Even before an interim report has been issued by Commissioner Hayne, major changes to the financial planning landscape are already being announced. Three of the four major players (ANZ, CBA and NAB) have initiated (or in ANZ’s case completed) the spin out of their financial products businesses to create (in their own words) an independent financial planning offering (within the bank) to the market. These preemptive moves are undoubtedly an attempt to demonstrate to the regulators that they don’t need to compel the break-up through legislation.
Westpac remains the only big bank committed to keeping its wealth management business after investing heavily in its Panorama platforms business within BT Financial Group.
An oddity is that the CBA and NAB are planning to spin out their financial products businesses (funds management, investment platforms and mortgage broking) together with their financial planning dealer groups businesses, thereby creating new (albeit separate) vertically integrated businesses!
Prima facie it seems that CBA and NAB may have missed the whole point – the unbundling of the conflicts of interest that arise from having product and advice in the same shop. However, a deeper investigation reveals something more telling – it is likely that these banks have established that their dealer group financial planning businesses aren’t profitable unless bolted to the product business, or that they are such a mess that they no longer want them entwined with their brands.
The CBA and NAB examples highlight the substantial challenge facing ex-bank financial planning businesses as they strive to survive without commissions and product rebates to prop them up.
In addition to conflicts of interest, a further impediment to the creation of a genuine financial planning “profession” has been the absurdly low barriers to entry. It is often quoted that the entry requirements in terms of education and training are more onerous for hairdressers than financial planners, and this is alarming when you think about how long it takes to recover from a bad haircut versus poor financial advice.
While there are substantial changes coming in terms of lifting the education and training standards for the financial planning industry, unfortunately the reputational damage done will stay with us for many years to come. Trust is hard fought and will likely take many years to rebuild.
Many “old school” financial planners have remained prominent because they were able to be remunerated via product commissions and/or rebates, often without the client even knowing what they were paying. But with the spotlight now well and truly on remuneration arrangements, and moves to switch off “grandfathered” commissions, suddenly these same financial planners will be thrust into a role of delivering genuine advice for a fee. As their businesses are separated from the “mothership”, and they are put forward as “independent”, they will be forced to sit in front of their clients and reconvince them of their value and communicate that the client will now need to start paying them a fee from their own pocket.
This may not wash for a lot of clients for the simple reason that many will not see value for money. For too long fee arrangements for financial advice have been wrapped up in financial products, with clients paying commissions or “service fees” linked to their superannuation. These fees were paid to the financial planner from the product (and in the eyes of the client not directly from their pocket).
So where to here with the decoupling of the traditional vertically integrated financial planning model? Clearly clients need to understand the important distinction between financial advice and the sale of a financial product.
Financial planners of old will need to determine whether they wish to be categorised as salespeople/agents or as genuine financial planners. Many of them won’t be sufficiently skilled to be financial planners, but hopefully they will be able to remain in the industry as salespeople so that they can continue to make a living. The main thing is that the consumers know which type of professional they are dealing with.