When do you know you are going out of business - just before you do.
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.
FINANCIAL PLANNING DEMISE?
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?
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?