Financial planning has reached an interesting juncture in its development. It's gone from being a cottage industry to something far more corporate, grown-up and sophisticated.
It's no longer the sort of industry where you can hang up your own shingle and run a little life-style business.
Now all the big boys, such as banks and fund managers, have big teams of advisers and competition is tough and getting tougher.
Three big events are happening which will have far-reaching impacts on financial planning.
The past two years have been a sobering experience for fund managers and advisers as the markets have tanked and the majority of investors have probably booked losses (some quite large) on their portfolios.
Two key impacts from this situation are that advisers have had to spend more time 'holding hands' with their clients and helping them through the tough times, as opposed to finding new clients.
Secondly, it has put pressure on firms to ensure they are providing a true, value-added service and if the situation continues it may exert some downward pressure on fees.
But there is an upside to this situation. Falling markets have forced people to realise that sound professional advice is worthwhile. Worldwide there is a "flight to advice".
This has produced an interesting situation. It could be argued that there is a dearth of professional advisers in New Zealand so the prospects for the industry are good. However, advisers need to be sure they can demonstrate that they are adding sufficient value to their clients, commensurate with their level of fees.
More competition
One of the trends in the financial planning industry last year was the number of mergers and acquisitions, and the growing muscle of the big groups such as Money Managers, Spicers and the bank networks.
In this sense New Zealand is following what happened in Australia a number of years ago. Looking across the Tasman a situation has developed where most of the big groups are owned by fund management firms or banks keen to push their own products.
According to a recent report only five of Australia's top 40 independent financial advisory groups are not owned by a bank or funds manager.
On top of that the wrap accounts and master trusts are becoming far more influential.
Fund managers are tending to focus far more sharply on the master trust providers to distribute their products as it is easier to deal with several administrators, rather than hundreds of individual planners, plus the master trusts are generating volume.
Also managers are under margin pressure therefore are looking for cheaper and more cost efficient ways of pushing their products.
This has got to the stage where managers are producing 'mezzanine' funds (high minimums and lower fees) for master trusts and not making the product available through smaller planning operations or directly to the public.
These developments are putting pressure on the smaller financial planning firms.
Another useful blueprint of where the financial planning industry is headed comes from a paper called Hypercompetition written by Clayton Coplestone and Brian Thomas of Credit Suisse Asset Management in Australia.
"Hypercompetition is the incredible boom coming to the competitive landscape of financial planning that will change the industry dramatically."
They warn planners that they face competition from a new entrant coming into the industry and using technology to create a "new super competitor".
They also talk about the "death of the transactor". That is financial planners have been replaced (by the Internet to a large degree) as transactors.
This is reinforced by the Financial Planner of the Year Awards (run by Good Returns) which showed last year that the advice business is actually a process of value-added services, as opposed to a job just flogging product.
Beside the threat of a super-competitor, financial planners are facing a number of other challenges on their patch.
Lawyers and accountants are starting to look at ways of offering financial advice to their clients and there are a (slowly) increasing number of businesses offering services over the Internet. In some cases these are being provided by fund managers or people in the industry who want to 'go direct' to the customer.
Perhaps one of the pluses from last year is that the consolidators (the groups of rolled up accountancy firms such as Harts) went backwards last year. While they are currently a reduced threat fund management firms and others are developing new ways of tapping into this lucrative new advice pool.
Adviser regulation
Last year the Securities Commission got a new boss, Jane Diplock, who means business. She has already shown this with the tough stance the commission took on contributory mortgages just before Christmas.
One of the commission's current projects is to tighten up regulation of the advisory industry.
The reasons behind this have more to do with perception, and investor confidence, rather than trying to solve an identified problem.
It circulated a discussion document last year which outlined a number of proposals and now it is on the verge of making recommendations to the Government.
While details of these recommendations haven't been made public, they will undoubtedly force advisers to raise their standards.
There is likely to be a window of opportunity for the industry to get its act together. If that is missed regulation will be forced on the industry.
Two of the big issues seem to be that the industry is highly fragmented, thus making it harder to successfully implement a self-regulation regime, secondly nothing much appears to be happening.
Philip Macalister is the editor of Good Returns and also organises the annual Financial Planner of the Year Award.
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