance to their clients in growing and protecting their wealth and retirement savings.

This article first appeared in the September issue of the van Eyk View. 

http://itunes.apple.com/au/app/the-van-eyk-view/id476210180

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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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