In January 2013, my colleagues and I sat down to discuss and write our annual business plan. We tried to anticipate where the environment is heading due to the wave of consumerism that is now upon us. Anyone who fights against this impending force, rather than using it for their benefit, is making a mistake.
The regulators have informed us that upfront commissions on investments will effectively disappear in the near future and rebates are soon to be regulated against. Transparency is key! As an industry, we need to see what we do through the eyes of the consumer to assess what is fair and reasonable.
Is the industry at large ready for this change?
It seems not. Advisers have not been anticipating these changes. Moving away from upfront commissions towards fee-based remuneration (which means on-going fees from investments) has been far too difficult a transition to make for most advisers. However, there has been a considerable amount of CERTIFIED FINANCIAL PLANNER® professionals at the top end of the market who have already established themselves and whom are ready for this change.
We think that as an industry we need to consider if there is a certain level in our society which we just cannot service fairly? If this is the case, then we as an industry need to talk to government about what the appropriate solutions are. Indications coming from government are that they are going to introduce some form of product in the retirement area as well as at a discretionary savings level. This means that effectively no advice will be needed in this market.
What will all this mean for independent financial advisers?
We hazard to guess that the regulator is uncomfortable with so many FSP licenses and that they would prefer the smaller FSP’s to either retire, consolidate or return to being tied agents for the big companies. The regulators cannot and will not say this openly but it will result in unemployment and it will obviously make the job as a regulator easier.
Will this be better for the consumer?
As a capitalist first, I am always sorry to see small businesses fail as I believe they are very important for our economy. I am also sorry to see such high barrier levels to entry for young advisers starting from scratch. The government need to consider the consequences of their actions before moving forward. We at Veritas Wealth believe passionately in independent advice.
Someone asked what will the big product providers do to help the small independents?
The answer to this question is I am not sure they can? I was asked recently if I would make any changes to the FAIS act. In my opinion, one conflict of interest that should be allowed is for the bigger companies to invest in practice development within an independents’practice. It should be allowed for say a 3 year window period and then banned again. The effect would directly benefit the clients of these practices. A second consideration would be to invest in courses, trying to get as many advisers to CFP® professional status, which will be of direct benefit to the consumer
The big players will no doubt go directly to clients, but financial planning is not about distribution. It was! But now advice is all about adding value to clients over time. It is about giving money a real meaning. It is about freeing clients up to get on with their profession or life knowing that you have their affairs in order. We at Veritas Wealth are very excited about the future as change is inevitable and we have to deal with it!