Comments by Money Managers boss Doug Somers-Edgar that the financial planning industry is in crisis are interesting and timely.
It's logical to think that in conditions like we are presently experiencing where markets have been in negative territory for nearly three years, and most balanced funds or diversified portfolios are full of red ink, that advisers would be struggling.
The logic continues that if times are tough it becomes harder to get new business, and increasingly difficult to mollify frustrated customers. Therefore income is down and there becomes the temptation to either leave the business, or as Somers-Edgar suggests, steal from clients.
The reality seems quite different.
Yes times are tough at present, but advisers seem to be in good heart. These comments are made after attending and observing the Financial Planners and Insurance Advisers Association annual gabfest, and speaking to 500 advisers in six locations on the association's recent national roadshow.
The current environment illustrates that financial planning is a cyclical business (just like farming) and when the markets are tough the have to work harder to earn their income and keep their clients happy.
There is also anecdotal evidence that the tough time are creating a flight to advice. People who may have opted for a bit of DIY financial planning are now looking for, and prepared to pay for, professional help.
Also the current environment is quite different to the last real tough time for the financial planning industry. That was back in 1994 when both the sharemarket and the bond market fell out of bed.
When that happened eight years ago plenty of people had come into the industry thinking it was a way of making a quick and easy buck. They found it too hard and left.
The people who have stayed have built up stronger businesses (based on developing on-going fee income) plus they have raised their standards.
Because they have built more sustainable businesses there is less temptation, or likelihood, that an adviser will steal money from his or her clients.
It could happen though. If it happens just once, it's incredibly bad news for the industry, but it doesn't meant that everyone is doing it.
The unfortunate thing is there is no 100% guaranteed way to ensure that such an event won't happen. As we have seen previously it has happened in worldly professions such as accountancy and law, plus there have been instances of unsavory practices in both the financial planning and insurance industries before.
In this instance Somers-Edgar's claims that financial planning is in crisis are wrong. Financial planning is in good heart.
Good Returns is a supporter of good practices in the financial planning industry. That is one of the reasons we organise the annual Financial Planner of the Year Awards. The Awards aim to encourage and foster best practice amongst planners and advisers and to show the public the quality of advice and service which are available.
For more information about the Awards visit the FPOY Pages here.
ING, AXA New Zealand, AMP and Sovereign sponsor the Awards
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