Print Post Approved PP255003/00299
Vol.25 No.41 | October 27, 2011 | $6.95 INC GST
The publication for the personal investment professional
www.moneymanagement.com.au
MATRIX ON THE MARKET: Page 6 | STRUCTURED PRODUCTS: Page 14
Planners rebuff ambulance chasers Platform By Benjamin Levy FINANCIAL advisers have reacted angrily to continuing attacks on the industry by compensation lawyers who blame financial planners for negative market performance and encourage clients to sue their advisers for supposed poor financial advice. Industry leaders and dealer groups are accusing lawyers of a shameless bid to gather more clients by blaming advisers for market volatility, painting advisers as unethical, and preying on hapless investors. Chief executive of Western Australia (WA) dealer group Plan B Andrew Black said lawyers who wrote such articles had ulterior self-serving motives. “It’s quite extraordinary that when the market is going up, none of this is going on, but when the market’s going down, all of a sudden you get all these people saying it’s the fault of the adviser,” Black said. “If you genuinely had a client’s interest at the heart of what you’re doing, that would result in a little more balance around the issue,” he added. Stoking these claims was also counterproductive when only 20 per cent of Australians were getting financial advice, Black said. An article written by financial services lawyer David Huggins, principal of Huggins Legal in WA, stated “if financial planners tell you that you suffered a loss because the global financial crisis happened, you shouldn’t accept what you are told” and “you have
providers factor in Labor loss
extensive legal rights against your financial planner to recover that loss”. “Quite clearly, articles like this do not help in terms of getting the other four out of five people who would do much better if they were getting the advice,” Black said. A recent Maurice Blackburn press release warned of “rogue advisers ... preying on elderly and vulnerable Australians by pressuring them to sign up for financial products without any regard for their clients’ circumstances”. The firm said there were “increasing numbers” of clients contacting the firm because they were locked into high risk, highly geared products, but could not provide a more specific number of approaches than “a few dozen over the past 12 months”. The chief executive of the Financial Planning Association, Mark Rantall, as well as the chief executive of the Association of Financial Advisers, Richard Klipin, blasted compensation lawyers for blaming advisers for market volatility and product failures. “Holding financial planners accountable for the performance of investment markets is totally unreasonable,” Rantall said. Klipin said the Industry Super Network campaign against financial advisers has now moved to the next phase. Indiscriminately attacking financial advisers through a range of market participants was part of the broader strategy from the ISN, he said. “In a sense, the future of financial advice is
their profits had increased beyond those they had experienced before the GFC. The current bout of volatility and economic uncertainty has also created a significant shift in adviser recommendations to
THE expectation of a change in Government and consequent changes to the Future of Financial Advice (FOFA) legislation has created serious uncertainty and prompted at least one major platform provider, Colonial First State, to adopt a two-stage approach to future platform development. The strategy was revealed by Colonial First State general manager of strategy Nicolette Rubinsztein, who told a Money Management roundtable last week about the contingency arrangements based on continuing uncertainty around elements of the FOFA changes, such as ‘opt-in’. “I think there’s been a sort of decline in trust and now, just if we look at the way that we’re going to build opt-in from a platform point of view, we will probably do the IT build in two separate sections,” Rubinsztein said. She said this was “almost on the expectation that the Labor Government will not be elected next time around. “So we will build the ability to capture the client information and the fee information in the first instance, and then the next build which only needs to happen in two years time,” Rubinsztein said. Her comments came as other roundtable participants expressed concern at the continuing uncertainty associated with the Government’s threetranche approach to the introduction of its FOFA legislation, and the manner in which this had been magnified by the surprise imposition of an annual fee disclosure obligation. The participants were united in suggesting the continuing uncertainty made the Government’s timetable for implementing its legislative package inappropriate. Matrix Financial Planning managing director Rick Di Cristoforo said the deadlines being imposed by the Government were inappropriate given the amount of work financial services companies would need to carry out to meet their FOFA requirements. He said there were legitimate arguments for extending the start date. “You only have to think back to how long the industry was given, rightly, to implement Financial Services Reform (FSR),” he said. “You know we didn’t get six, seven, eight months to implement FSR – and FSR you could now
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Andrew Black up for grabs and currently under debate – there are lots of players with very specific vested interests that will contribute to the debate without overly disclosing their own vested interests,” Klipin said. “Our strong advice to the ISN is to focus on the positives of their value proposition rather than destroying the confidence of Australian consumers,” he said. Director of Western Australian dealer group Wealth Management Partners Steve Beattie labelled it opportunistic to blame advisers for global economic events. “It undermines investor confidence which is not a good thing from an individual investor’s perspective or from a greater economic perspective,” he said.
GFC helped planners fight back today By Mike Taylor THE Global Financial Crisis (GFC) acted as a catalyst for many financial planners to change their business models – something that has placed them in good stead as they deal with the current market volatility, according to new Wealth Insights research. The research, released to Money Management, reveals that 29 per cent of advisers surveyed by the company had managed to grow their profitability back to levels commensurate with what they were experiencing before the GFC. According to Wealth Insights managing director Vanessa McMahon, this reflects the degree to which these people re-engineered their businesses, stripping out costs and moving further into areas such as mortgages and insurance.
Graph: Current Profit Compared To Pre-GFC Levels
Adviser Recommendations 13%
4% 7% 29%
Increased by: 1-20%
Move out of the market and into safe products Stay in safe products
15% 9%
21-40%
40% Invest a little into the markets but keep over 50% in safe products (e.g. cash/term deposits)
41-60% more than 60%
2%
Decreased by: Decreas 1-20%
71%
19%
21-40%
54%
14% April ‘11
7% Sept ‘11
Invest some into the markets keeping between 25-50% in safe products (e.g. cash/term deposits)
Invest a lot into the markets
41-60% more than 60%
18%
41%
3% 1%
About the same Don't know
29%
3%
In comparison to pre-GFC profit levels, many advisers report that their profitability has dropped considerably.
24% 7%
Source: Wealth Insights
She said her research also indicated that the advisers who had most successfully re-engineered their businesses were those who had most fully embraced a feefor-service model and were relatively unaffected by product. However, on the downside of the Wealth Insights’ research,
41 per cent of the advisers the company surveyed reported a decline in profitability compared to levels before the GFC, with half of those reporting profits as being down by between 20 and 40 per cent. This compares to the 29 per cent of respondents who said