The future of financial planning

A presentation by FPA CEO Dante De Gori CFP® on 16 July at Pritchitt Partners, Melbourne

My message for all here today and for the wider population, is that there is absolutely a future for the profession of financial planning. The opportunities and the need for financial advice by Australians and frankly by most citizens around the world is without question – however it will be different – it will be financial planning but not as you know it.

Now, in preparation for today I was speaking to my parents about giving this speech and I realised more than ever that after 18 years my parents still have no idea what I do…and this for me is the centrepiece of the problem we must all work together to solve – the public’s awareness of financial planning – and I will touch on this a little later.

People often ask me why I took on the role of CEO of the FPA and trust me over the last 12 months, in particular, I have reflected on this question quite a lot. But I keep coming back to two things

  1. I believe financial planning should be accessible to all Australians; and
  2. I believe in the importance of financial planning to the Australian society.

My line, with anyone who will listen, is that financial planning is of national importance, and second only to your health is your financial wellbeing. Just as we have access to universal healthcare, we must really consider access to financial advice for Australians that need it most.

The current environment

Now before I move on to the future, I want to spend some time on the now. Firstly, I need to echo the words of Commissioner Ken Hayne: to complete our transition to a profession we need to move from an industry dedicated to the sale of financial products to a profession concerned with the provision of financial advice. I support this proposition, and please note this does not mean that financial planners are not professional, this is about the practice of financial planning being seen as a profession.

What does a typical FPA member look like? Well they are a 45 year old male, with 13 years’ experience as a financial planner, they live in Melbourne (or Sydney), have a related degree qualification, are employed and earn $125,000 per annum, and they work in a practice will less than 10 financial planners.

As at 30 June 2019, there were 26,100 financial planners in Australia, an increase of around 45% compared with the number of financial planners in August 2009.

The Productivity Commission has noted that the financial planning sector is estimated to be worth $4.6 billion in revenue.

In August 2009, the then largest 20 dealer groups held approximately 50% of market share, and 85% of financial planners at that time were associated with a product manufacturer.

In more recent data as published by the Productivity Commission:

CoreData research on the FPA membership tells us that:

How many Australians get advice

In 2016/17, around 2.6 million Australians sought financial advice (Investment Trends 2017). Most clients sought financial advice relating to superannuation (including self-managed super funds) and loan and investment advice (IBISWorld 2018). However, Investment Trends estimates that about half of the Australian population (48%) have an unmet advice need…providing a great opportunity for the financial planning profession.

Financial advice clients also love their financial planner, they trust them and many remain clients for life.

The demand is there, our challenge and opportunity is to convert this demand. How do we help bring consumers and financial planners together? The most common question we get from media and consumers is “how do I find a financial planner?” The traditional ‘find a planner’ type tools are helpful but only go so far.

In 2017, I commissioned some work to see what consumers wanted and needed that would give them that confidence to take the leap of seeing a financial planner. Aside from referrals from family and friends, the results told us we needed a tool that helped consumers to interact with a financial planner in a safe environment where they could control the conversation and without feeling committed.

So we have built a new tool which is effectively the world’s first dating app for consumers connecting with a financial planner called Match My Planner. In the end, the research told us that for trust to be created people needed to interact with people and this tool connects people to have a dialogue (the consumers chooses how many financial planners they want to engage with) and allows them to ask questions and interact with a financial planner that has been matched to them based on their needs and wants.

Remember this tool will allow people to be matched on a wide range of factors not just on the advice services one provides. Age, gender, location, values, fees, practice size and ownership etc.

We are very excited about this tool and we feel it has the potential to really close the information gap that seems to prevent a consumer from taking that next step. We will see…

But of course more needs to be done. How do we, for example, encourage good news media stories about financial advice for consumers to read? Traditional media will report the news and scandals. But it is our job to continue to have a relationship with the media – backgrounding and educating them so they are able to accurately report and obtain balanced views. But equally our role is to help promote the work our financial planners do every day in making a meaningful positive difference in the lives of 2.6 million Australians.

The challenges for the profession

The Banking Royal Commission identified three key areas of reform required to complete our transition into a profession.

First, is the charging of ‘fees for no service’. The Commissioner said that the practice of charging ‘fees for no service’ has been endemic in the financial advice industry. Until satisfactory steps have been taken to deal with those involved in the charging of ‘fees for no service’, and to ensure that it does not happen again, the financial advice industry will lack the public respect and trust that is a necessary aspect of any profession.

Second, is poor advice as a result of the conflicts of interest. The Commissioner stated that other professions are not so pervaded by conflicts of interest and do not have such a high tolerance for the continued existence of conflicts of interest. He went on to say that until something is done to address these conflicts, the financial advice industry will not be a profession.

Thirdly, is the disciplinary system for financial planners. One hallmark of a profession is the existence of a credible and coherent system of professional discipline where the ultimate sanction is expulsion from the profession. The Commissioner notes that the existing disciplinary arrangements for financial planners are fragmented, and hampered by inadequate sharing of information.

So here is a blueprint of the areas that need to be addressed, while noting the current challenges facing the profession cannot be ignored, these being:

Compounding these immediate and pressing issues are the Royal Commission recommendations and how they will be interpreted and implemented. We eagerly await next steps from government and treasury.

Other challenges, many long standing but still fundamental to the success of the profession are:

The future…beyond 2030

Australia’s population ticks over 30 million, superannuation guarantee is finally at 12.5%, driverless cars are mainstream and there are around 7 million Australians who have a financial planner.

The occupation of financial planning and financial planners are recognised as a profession by the Australian public, media, regulators and government. Financial advice fees are tax deductible and there is universal access to financial advice through low cost technology-enabled advice led solutions.

General advice has been removed and financial product advice has been replaced with Financial Advice. There will be truth in labelling – a consumer will know when they are getting advice or when they are being sold a product!

Product providers and other gatekeepers in the value chain will be held accountable for their role in any failures that cause consumer detriment – proportional liability. Further the nomenclature of ‘distribution’ will be dead, buried and cremated in financial planning – no more distribution departments and no more reference to financial planners as being a distributor of products. Financial planners will be seen as service providers to customers and policy holders of a product provider.

There will be true specialisations, with financial planners being recognised as specialists in traditional areas like SMSF advice and aged care, as well as new and emerging areas – for example, did you know in the US they have financial planners who specialise in divorce clients?

Financial planner numbers will be 25,000 after declining to under 20,000 in 2024. And there is huge interest from students wanting to enter the financial planning profession. This number will be easily identified in areas of specialisation rather than product authorisation.

The statement of advice (or SOA) has been replaced with a real-life version of a client’s financial PLAN. The financial plan will be accessible digitally and will be updated automatically as the client makes a financial decision/transaction. Tracking of goals and impacts to their plan are reported in real time to the financial planner who can respond and provide solutions for the client about any corrective course of action – which may be more about their behaviour than any financial decision. True ongoing advice!

Fee models will be a mixture of fixed pricing and hourly rates, with the majority of fees paid directly from the client and/or true administration platforms. There will be no more ongoing fee arrangements as we know them today…being for services promised to be delivered – but rather an invoice for services actually delivered.

Single, self-licensed business will not be common and many will form co-ops with other self-licensed individuals for shared services, admin, reception, paraplanning, premises etc… very similar to doctors. There will be the big advice businesses with wealth management – but equally there will be large professional financial planning firms that will offer a variety of professional services to their clients with no product.

As I said, financial planning has a great future, but it will be different. Those who take the challenge and opportunities that are there will thrive and so too will the profession.

Thank you.