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Can financial planning firms survive?

When do you know you are going out of business - just before you do.


Framing Bias.

Amos Tversky and Daniel Kahneman explained this years ago.

Basically, when options are framed positively, most of us have a natural bias to favour that option. Whereas when options are framed negatively, we're more likely to fear the worse.

When business is challenging, the natural bias for business owners is to do whatever is required to thrive again, to turn it around. Their bias is on the positive to make it work, right up until... it doesn't.

Is this the fate of the majority of financial planning firms whose best days may possibly be behind them?

Some believe it's too difficult to find a financial planning firm you can trust. Others have never had much regard for financial planners and the fundamental tenet on which the industry is built.


Are the naysayers confusing doom with impending, significant change?

Nearly all planning firms aligned with the large financial institutions have been told to find somewhere else to work (paywalled). This is like telling everyone who lives in a low-lying area to pack everything up and move to higher ground. This isn't only a massive logistical job, but depending upon the length of service and loyalty, this is about changing years of working habits, relationships and promises.

Whether aligned to institutions or not, most planners must undergo new re-education or 'gap training'.

The newly-formed, ambitious and under-resourced body set up to oversee the new education standards for Australia's planners - FASEA - is still working on elements of standards creating understandable uncertainty for planners. Obligations regarding annual client engagement agreements, removal of illegal on-going payments (called grandfathered payments) and inability to deduct a client's advice fee from superannuation accounts are all under current review.

Atop this, regulators have promised more to come as they review those planning firms offering their clients a 'platform service', or managed discretionary accounts (MDAs), or mortgage brokering.

As firms grapple with the extent and impact of these regulatory changes, their own business valuations are being re-set.

The implicit underwriter of all financial planning firm valuations in this country - AMP - has in one statement affected every planning firm's value. By cutting their buy-back formulas (used to calculate how much AMP would buy the client bases from retiring 'self-employed' AMP planners) they ironically exposed how many advisers who spend every day planning the retirement lives of Australians, possibly hadn't been planning as well for their own retirement.

No financial planning firm is unaffected.


So, what are planning firms doing?

They have never been busier.

They are busy studying for re-qualification while still delivering on commitments to their clients. Cautious of an empowered compliance enforcer - ASIC - planners are making extra efforts to ensure their service levels are more than just compliant, even at times regardless of fee.

Undaunted and even encouraged by change, some firms are busy taking the opportunity to acquire more clients as former planners ask them to 'look after my clients please when I've gone'.

Aware that on-going planner fees can never be taken for granted again, planners are also adjusting old systems, job descriptions and key performance indicators to ensure their paperwork, their fees and their services compliantly align for every client. Some even must prepare for up to a 30% loss of revenues when grandfathering deadlines pass the end of next year.

New planners are also busy.

They are optimistic, seeing opportunities to start fresh without the pressure to meet expectations of past promises. Many see new territories opening, thanks to guaranteed growth of superannuation balances, combined with clever use of fintech.

But there doesn't seem to be much light at the end of an unknown tunnel for a silent and a large number of firms who, in the words of an email I received this week, are struggling to pay wages, striving to service a large client base who do not value and therefore are not willing to pay for the expensive advice on offer.

Times are indeed busier than ever.

Busy is good? Right?


It depends.

What if the new regulations, qualifications, acquisitions and all the extra work only prolong an inevitable demise?

What if planning firms are experiencing their own Spotify moment when no amount of regulation or longer working hours would've made an iota of difference for the viability of hard-working record store owners?

Are planners now on a similar path to obsolescence as record store owners have experienced?

Unless they can find new means to create value for their clients other than product sales, their own framing bias may be forcing them along familiar options requiring significant effort and investment pursuing tactics that used to work for them in the pre-Spotify era.

Most planners became planners to help people, not sell financial products.

Putting other people's money into aligned products and selling what is essentially a product recommendation, as advice, is not only a lie, it lacks the transparency and value required to survive as the financial planning industry experiences its own Spotification.

If planners are too busy and distracted from the delivery of the real value that originally built their firms, they may just be putting their firms out of business, frustratingly slowly, then very quickly.

What do you reckon?

5 comments so far

Selling product isn't financial planning or advice. That was the way that the industry was historically remunerated, incentivised and business models were structured. The 'Sales Ladders' that AFSL's published on a monthly basis to show everyone who made the most sales was a mirror of the industry. The Financial Planning Industry can hardly complain about the changes it is faces considering how long it has been living a lie and in denial. Eventually, the truth came out as information become free and easy to access. So clients can do their own research in to product.

MICHAEL VOSS  |  13 JAN 2020   10.41AM

totally agree

best article Jim has written

GAVIN WRIGHT  |  13 JAN 2020   10.03AM

I like the Record Store / Spotify analogy.

For the record i think the future Financial Planners will be most like Barristers. We will have Education, Practical Knowledge and Experience and we be sitting in our office waiting for someone to call wanting advice. We will apply our knowledge and experience to the client circumstances for a fee, paid by the client, that is not subsidised by anyone else.

There will be no compulsion to see a planner. Accountants have the requirement to do income tax returns and annual financial accounts. There will be no subsidy to our fee as there is with Medico's with Medicare and Private Health.

We will have knowledge of applicable laws, financial strategies and all the risks associated and those that wish to pay for advice on a lump sum basis or combination of lump sum and ongoing fee will pay. Financial products may not be referenced at all.

Many financial product providers will disappear as will Life Offices.

Advisers that give advice to clients will have a lot of choice as to areas they want to work in and will a waiting list for appointments.

It will be up to the adviser to understand how much work is required to meet the Client Service Agreements they are offering. It could be that advisers are better to have no ongoing service obligations by not offering ongoing service.

Product providers have worked in concert with the government to blame advisers for everything. Now that advisers will change their business models it will be left to the government and the product providers to answer the Centrelink, basic super and investment questions that the advisers in their businesses have been fielding all day for the past 30 years.

I know what sector i would like to be working in the next 5-10 years. That could be a positively framed mindset however i think educated advisers with a client focus will have choices which is all you want in life. Good choices.

ANDREW O'NEIL  |  13 JAN 2020   7.18PM

The best planners are already true advocates for their clients. They achieve the properly informed commitment of each client to strategic decisions about their future, based on a disciplined approach to evaluating personal timeframes, values and goals.

They engage specialists who deliver the required services competitively, such as accounting, investment, legal and aged care. As client advocates they oversee progress and engage regularly with their clients and the specialists to review circumstances and adapt strategies accordingly.

Jim is right. The old model is obsolete and breaking down. New opportunities beckon.

DAVID WILLIAMS  |  14 JAN 2020   8.36AM

We are all too busy keeping ourselves and our businesses in line with teeth mouthful shark named ASIC and have no time to pay any attention to our clients. This business has been (at least for me) as a venue to meet different people , build good relationship with them and do something good for then that financially sound and provides them with good outcome. Can we do the same these days, yes we can become King Kong beating our chests claiming that we can anything and everything but in reality and I don't want to sound pessimistic we are limited in time and our financial reserves to keep everything up to date

SIMON GOULD  |  20 JAN 2020   4.00PM
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