More to advice than meets the eye
20 July 2009
Did you read the recent story about an elderly group of wealthy German pensioners who were charged with kidnapping and torturing a financial adviser who had lost $4 million of their savings?
Pensioners hit the adviser with their Zimmer frames, bound him with duct tape, bundled him into the boot of a car and took him to an isolated location where they chained him up, burned him with cigarettes and broke two ribs. In the slipstream of the GFC it seems financial advisers have achieved pariah status.
It’s human nature; we need someone to blame. The institutions that packaged up that sub-prime debt are too remote to directly earn the wrath of small investors. No, it’s easier to point the finger at the adviser and say: “You’re responsible.”
But if superannuation funds, banks, fund managers and government regulatory authorities worldwide, got it so horribly wrong, what chance the financial adviser.
This criticism of advisers isn’t only misplaced; its timing could not be worse because the need for their services has never been greater.
A recent Wealth Management Seminar by the Rainmaker Group pointed out that Self-Managed Super Funds (SMSFs) have been the growth area for the industry – the independent, do-it-yourself brigade that need financial advice. They now have, on average, account balances of $850,000 – and that’s after the GFC. Many “middle-class” families (not just high net worth individuals) are using SMSFs to plan their retirement, making the argument for this need for competent financial advice more compelling.
However, getting that advice might not be easy. There hasn’t been the growth in the number of financial advisers to meet the demands of those seeking advice. In a simple supply and demand situation, we have to question whether financial advice is the expensive service it is depicted to be.
In particular, advisers are often criticised for their commission-based remuneration for single-product sales. If you listen to the town criers from the greater regulation brigade, you would think advisers only sold financial product.
But their advice is about painting the total financial picture to meet clients’ realistic financial goals. It’s not just about product selection, asset allocation and portfolio management. The big risk in these attacks on advisers is that they could alienate the very people who need their advice.
Financial advising, a cross between science and art, is difficult. Advice to a client is about devising a holistic strategy to meet financing goals, involving investing, savings, superannuation and insurance. It’s not just about portfolio management or stock selection for the best return, but a total risk management strategy that ensures clients meet their financial goals.
A recent Suncorp survey said about half the respondents found super too complicated. If extrapolated to 50% of the population being in the dark about super, surely the role for financial adviser is self evident.
Like any professional, a financial adviser’s skills demand adequate compensation, whether it is paid for by disclosed commissions and trails or fee for service. Only time will tell if the panacea of the fee-for-service model encourages more people to seek advice. My concern is the fee for service model could discourage people from getting advice.
Interestingly, financial advisers using this holistic approach have been at the forefront of encouraging savings
While the calls have been loud to increase the minimum compulsory superannuation contribution from 9% to 12% or 15% of income, figures reveal advisers are already showing clients how to save more than the mandated 9%.
Just like the tumblers in the industry super fund advertisements that add up the value of supposedly lower fees, a similar advertisement could show the value add from a financial adviser who encourages a client to save an extra 3% a year. Over 20 years this extra savings will add more than 25% to the final retirement sum.
