There are four educational cornerstones that are unique to Financial Planning. The first is investment planning – not investment selection as many think, but the matching of appropriate investments and savings strategies to match a client goal or goals. Secondly, increasing complexity in the area of superannuation and retirement income streams (at odds with our previous Treasurer’s view…) has meant that this has become an area of specialist knowledge. Thirdly, financial planning emerged from the distribution of life insurance products and advising on appropriate personal insurances has always been a natural area of expertise. Lastly, the demography of our client base places us at the forefront of dealing with retirement, and therefore Social Security, issues. This is rapidly expanding into assistance with aged care advice as older Australians are faced with a complex system of means tests. For this reason, Social Security and Aged Care becomes the fourth cornerstone.
The ancillary areas of taxation and estate planning, while clearly the expert areas of accounting professionals and legal professionals respectively, need to integrate seamlessly into the overall client strategy. Debt management has also become an important component of personal financial management as we tend to hold debt for much longer than previous generations.
Competent financial planners are able to establish detailed client goals, and co-ordinate each of these into an effective financial plan and cash flow and asset model that meets their client’s long term needs. They must then manage the future activities of the client so that they keep to the plan.
The core knowledge provided through formal education is greatly supplemented with employment based training. This is why so many of today’s experienced financial planners started their careers with one of the major banks. The banks did, and still do, provide excellent technical departments available to assist inexperienced advisers with the many strategic options available to clients. They also provide a source of new clients. However, the payoff for them is that products sold will naturally be skewed towards their own company’s product range. This is, of course, exactly the same as meeting with an adviser from a superannuation fund (either not-for-profit or for-profit). They are hardly going to recommend an alternative provider’s product.
The failure of credible financial planning in the retail banking system (in the eyes of the community at least) is that there has been far too much reliance on attracting new business for an up-front commission, and very little emphasis placed on the on-going relationship between a planner and their client. Where the emphasis is different, both clients and planners seem to be happy.
Similarly, superannuation funds that offer financial advice cannot possibly provide the long term relationship required for true financial planning – consider the mathematics of 400,000 members and 20 advisers. Both are examples of transactional based financial advice – not financial planning. The true value in financial planning comes from the on-going relationship and advice that is provided over many years. Helping clients to anticipate life events and plan for them, as well as dealing with the unexpected, is our raison d’etre. When people have only experienced transactional based advice it is hardly surprising that they see little value in our profession, and see us as little more than part of a product distribution network.
It is unfortunate that many new graduates from financial planning courses are not skilled in all of the foundation areas of financial planning. Indeed, courses can be completed without developing a working knowledge of personal insurances, social security and aged care and a minimal level of knowledge regarding superannuation.
We are being let down by our educators – including university educators – who have yet to come to terms with the development of Financial Planning as a stand-alone specialization/profession. In the main, we have university education for financial planners that sits somewhere between the finance faculty, accounting faculty and economics faculty. With some exceptions we therefore have a system that either cobbles together courses based on existing modules from their existing faculties, or uses lecturers to teach outside of their expertise. Perhaps we have both. The real problem with this is that the end result is education based on (often incorrect) perceptions of what financial planning is about. The concept of the camel being a horse designed by a committee springs to mind. It is imperative that the industry demands more from our tertiary institutions – from both an educational, as well as a research perspective. We need more Australian data regarding personal financial benchmarking and factors that affect our population.
We also need the acceptance by faculty heads that a recognized body of knowledge needs to be developed for our industry/profession. In short, we need research and education not developed for the funds management and broking industry, but rather for financial planners. At the 2009 FPA national conference there were 33 sessions provided and exactly no academic papers presented.
The introduction of a minimum education standard for financial advisers by ASIC (Policy Statement 146, and later Regulatory Guide 146) created a plethora of providers eager to develop courses that would meet these minimum standards. Almost overnight, educational standards began to reduce as courses were offered at lower and lower standards (but which ‘met’ the minimum). This has contributed to the public’s perception that a qualification in financial planning means little. The promotion of the higher standard Certified Financial Planner designation is moving towards restoring a sense of professionalism amongst financial planners. The current work by the FPA in enhancing this qualification and developing higher education standards is to be applauded.
The attraction of providing education programs by all aforementioned providers is the demand for education in this field. There are many people who would like to move into financial planning as a profession and need education. Indeed, existing practitioners are hungry for further education if it is of good quality and not simply a re-hash of old material.
There are gaps in the education of new financial planners, particularly (but not exclusively) around behavioural finance and marketing. There could be many reasons for this, but in part may be the result of the industry being fairly immature. This immaturity manifests in a very large number of small practices who find it difficult to bring new practitioners into the profession.
While there are some, we do not have many large practices that can afford to absorb the costs of hiring young planners without a client base (income source) and with as yet unproven skills at attaining future clients. One of the reasons for the lack of large practices is the availability of a corporate clientele. Large accounting and legal firms generate significant incomes from large corporations with the means and needs for their services. Financial Planning is almost by definition personally focused. Without the revenue from large corporations, necessarily smaller firms will be the norm.
The problem of employing 'new' planners is, however, only in part related to formal education - the real issue is an ability to develop a client base. Most experienced planners had to go out and generate opportunities, then convert them to clients. Many new advisers who have completed the technical component of their education think this conversion is about ‘product flogging’. They make this mistake at the risk of a career in financial planning. If they believe that this compromises good advice (many do) - then they are very wrong. Instead understand that an individual’s success as a future financial planner is about being able to 'sell' their advice to a client.
Clearly, though, if you are 'selling' a financial product specifically for a commission (as per the ASIC definition), you are not behaving like a financial planner (FPA and CFP definition). If, however, you are able to sit with clients and 'sell' your skills as a communicator, strategist and goals-based thinker - you will be successful. But what is required first and foremost is an ability to get in front of clients.
As a separate issue, where the regulator is only able to ‘regulate’ based on financial product sales, we will always have public confusion regarding quality advice. We currently have a regulatory framework that provides for only compliant (good) advice or non-compliant (bad) advice. The differentiation is unrecognizable to members of the public as it is based on a disclosure regime where the emphasis is on ‘documentation correctness’ and not quality, appropriate strategic advice that is goals based.
The push for a professional standards board is long overdue, but must be functionally separate from both the industry associations and the regulator. A professional standards board would be able to identify good advice from bad advice; not simply based on completing paperwork in the correct manner, but also by looking at the likely client outcomes and ensuring that the recommendations were appropriate for the achievement of client goals as well as the client’s tolerance for both investment risk and liquidity. It is extremely disappointing that the recently announced overhaul of the industry by the Hon. Chris Bowen MP specifically denied the need for such a board.
A successful financial planner is technically competent, but also has the networking and interpersonal skills to actually build a true client base. This is no different to lawyers, accountants and others who consider they work in a profession. Clearly the industry needs to mature and perhaps consolidate to be able to facilitate ‘new blood’ becoming practitioners, but formal education must focus on the foundations of our profession.
The ancillary areas of taxation and estate planning, while clearly the expert areas of accounting professionals and legal professionals respectively, need to integrate seamlessly into the overall client strategy. Debt management has also become an important component of personal financial management as we tend to hold debt for much longer than previous generations.
Competent financial planners are able to establish detailed client goals, and co-ordinate each of these into an effective financial plan and cash flow and asset model that meets their client’s long term needs. They must then manage the future activities of the client so that they keep to the plan.
The core knowledge provided through formal education is greatly supplemented with employment based training. This is why so many of today’s experienced financial planners started their careers with one of the major banks. The banks did, and still do, provide excellent technical departments available to assist inexperienced advisers with the many strategic options available to clients. They also provide a source of new clients. However, the payoff for them is that products sold will naturally be skewed towards their own company’s product range. This is, of course, exactly the same as meeting with an adviser from a superannuation fund (either not-for-profit or for-profit). They are hardly going to recommend an alternative provider’s product.
The failure of credible financial planning in the retail banking system (in the eyes of the community at least) is that there has been far too much reliance on attracting new business for an up-front commission, and very little emphasis placed on the on-going relationship between a planner and their client. Where the emphasis is different, both clients and planners seem to be happy.
Similarly, superannuation funds that offer financial advice cannot possibly provide the long term relationship required for true financial planning – consider the mathematics of 400,000 members and 20 advisers. Both are examples of transactional based financial advice – not financial planning. The true value in financial planning comes from the on-going relationship and advice that is provided over many years. Helping clients to anticipate life events and plan for them, as well as dealing with the unexpected, is our raison d’etre. When people have only experienced transactional based advice it is hardly surprising that they see little value in our profession, and see us as little more than part of a product distribution network.
It is unfortunate that many new graduates from financial planning courses are not skilled in all of the foundation areas of financial planning. Indeed, courses can be completed without developing a working knowledge of personal insurances, social security and aged care and a minimal level of knowledge regarding superannuation.
We are being let down by our educators – including university educators – who have yet to come to terms with the development of Financial Planning as a stand-alone specialization/profession. In the main, we have university education for financial planners that sits somewhere between the finance faculty, accounting faculty and economics faculty. With some exceptions we therefore have a system that either cobbles together courses based on existing modules from their existing faculties, or uses lecturers to teach outside of their expertise. Perhaps we have both. The real problem with this is that the end result is education based on (often incorrect) perceptions of what financial planning is about. The concept of the camel being a horse designed by a committee springs to mind. It is imperative that the industry demands more from our tertiary institutions – from both an educational, as well as a research perspective. We need more Australian data regarding personal financial benchmarking and factors that affect our population.
We also need the acceptance by faculty heads that a recognized body of knowledge needs to be developed for our industry/profession. In short, we need research and education not developed for the funds management and broking industry, but rather for financial planners. At the 2009 FPA national conference there were 33 sessions provided and exactly no academic papers presented.
The introduction of a minimum education standard for financial advisers by ASIC (Policy Statement 146, and later Regulatory Guide 146) created a plethora of providers eager to develop courses that would meet these minimum standards. Almost overnight, educational standards began to reduce as courses were offered at lower and lower standards (but which ‘met’ the minimum). This has contributed to the public’s perception that a qualification in financial planning means little. The promotion of the higher standard Certified Financial Planner designation is moving towards restoring a sense of professionalism amongst financial planners. The current work by the FPA in enhancing this qualification and developing higher education standards is to be applauded.
The attraction of providing education programs by all aforementioned providers is the demand for education in this field. There are many people who would like to move into financial planning as a profession and need education. Indeed, existing practitioners are hungry for further education if it is of good quality and not simply a re-hash of old material.
There are gaps in the education of new financial planners, particularly (but not exclusively) around behavioural finance and marketing. There could be many reasons for this, but in part may be the result of the industry being fairly immature. This immaturity manifests in a very large number of small practices who find it difficult to bring new practitioners into the profession.
While there are some, we do not have many large practices that can afford to absorb the costs of hiring young planners without a client base (income source) and with as yet unproven skills at attaining future clients. One of the reasons for the lack of large practices is the availability of a corporate clientele. Large accounting and legal firms generate significant incomes from large corporations with the means and needs for their services. Financial Planning is almost by definition personally focused. Without the revenue from large corporations, necessarily smaller firms will be the norm.
The problem of employing 'new' planners is, however, only in part related to formal education - the real issue is an ability to develop a client base. Most experienced planners had to go out and generate opportunities, then convert them to clients. Many new advisers who have completed the technical component of their education think this conversion is about ‘product flogging’. They make this mistake at the risk of a career in financial planning. If they believe that this compromises good advice (many do) - then they are very wrong. Instead understand that an individual’s success as a future financial planner is about being able to 'sell' their advice to a client.
Clearly, though, if you are 'selling' a financial product specifically for a commission (as per the ASIC definition), you are not behaving like a financial planner (FPA and CFP definition). If, however, you are able to sit with clients and 'sell' your skills as a communicator, strategist and goals-based thinker - you will be successful. But what is required first and foremost is an ability to get in front of clients.
As a separate issue, where the regulator is only able to ‘regulate’ based on financial product sales, we will always have public confusion regarding quality advice. We currently have a regulatory framework that provides for only compliant (good) advice or non-compliant (bad) advice. The differentiation is unrecognizable to members of the public as it is based on a disclosure regime where the emphasis is on ‘documentation correctness’ and not quality, appropriate strategic advice that is goals based.
The push for a professional standards board is long overdue, but must be functionally separate from both the industry associations and the regulator. A professional standards board would be able to identify good advice from bad advice; not simply based on completing paperwork in the correct manner, but also by looking at the likely client outcomes and ensuring that the recommendations were appropriate for the achievement of client goals as well as the client’s tolerance for both investment risk and liquidity. It is extremely disappointing that the recently announced overhaul of the industry by the Hon. Chris Bowen MP specifically denied the need for such a board.
A successful financial planner is technically competent, but also has the networking and interpersonal skills to actually build a true client base. This is no different to lawyers, accountants and others who consider they work in a profession. Clearly the industry needs to mature and perhaps consolidate to be able to facilitate ‘new blood’ becoming practitioners, but formal education must focus on the foundations of our profession.
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