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(March-2003) Investment education: are we throwing members to the wolves?
Investment education seminars and “free” access to financial planners have become popular offerings to staff from employers and trustees alike.
The demand for these services seems to have increased as a direct result of the migration of stand alone corporate funds to master trusts, the perceived confusing complexity of investment markets and, one suspects, the need for employers to salve their consciences in circumstances where they have washed their hands of any involvement in the delivery of superannuation.
In many cases, the price for such seminars presents no economic barrier at all, as the financial institutions are delighted with the opportunity of placing their “experts” in front of financially unsophisticated staff who are confused, disillusioned and looking for guidance about their financial futures.
However, in the light of the headline grabbing Australian Securities and Investments Commission (ASIC)/ Australian Consumer Association (ACA) report which claims that the financial planning industry is nothing short of a disgrace, what are we to conclude about the worth of these education programs and “free” access to financial planners? After all, whether employers like it or not, staff will naturally (and correctly) conclude that their employer has sourced the education program, has done a “due diligence” on its worth and is paying for it and endorses it wholeheartedly. All the disclaimers in the world will not dissipate that perception.
The first question to ask is whether the ASIC/ACA survey is correct in its conclusions. The financial planning industry has been understandably defensive, but unfortunately, its defensiveness from some quarters has been quite over the top, leading one to conclude that there is actual substance to the claims within the report.
Regrettably, close observation of the industry over many years leads this writer to conclude that the report is substantially correct. To be fair, there is a desire within the industry to lift the game, but the “forces of darkness” lined up in support of the status quo are substantial and powerful.
There has been much talk of turning the financial planning industry into a profession, akin to the traditional professions of accounting, law and medicine. This is an honourable objective, but unfortunately, the barriers to adviser entry have been low and will remain so, relative to other “professional” industries, even after the introduction of the new Financial Services Reform Act. The fact is that most institutional product manufacturers have a vested interest in keeping the barriers as low as possible, because it suits them to work on the basis that if you throw enough mud against the wall, some of it must stick.
The origin of this method of doing business lies in the life insurance industry, where the achievement of sales targets was not the main purpose of existence, it was the only purpose. For the bulk of the so-called “financial planning” industry, that culture has been adopted with new jargon and a multiplicity of investment products designed to confuse the public and make advisers look as though they are “adding value” by sorting through the confusing maze of opportunities on offer. However, the unpalatable truth is that most of those individuals who were being promoted as professional advisers were simply salesmen. And in an ever improving market, they did not even have to be very good at selling, thus reducing their role to “order taking”, while the “sales process” was wrapped in verbose, meaningless, quasi-academic and unnecessarily complicated reports.
Let’s be honest, as the ASIC/ACA report concludes, the financial planning industry is indeed a disgrace. To some people that statement will be viewed as shocking, disloyal and offensive. Regrettably, for the bulk of the industry (but not all of it) the statement is true in the sense that there is much talk about caring, followed by much acting in exactly the opposite way. The good news is that recent times have forced the ingestion of a large dose of reality. This should lead to much improvement in an industry which is long on hypocrisy and short on all those qualities of independence and trust which employees must be convinced exist before educational seminars and access to financial planners have any credibility whatsoever. Without these qualities, seminars and related financial services for staff are actually counterproductive to the building of trusting relationships between companies and their staff.
Given this bad news, what should employers do? The easy answer would be to summarily cancel all educational programs for the staff. That would also be the wrong answer, given that there is a crying need for the service if handled correctly and professionally. The first thing employers and trustees might like to do is to consider the unpalatable option of actually paying serious money for the service, so that it can be bought as a stand alone activity, rather than a blatant lead-creation exercise for large financial institutions or dealer groups.
The second thing to do might be for employers and trustees to be rather more discerning in the choice of service providers, a process which would include close scrutiny of the presenters, their qualifications, their professional backgrounds and their fundamental philosophies
— Robert MC Brown is an executive director of Bridgeport — Advisers & Asset Managers.
AUTHOR
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