The financial planning industry must offer consumers real value for money

Creating a Financial Planning Profession

Finally, it is clear that the industry has failed dismally in its aim to become a profession. With survey results as bad as this, it is unfortunate that the "good guys" in the industry get tarnished with the same brush as the bad. All the ACA can say to the professional and ethical planners is "get your professional association into shape". We probably need a new association - the Independent Financial Planners - who clearly distinguish themselves from the rest by not accepting or rebating commissions.

Further, it is debatable whether the current industry lobby group - the Financial Planning Association (FPA) - should also be the industry professional body. So far, that structure does not seem to have worked to change the industry effectively. The FPA takes virtually no disciplinary action on members and their reluctance to be a proper professional body is now showing publicly. As well, problem denial, which has been the FPA's response to the ACA-ASIC survey, is not a good start. It looks to us like some real leadership is needed - a few heads should be rolling.

While the brunt of the public criticism has been directed at financial planners, the managed funds should not expect to get off scot-free. Who provides the planners with the up-front commissions, the trailing commissions, the trips and outings, the marketing allowances, the Hong Kong 7s? The managed funds of course. Who refuses - in the case of most firms - to rebate the consumer for buying directly rather than through a planner? Who charges inappropriate up-front and exit fees - not only to generate the funds that help pay the commission-based planners - but also to interfere with proper competitive behaviour by consumers in this market? And who gives a certain executive $33 million in payment for supposed performance? The managed funds, of course, whose executives obviously failed to remember the old adage that "genius is a rising market". Perhaps some of these people should now be rewarded for the negative returns their clients are experiencing - by handing some of the performance bonuses back! The corrupt shape of this industry is as much the doing of the managed funds as it is the acquiescent financial planners.

Because of the dismal results of the financial planners in the survey, the ACA has withdrawn its support for superannuation choice. The legal framework, which would allow employees to choose their own superannuation fund, is, in principle, a great idea; the ACA was a stalwart backer of the Government's attempt to introduce choice in the superannuation market. But consumers will need help in selecting this most complex of products. Who will they turn to? Financial planners of course. These planners should not have access to consumers' compulsory retirement savings until major improvements in behaviour are in place as well as stringent consumer protections on fees and commissions.

The message to the financial planning industry is that "time's up" - three strikes and you're out. After the third poor result over eight years in this shadow-shopping by ACA and ASIC, the excuses are no longer acceptable. The industry has been saying for more than 10 years that things are improving; in fact, the industry has gone backwards. If financial planners want consumers to trust them with their hard-earned money, great change is needed in the structure of this industry, and in the attitudes of the planners. In the meantime, for consumers, this is serious "buyer beware" territory. If you decide to see a planner as a consumer, go in armed!