What I see when I look at the financial services industry is the incomplete transformation from salespeople to professional advisers. We are largely an industry dedicated to the sale of financial products. We are not yet a profession concerned with the provision of financial advice.
Until the transition is complete it is only right that all investment salespeople be heavily regulated. If you were in the regulators shoes you would have no choice but to create regulations for the lowest common denominator. In poor quality firms, compliance is seen as a problem because they are trying to back-fill the compliance to fit their poor advice.
As a good acquaintance of mine, Brett Davidson said in his article, Get Better Not Bitter: “I recently heard about an adviser who has called it quits and is leaving the profession. The reason? He was totally fed up with the barrage of regulation. For him, the fun had finally left the building.”
But, financial planning and personal coaching is, rightly so, a non-regulated activity. By necessity it is financial intermediation that is regulated as here lies all the conflicted remuneration, where, as the regulator said recently, an adviser may have a strong monetary incentive to recommend one course of action over another. Over time these incentives can have a significant negative financial impact on consumers.
I hear advisers say that surveys show that, having an adviser can have a strong positive financial impact on consumers. The survey will show adviser clients being wealthier, but the analysis is unsubstantiated and results inconclusive. You see there is a selection bias distorting the outcome; where advisers set thresholds on investable assets or income, they only select as clients those consumers that have the prospect of a strong positive financial future; to maximise assets under advice, and thereby maximise future revenue. In so doing, they leave 95% of the population as underserved, and the advice gap can have a significant negative financial impact on consumers.
Whether sales agents hold one agency or many, they are still selling agents and salespeople, and are never truly independent of product providers. Only when they are not an intermediary, are they truly independent. Advisers should be required by the regulator to clearly disclose and explain why they are not independent, impartial or unbiased. But that does not happen.
So far the industry has stopped far short of placing a wall between advice and product. Our regulations even favour vertically integrated firms; where product companies employ advisers exemptions for the disclosure of conflicted remuneration apply. Only when we see blue water between advice and product will we have an integrity that is impeccable.
“There should be a wall, between advice and products, between advice and large institutions, and between our regulators and large institutions. We need an integrity that is impeccable. Until we actually institute a way of bringing good heart, great integrity and a fiduciary relationship that is sustainable into the industry, we are going to fail. We have to make this change, and we have to make it now.” – George Kinder
How can a client trust someone if they are not regulated? “Only a regulated adviser can be trusted”, some might say. And, if advisers are not regulated, they will be unprofessional?
I say, let regulators regulate to the lowest common denominator the industries that lack impeccable integrity. Let professional bodies oversee the professionalism of their members, in markets where integrity is assured, through effective codes of conduct. It is through effective codes that we can restore market integrity. The truly ground-breaking work of collaborating communities like the Market Integrity Team of the Transparency Taskforce will in time improve outcomes for consumers and help restore confidence in the Sector.
When our industry is impeccable we need less regulation, and in lowering the cost of regulation for advisers we can begin to serve the underserved, plug the advice gap and reduce the wealth divide.
The transition for a financial planner from salesperson to professional adviser for me, is the transformation from financial intermediary to non-intermediating financial planner.
If you are ready to begin that metamorphosis, then join us.
Contact us today to find out how the Academy of Life Planning can help you transition from Investment Firm (Regulated) to Non-Intermediating Financial Planning firm (non-regulated).
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