A bunch of new rules are being introduced to Parliament today governing what is usually called the “financial planning” industry. Big new regulatory schemes often have large unintended consequences, and this one could too. But if ever an industry needed to change its behaviour, it is “financial planning”.
I put the words “financial planning” in scare quotes because I can’t bring myself to take the title seriously. The industry is simply not designed to offer financial planning. That’s not how it works. A small group of planners charge consumers for their advice by the hour, but most live on the commissions from the product providers. Their customers are mostly not consumers who need financial plans. Their customers are mostly large financial firms who need people to sell products to consumers. When financial products providers – AMP, AXA, MLC, BT, Perpetual and so on- write the checks, they’re the customers.
So at the level of the consumer, the industry is basically a sales force masquerading as a profession.
This is why calling the industry “financial planning’ is like calling the brothel business “personal counselling”. Sure, you might get some counselling as a byproduct, but the people in the industry are, by and large, being paid for something else entirely.
I seem to recall that Alan Kohler – a journalist who actually understands the role of sales in business – once suggested that the industry could most simply be reformed by forcing “financial planners” to call themselves “salespeople”. He was right. Rather than passing new legislation, the government might simply have told the ACCC they had its support to apply existing law to the industry’s marketing patter.
Don’t believe me? Have a read of this piece from the well-informed recruitment news service eFinancialCareers:
The skill shortage in financial planning is nothing new but employers are becoming more innovative in their efforts to solve it, according to the recent eFinancialCareers roundtable in Melbourne, which was attended by HR professionals from several international and Australian firms.
“We’re all in the market for them and there aren’t too many of them around,” said one of the panelists, all of whom asked not to be named in this report.
So what to do? Well, one firm is recruiting business-to-business salespeople from outside the financial sector, putting them through fin planning qualifications and providing training.
“They have the fundamental skills and importantly they are used to working on long-term deals, unlike those from retail sales who have a shorter-term mentality. We need salespeople who we think will stick with the business and fit into our culture,” said the firm’s representative.
When you refer to financial planners are you talking about brokers that sell stock etc?
For years I used a broker that I considered a financial planner also. It turns out that he was just a salesman without my best interest at heart. I have since hired a certified financial planner and have watched my portfolio grow by leaps and bounds.
Claudia, a “certified” financial planner can still be a commission-based salesman, and a broker can provide responsible financial planning.