Why can’t independents vertically integrate?

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ASIC may be keeping a close eye on vertical integration, but some industry professionals clearly see it as the way forward, particularly for independents.

Matrix is one planning firm that has recently forayed into the vertical integration model in its alliance with Russell Investments. The group posted positive returns for its Partnership Funds, which support the dealer through investment management fees.

The AIOFP has supported the move by Matrix and thinks that other independently-owned planning firms should follow suit.

Peter Johnston, AIOFP executive director, says, “We are never going to have the perfect market of independent advisers charging clients a fee and then selecting strategies/products from manufacturers who do not own distribution.

“What we have is a market dominated by institutions and industry funds operating loss leader/vertically integrated models where it will only work if the advisers are selling the owners products.”

PCM has been doing this since 1999 with IOOF, Asgard and now OneVue and Mercer for members. The Mercer joint venture will be launched at the AIOFP's Hobart conference.

However, Johnston says that advisers who participate in platform profit shares are being labelled unfairly as ‘conflicted’ by other parties.

“Institutions do it, industry funds do it, SMSF promoters do it, Coles and Woolies with petrol do it, everyone without exception within the industry cross subsidises – why can’t independents do it?” asks.

He says that ASIC is acting on “very poorly thought through confusing legislation handed to them by the previous government”.

  • James Smith on 27/09/2013 9:44:56 AM

    Happy to answer your question:
    do you or your dealer group receive any more remuneration, fees, payments, rebates or similar for recommending clients invest in your "fully implemented solution"?
    The answer NO
    Do we receive any fees or kickbacks from the funds we recommend in our tailored portfolios ? NO
    Is there a sensible way to rebate insurance commissions and receive a comparable discount in the client premium at this stage ? NO
    Do clients pay us to service their fully implemented solutions ? YES

  • Pat on 27/09/2013 8:41:57 AM

    Matthew, I am happy to summarise our business model:

    1. Fee for service primarily based on an agreed fee largely determined by factors such as the cost of doing business and an adequate profit margin;
    2. Portfolios designed by firstly assessing the client's risk profile, then determining an asset allocation based on long term forecast returns and implementing that allocation by using very diversified, very cost and tax efficient funds that target risks that are known to deliver adequate returns.
    3. We deliver value by focusing the advice and the client's attention to factors they can control - such as their cashflow and how they allocate it, how they allocate their assets and cashflow and manage debt, protected by adequate insurance, all designed to give the client the greatest probability of achieving their objectives, that have been clarified in the context of reasonableness. The investment/portfolio management piece is important but secondary to the factors that they and we can control.

    Happy James? Note, we do not get paid by the funds, insurers or platform providers to deliver this service, James. Our remuneration is not dependent on selling investments or a platform, James. Our choice of platform is dictated by: relevant features on offer; costs; the ability to implement our investment philosophy; the cost required to move should a preferable platform become available, James. There are no ownership connections between us and the institutions that provide the products to our clients, James. That goes both ways - we are not owned, nor do we have any ownership of the products, yet we deliver investment solutions that are as cost effective as most industry funds or more so. Our advice is not subsidised by product providers representing a hidden cost to the client.

    James, do you or your dealer group receive any more remuneration, fees, payments, rebates or similar for recommending clients invest in your "fully implemented solution"? Serious question.

  • Matthew Ross on 27/09/2013 8:27:33 AM

    Yeah Pat, how about you spend all this weekend documenting how you run your business, provide us with a thesis of how your pricing structure works and where the value is and reveal in great detail your marketing strategy to us. And do it for free.

    And stop having an opinion which is different to or in any way makes James Smith feel threatened.

    If you do, it means you're condescending, arrogant, disrespectful and that you're passing judgement on others.

    In the meantime, I'm going to be immature and unprofessional like James Smith and call people names.

  • James Smith on 26/09/2013 3:22:58 PM

    Pat we look forward to one day you describing your fee calculation methodology , how you manage your client portfolios and what additional value you provide your clients. In the interim, how about you stop passing judgement on others. The school is still out on whether you are the Enlightened One after all.

  • Pat on 26/09/2013 3:11:46 PM

    James, as per my comment, I was explaining how that model works; not stating that that was the model we use.

  • James Smith on 26/09/2013 3:05:57 PM

    Pat 50 x $20k or (ideal revenue/ideal client no ) what is the difference ?
    Whether you start with 50 or $20K or $1M the formula remains the same.

  • Pat on 26/09/2013 2:48:39 PM

    I am not going to continue this discussion if you are making incorrect assumptions about my fee model. I pretty clearly suggested that the model of (lifestyle+practice costs)/number of clients is not what we use.

    Have a great day.

  • James Smith on 26/09/2013 2:44:05 PM

    Pat there were two methodologies I described not one and I did refer to the 'ideal' client number not actual. I do not see how your comment that you need to find x clients to pay you y and then justify your value differs from what I described. Once again I am not convinced that this methodology gives you a basis for a higher moral ground on this debate particularly when you appear to use the fact that you use flat dollar fees to market your value? I would have thought the amount charged (irrespective of the methodology ) for the value provided would be the fairest way to compare value propositions. I suspect that there will be many clients in existing non flat dollar service fee arrangements that are getting a lot better value for their money. The fee debate is not straightforward and hence flexibility can foster better outcomes for a wider range of advice relationships. The fee model you describe is quite mercenary with little scope for pro bono work or helping someone over and above the fees they are paying. We underestimate how much of this type of work is offered in many existing practises.

  • Pat on 26/09/2013 2:13:02 PM

    James, that is one fee methodology (not a range) that has been promoted, and not necessarily one I believe is appropriate. That said, you have missed the part where the adviser then needs to find the number of ideal clients that will pay that fee. If my number comes out at, say, $20,000 p.a. for 50 clients that I can service, I need to find and demonstrate to 50 clients that I can add value (however defined) to the tune of a multiple of $20,000 p.a.

  • James Smith on 26/09/2013 1:54:52 PM

    Pat the fee for service methodologies that I have seen promoted in the industry range from an adviser determining his/her lifestyle needs ( yes his/hers not the clients ) adding the costs of the practise then dividing this by the 'ideal' client number to working out the costs of the practise and then adding on 30% profit and dividing by the number of clients. Given the clients have no control over either our lifestyle choices or our operating costs I remain unconvinced that these methodologies deserve the higher moral ground argument. The value too depends on the quality of advice and service provided. It would be helpful to broaden these discussions to include fee methodologies and what is involved in the service offered rather than taking judgemental pot shots at each other with inadequate basis for doing so. ie take the log out of our own eyes before removing the speck in others.

  • Matthew Lock on 26/09/2013 1:27:51 PM

    My last comment and position is this…just because most (not all) of the industry is cross subsidised doesn’t make it right…taking administration fees is not the same as recommending a white labelled investment product of your dealer…fee for service isn’t perfect but it’s better than provided conflicted advice around product…quoting one authors view as gospel does not an argument make.

  • Pat on 26/09/2013 1:19:12 PM

    Peter, if you are blind to the fact that there are many successful firms that operate on an unsubsidised model, where they don't get paid "marketing commissions" for selling failed products, then that is your problem.

    From all the benchmarking surveys I have seen, there is a high correlation between the profitability of a firm and the independence of their fee structure.

    Fee for service does not equal hourly fees. You need to update your thinking.

  • Peter Johnston - AIOFP on 26/09/2013 12:56:17 PM

    OMG, this is getting bigger than Ben Hur. My last comment and position is this. The entire advice industry is cross subsidised, SMSF promotors who can't see that by taking the administration fees in house is no different to an adviser taking an administration rebate from an administration provider are deluding themselves. We believe the new Government will rule that platforms are not investment products, that should end this debate about products and admin. Someone compared PWC etc business model to advice, utter trash. Just read Chief Justice Jim Spilgman's THE TRYRANNY OF THE BILLABLE HOUR where he suggests hourly rate charging is far less than perfect with inefficiency and plain cheating at its core. We are dealing with a public who is not accustomed to paying for advice so it is going to be very tough to operate a successful practice WITHOUT cross sudsidisation until the next generation accepts it or instos get out of administration and releases their aligned advisers. The later being very unlikely. If you want to continue this debate come to our November conference in Hobart, it will be on the agenda!

  • James Smith on 26/09/2013 12:40:57 PM

    There is a big difference between legislation that forms a meaningful component of the end to end process of a business than ill conceived rules that create unnecessary red tape and favour certain industry players over others.

  • Matthew Lock on 26/09/2013 12:28:44 PM

    Our world is completely governed by regulators and authorities whose job it is to protect individuals...cafe owners are governed by the food standards act and the health department because without them customers die from food poisoning...you have to be qualified and licensed by governing bodies to be an electrician because without these controls people die…. I’m afraid truly free, laissez-faire markets do not exist in this or any other modern country for that matter.

  • James Smith on 26/09/2013 12:28:17 PM

    Disagree Mathew Lock. The industry funds and big instos are competing on price alone and gaining market share but the clients that matter to small business want good advice and service which is the area we have a significant advantage in. The big instos and industry funds are trying to cover their weaknesses via influencing the legislative outcomes and they may be having some small wins in the short term but clients will come to experience the poor service that comes with cost cutting and beuracracies. This will play nicely into the hands of small business that value clients as individuals not account numbers.

  • James Smith on 26/09/2013 11:58:42 AM

    Rather than labelling an implemented investment process as a product and making assumptions that a better model is for advisers to construct their own portfolios it would be more helpful as a profession to be held accountable for the mechanisms we have in place for managing risk and return. To say that an adviser that throws a dart to choose fund managers /shares or decide on asset allocation is better simply because he/she threw the dart is ridiculous. I agree that the big instos should not escape the advice regulations via intra fund advice but do not agree with the attacks on fully implemented investment solutions. It is the adviser's responsibility to assess what is the most appropriate means to manage their clients funds as we are accountable for the outcomes and understanding the needs of our clients. Further, if the adviser business is the central point of contact to service a client in a fully implemented solution, why shouldn't they derive a fee deducted from the platform to recognise their service role ? If the advice being provided is purely strategic without specific investment advice and ongoing investment service and advice then sure charge a fee separately. Otherwise let the client/adviser decide on what is their preferred method of fee payment. For the record we use both fully implemented portfolios and individually tailored portfolios and charge fees across all methods depending on the client - ie flat dollar fees for some, % of FUM for others and commission for risk products. We do not live in a nanny state. And as a small business owner we live and die by our decisions. We do not need a governing body that dictates how we run our business.

  • Matthew Lock on 26/09/2013 11:44:38 AM

    BTW…the industry has lost the battle for the middle ground. The banks and the industry super funds have won this battle for the middle market retirees with smaller retirement benefits. There is no point in crying foul…it’s done. There is also no point in trying to justify a conflicted, vertically integrated business model to this market on the basis that the banks and the industry funds do it. Clients in this part of the market will listen less and less to the planners courting them because there message is being drowned out by the big players with promises of low or nil advice fees…an independent planner can’t compete with this so there is no point trying. And yes…these clients will have to be content with bank or super fund products because they won’t be able to afford the advice fees the will have to pay to get a different view from a fee for service adviser. To compete profitably in the new world planners will have to develop a value proposition for wealthier clients who can afford their fees and a strategy to find them….and for planners who can’t take these next steps, unfortunately they will have to make some tough decisions.

  • James Howarth on 26/09/2013 10:58:21 AM

    We need to separate advice and products. One or the other. I have sent this recommendation to the ASIC senate enquiry.

    ASIC is a tool for bank power consolidation.

  • James Smith on 26/09/2013 10:44:43 AM

    Matthew surely the assessment of the quality of the advice should be based on whether the expected outcome was achieved rather than trying to draw dots between a dealer and their product. If a group creates a superior investment process are you suggesting it will have more value to the client if the adviser leaves that group and then recommends it ? You should also do more research on the big accounting firms fee models. We have a client engaged with one of these firms to sell their business. Their fee is 2% of the sales price !!

  • Matthew Lock on 26/09/2013 10:28:54 AM

    I fear that few planners truly understand the depth and breadth of the meaning of independence. Underpinning all that is FoFA, is hundreds of years of doctrines and legal principles called Equity, from which an adviser’s fiduciary duty and obligations toward their clients is drawn. All advisers operate under this obligation regardless of any legislation. If an adviser simply places themselves in a position of conflict of interest with their client they are in breach of their fiduciary obligations. As a consequence, if the courts are unable to prosecute an adviser for poor behaviour within the existing regulatory regime they will revert to an adviser’s fiduciary duty in a heartbeat. Now I'm not saying that an adviser licensed by a dealer that issues its own products is any less honest, diligent or professional as the best advisers in the industry. However I am querying whether an adviser can meet their fiduciary obligations to their client while working for or with a product issuer be it a bank or vertically integrated dealership?
    Oh, and on the issue of successful business models, next time you drive through any big city…look up and see whose names are on some of the buildings…I’m sure you will find a PWC or Ernst and Young or Delloittes among them. Fee for service can be a successful business model.

  • James Smith on 26/09/2013 8:20:48 AM

    Great Pat. Then perhaps you can explain how your portfolio management is superior to the many fully implemented solutions available in the market place which you are so critical of and how your advice is not conflicted if you will not recommend such a solution irrespective of the client needs and your own limitations.

  • Pat on 25/09/2013 4:38:12 PM

    Fortunately, James Smith, I can very well explain the value we add in portfolio management, so have no problems there. At all.

  • Matthew Ross on 25/09/2013 2:33:26 PM

    "You seem to feel the need to put down other advisers to support your own value"...pot calling the kettle black there James...

  • James Smith on 25/09/2013 1:51:01 PM

    Matthew and Pat you both would benefit from getting out more and speaking to other advisers. I have been advising for 20 years and have been offering a holistic service that you refer to as new school for all of those 20 years. I have also used fully implemented portfolios which have enabled me to spend more time on these other areas of clients lives. We also offer portfolios using external wrap platforms and select fund managers on merit not their relationship to the dealer.You seem to feel the need to put down other advisers to support your own value. Recommend that you focus on your own value instead. If you can't explain the value you add in portfolio management you might be better positioned as lifestyle planners of business consultants rather than financial advisers.

  • Matthew Ross on 25/09/2013 1:37:40 PM

    Go Hawks...

  • Pat on 25/09/2013 12:02:37 PM

    " Advice is strategic portfolio direction"

    As Matthew said, this is an approach that belongs in the 90s, where an adviser's value proposition was about investing money and getting a return (that they had no control over).

    Advice is about the client. Their portfolio(s) are a part of that.

    This discussion smells of justifying a conflicted approach, where independent alternatives work.

    Peter: we have been charging pure fee for service (agreed fee) since day one without cross subsidisation from product providers. We are happy not be paid by product providers.

  • Matthew Ross on 25/09/2013 11:19:41 AM

    My last word (need to focus on clients); two recent comments have included:

    "Advice is strategic portfolio direction"


    "how you manage your clients portfolios on an ongoing basis"

    We don't just focus on our clients money. The relationship isn't just about their super or investment portfolios - that's old school.

    New school is understanding all the financial complexities in our clients lives, not just the portfolio ones...

    James, I'm not saying anything you're doing is wrong. I'm just advocating what I believe clients want from a financial adviser.

  • Peter Johnston - AIOFP on 25/09/2013 10:25:11 AM

    Also, the principle issue most get confused about is the difference between advice and administration. Advice is strategic portfolio direction, administration is the reporting service. Why do SMSF promoters think that by them taking the function in house they are pure? There is a big accident waiting to happen with thousands of small suburban offices administering our superannuation savings and pushing direct property to avoid FOFA. Watch this space.....

  • Peter Johnston - AIOFP on 25/09/2013 10:17:27 AM

    Gents, I established my own practice in 1979 [from an education background not a lifey] and over the years i have not seen one business model that has survived on no cross subsidisation from other non advice activities. SMSF promoters are fooling themselves to think taking the administration fee away from the insto's and doing it in house is non conflicted. It is 100% conflicted, at least mainstream advisers only get around 20% of the fee as a rebate/profit share to support their business. All other models are cross subsidised by platform, funds management or accounting revenue. I challenge you all to show me a pure fee for service practice that has survived.

  • James Smith on 25/09/2013 9:42:25 AM

    Mathew and James H you are clearly very proud of your independent status and seem to assume that you are leading the way for professional conduct ? . Perhaps you could enlighten us on how you manage your clients portfolios on an ongoing basis ? This is not a judgement but rather a challenge to justify what processes you have in place that stands you apart which is far more important from a client perspective. My view is that there are merits to both fully implemented and tailored portfolios but all we seem to hear is the defence of one approach versus the other by casting aspersions at those advisers that use an alternative approach for some/all of their clients rather than acknowledging the benefits of the alternatives which is far more reflective of a professional.

  • Matthew Ross on 25/09/2013 9:28:16 AM

    That's great James that there is no conflicts. Shouldn't be too hard for you to eliminate all the others too.

  • Matthew Ross on 25/09/2013 9:09:51 AM

    James Hodder for PM.

    Or at the very least elected to the FPA Board - are you running for the board James? If so, you have my vote.

  • James Smith on 25/09/2013 9:03:06 AM

    So Matthew you are assuming that I am tied to the platform provider is that it ? The wrap provider we use is not related to our dealer. That puts to rest your conflict argument and highlights how these debates are often distorted by unfair assumptions about adviser motives.

  • James Smith on 25/09/2013 8:57:24 AM

    Pat I am confused. What mechanism did you use to negotiate lower platform fees if you did not receive a fee rebate ? The essence of what we seem to be in agreement on is that the cost savings can be passed on to the client. Not sure why you seem to be asserting that somehow you are more ethical in your approach ?

  • Matthew Ross on 25/09/2013 8:54:04 AM

    James if you want to make the leap from the industry to the profession and secure your own financial future in the process, cut your ties with product providers.

  • Matthew Ross on 25/09/2013 8:51:31 AM

    What happens when another product provider offers you a 0.30% rebate James?

    Do you switch dealer groups? Don't you have a conflict of interest if you stay with the current dealer?

    See how murky the waters get when your advice is tainted by your decisions about which product provider you align yourself to.

    Instead of getting a volume bonus, wrap services reduce our clients fees - we've negotiated that. You don't have to be in bed with someone to negotiate with them.

  • James Smith on 25/09/2013 8:49:33 AM

    Matthew if you want to make financial planning your profession I suggest you get a better understanding of what a fully implemented solution is and the pros and cons compared to clients relying on your day to day advice. Understand that your generation finds it difficult to take advice from more experienced advisers because you know it all after all.

  • Pat on 25/09/2013 8:44:52 AM

    No, James Smith. You are plain wrong. We are not naive in the fact that we have negotiated considerable platform fee savings over the last 8 years for the benefit of our clients without extracting a cent from the platform. It can be done without the conflicts of interest.

    Your example is simply flawed.

    That said, if you are comfortable taking a clip, go for it, buddy. I am sure it is FoFA compliant and therefore all ok.

  • Pat on 25/09/2013 8:42:34 AM

    James Hodder - to argue that having a focus on costs automatically means that the adviser is not targeting maximum risk-adjusted returns is somewhat laugable. Every decent adviser will seek to maximise the client's probability of achieving a suitable investment return.

    That said, if we can:

    1. Use a fund manager that is 100 bp cheaper than another, that makes an absolutely massive difference to the client's position - extrapolate a known benefit of 100 bp over 10, 20 + years.

    2. If we can use a platform that shaves another 10, 20, 50 bp off platform fees, that is another massive benefit to the client over the long term. This is typically at odds to the conflicted model that has been labelled a "fully implemented" approach, where the dealer group will seek to maximise profits extracted from the platform.

    3. Use fund managers that focus on after tax returns, rather than the plethora of tax-apathetic managers who will charge the client a premium for under performance, cause them to pay a higher level of tax and deliver, on average, a poorer result. And, no, I am not suggesting that the opposite must be index management.

    Referring to a target return of, say, 8% p.a., those who do not follow the "fully integrated solution" approach, but are conscious of the benefits of saving a client 100+ basis points every year, will reduce the pre-fee required return by 11%, or deliver the same after-tax fee with less risk.

    Finally, this fully integrated platform approach just sounds like a rigid way of investing where the platform and investment strategy seem inexorably linked.

    I prefer to offer my clients unconflicted investment solutions that offer significant flexibility.

  • James Smith on 25/09/2013 8:30:37 AM

    So are those against vertical integration saying that if we had a choice of paying a wrap provider 0.50% or 0.25% ( after a volume rebate ) we should elect to pay 0.50% (costing the client more ) so that we can be seen to remove a conflict of interest ? Why not tell the client that you are receiving a volume rebate and pass the cost saving on to them ? At the end of the day the issue here is the negotiation of the price of the wrap provider and the volume rebates are used to discount this price in recognition of the economies of scale of larger businesses. The political correctness of the comments reflect a nievity of the business that we are in and the importance of managing the total costs for our clients.

  • Matthew Ross on 25/09/2013 8:29:21 AM

    James (Smith) "fully implemented solution" in plain English means "being in bed with a product provider but doing so guilt free"...is that right?

    An adviser that has a link to a product provider will at some point be caught in a tug of war between what is best for the client and "orders from head office" or fees increasing because at the end of the day the product provider is here to make money for shareholders, not the clients.

    I stand by my original comment; more Australians will engage us for advice and implement it when we have removed conflicts of interest such as commissions, % of FUM and alignment to product providers.

    Alignment to product providers is the biggest problem holding us back.

    This isn't about beating chests, it's about advisers being able to put their hand on their heart and say I'm am 100% putting my clients best interest first. I don't believe advice can be given any other way...which a problem for Peter Johnston because if he had his way, all advisers would fold and give into product providers.

    The next generation of young advisers coming through are not going to let this happen. They aren't cut from the salesman cloth that started financial planning 30 years ago.

    Pat: you can call me Ross anytime.
    James H: your comments inspire me.

  • James Hodder on 24/09/2013 9:15:24 PM

    I did a life path calculation for a retiring client couple recently. Their future was greatly enhanced by a 1% improvement in the net return after fees and tax of their investments over the next 20 years.

    Advice + platform + funds management fees across the board are coming down slowly from 3% 10 years ago to 2% ish now. Maybe another 0.5% is in the works? Paying no Tax for most retirees is not difficult. One does not need fancy advice to achieve it for all but the very wealthy.
    The benefit of investing well and earning say 8%p.a gross before fees and tax and investing poorly and earning say 4% p.a .... totally dwarfs the measly gains one gets by chiselling on costs.

    So the main job of a professional planner then , should be to help their clients to invest well.
    Despite this, so little is said in debates about what independents can practically do to help their clients invest better.

    I agree with Matthew that conflicts have to eliminated not disclosed.

    On investment though, I do despair that the monster fund managers and index huggers are growing so strong and have so much power that they are totally distorting the capital markets and starving small business of patient capital.

    Independents , investing independently, can turn this tide back but only if this model is given the whole hearted support it truly deserves by the public and regulators and the financial services industry as a whole.

    We can do it.

    Go Australia.

  • James Smith on 24/09/2013 5:09:21 PM

    Matthew have you reflected on your own potential conflict of interests ? If you fail to advise on a fully implemented solution on the basis that you are positioning yourself as being independent it could be argued that you are putting your own interests above the clients. The fully implemented solution deserves to be evaluated on its merits not assertions about the motives.Professionalism is defined by our actions not marketing statements or self righteous chest beating.

  • Pat on 24/09/2013 5:03:31 PM

    I have no idea what Michael K is talking about.

    He attempted a poor analogy with buying a commodity (a mobile phone with contract). Assuming he is an adviser, comparing the sale of advice, if you will, to buying a phone on contract is ludicrous.

    I agree with Matthew Ross ('Ross', to his friends and the illiterate) that independent ownership should equate to independence of and from ownership in both vertical directions.

    How Peter Johnston can keep crapping on about this veritically integrated model with its commission...no, wait, it isn't a commission, it is profit share...and not realise that it is the same conflict of interests as a dealer rebate, commission and other problematic payments is beyond any sane person.

    Let's hope that all clients of AIOFP member firms are not duped into thinking that the advice to invest via the platform that pays a profit share back to the firm is independent.

    How the hell can Johnston not see that platform profit shares constitue conflicted payments?

    Mind is boggled.

  • Matthew Ross on 24/09/2013 3:43:01 PM

    I think one of the key benefits we deliver to our clients is to talk in plain English.

    On that note Michael K what you wrote below is a titanic FAIL. I have no idea what I'm supposed to be responding to.

    Secondly, my name is Matthew, not Ross.

    Thirdly, it's not fair that you are drunk already today. Allow me to catch up by ducking across the road and buying two bottles of red. I'll drink those and then maybe your post might make a bit of sense...

  • Michael K on 24/09/2013 2:50:09 PM

    @ Ross - "For financial advice to be of true value to clients it has to truly independent."

    Making me rethink a lot of things here...

    My Telstra phone for example -- purchased from a Telstra store, with a Telstra service contract, on advice from a Telstra salesperson. Before reading your message I was blissfully unaware of how badly I’d been duped. Said phone, service and advice has no ‘true value’? Add to that the horror realisation that it’s very bad indeed for the salesperson to have received an incentive for selling me a Telstra brand phone! Hasn't he been a naughty boy? Haven't Telstra done me wrong? We must assume they have and insist they write a 40-100 page essay (SoA) to prove they’ve looked after me? What can we do to them if they don’t write it?

    The bureaucracy is expanding to meet the needs of an expanding bureaucracy. Oscar Wilde. Apparently Oscar was no friend of the nanny state, nor am I. And yet here we are, (as a colleague and industry veteran recently put it), "rewriting war and peace -- which I don’t want to write and clients don’t want to read -- for every $500k life policy."

    The solution most take: don’t do it, Mr $500k life policy has to beat it. I’m loathe to admit it to the judgements of the world, but I’d rather be at the beach than deal with people who can’t pay for the pain I endure convincing the bureaucracy I looked after them. You know what I'd like, OPT IN for red tape. There's a vote winner, guaranteed to be just as popular with clients as with advisers.

    You must agree? Or do you feel you’ve not lived until you’ve seen that look of quiet desperation in your client’s eyes when you plonk 3-4 inches of paperwork and a pen in front of them (for their $50pm insurance contract). Isn't it exhilarating to watch the doubt well inside them, to watch that hard earned trust wash away as quickly as if you'd invited to them the AMWAY conference.

    But who’s talking about insurance. We’re serious advisers, right? We manage people’s money. And so, the choice is clearer still. Ditch this personality-disorder of an industry and be the *truest* (your word Ross) the *truest* kind of adviser. One that is so valuable and successful they have only one massive client. Themselves. Leaping tall buildings in a single bound, the epitome of financial success. Where do you stand on this last point Ross?

    PS. I know war and peace was Tolstoy, smarty pants.

  • Matthew Ross on 24/09/2013 2:34:58 PM

    James, I think more Australians will engage with financial advice if we decide to eliminate conflicts of interest rather than try to manage them.

    How does it benefit the client? They have a greater level of confidence in their adviser, the advice and therefore will be more likely to implement. I believe the conflicts of interest, especially the product one, hold people back from trusting financial advisers.

    It confuses me why you talk about professionalism but refer to "the industry", not "the profession".

  • James Smith on 24/09/2013 2:11:24 PM

    Matthew your argument highlights the inadequacy of the debate. Rather than acknowledging the merits of a fully implemented solution you assume that a personally advised portfolio will in itself lead to a better outcome for clients. How so ? A professional approach involves comparing the merits of each method and decide on what is most suitable for the client. Our industry will be better off if we encourage enhancements to both approaches and manage potential conflicts by relying on our best interest regulations and the professional judgement of advisers.

  • Matthew Ross on 24/09/2013 10:18:11 AM

    Why can't independents do it Peter?

    Because this is financial ADVICE. It's a very sacred, trusted commodity. It is a service delivered from one person to another. It's not a product sitting on the shelf to shift on mass.

    Being "independently owned" (correct me if I'm wrong) means you have no alignment to a product provider yet the more you push this Peter, the more it sounds like you want to become a product provider.

    It sounds like you're more interested in platform profit sharing (which is how product providers think) than how to maximise the probability of clients achieving their goals (which is how independent financial advisers think).

    For financial advice to be of true value to clients it has to truly independent. Us truly independent financial advisers price our advice so that we are profitable to the clients we can provide value to. We're not looking for ways to "leverage" the value of the relationship we have with our clients because it deteriorates the value of very service we're providing.

  • James Smith on 24/09/2013 9:55:01 AM

    The argument that vertical integration corrupts advice ignores the interrelationship between advice and funds management. A fully implemented investment strategy provides significant efficiency gains that can also improve governance and risk management. A tailored portfolio that is discussed with clients individually also has its merits but is not the panacea for all clients. Its about time ASIC improves its own understanding of these issues to ensure legislation recognises the practical benefits of vertical integration whether that be big instos or small boutiques.

  • James Hodder on 25/09/2013 1:08:16 PM


    I agree that reducing costs for clients is a valid and worthwhile exercise for planners today. I am doing it for my clients as fast as I can go.

    On Cutting investment costs: Also valid...However, in life one does not always buy the cheapest product that is available. Smart people look for quality that lasts and are prepared to pay a bit more for it.

    In financial planning, being independent is hard work and not very remunerative.
    Investing directly is very hard work, keeping good staff is hard work.

    The light on the hill is that we can, and are, making a difference, by pursuing the best possible outcome for our clients irrespective of our situation.

    I am not running for office. I am working 12 hr days to keep the business on an even keel, keeping my MDA licence, continuing to satisfy the conditions of the MDA class order by reviewing and resigning my clients every twelve months. [As I have done for the last 15 years] I have passed 3 Audits in the last 8 months with flying colours [ASIC, ATO, WA Stamp Duty] and am in the midst of number 4 and 5 [ MDA and AFSL]

    I support the government's right to conduct these audits and to be fair I have not had any for the 26 years prior to this year so I can’t really complain.

    The key to investing is:-

    Buy quality business's run by people you know and trust.

    Don't lose faith in them because of short term market movements rather, continue to support them in their time of need, this support will be the best investment you can make.

    Encourage the companies you invest in to pursue excellence in their field and make a difference in the world.

    Do not trade or be seduced by commission driven brokers who don't care about you or your clients to trade actively. I've never met one [an honest trader] who has consistently picked the market correctly. Remember the market will often move because a big player [who is a buyer/seller ] wants it to move in that direction.

    Trust yourself and your own instincts.

    In fixed interest:

    Don't lend your clients money to anyone who you think won’t be able to pay it back.

    Never support anything complex. Complex means tricky and tricky means, beware.

    Buy local = Australia. i.e. Not USA not EU not Japan.

    Currency movements are pure risk. More risk is bad. Don't believe anyone who says they can pick currency movements.

    Don't listen to anyone who rubbishes Australia or our currency... they are wrong.

    Australian companies pay franked dividends. Other countries hardly pay any divs at all, and when they do they are tiny and unfranked.

    Income in the bank is less risky that capital gains that one day might be there.

    If a stock falls ... all the gains you were counting on are gone in a flash. But on that day the dividend income and franking credits you got are still there in the bank. Some consolation....

    Buy local = your state, your town.

    Push the government for structures that allow you to make well regulated investments in wonderful local enterprises that are building things that will make your local community and the world better off.

    Push for changes in regulations that allow trading in smaller companies at fair prices so your clients can get the liquidity they need.

    This does not mean being able to trade in large $ volumes 24 hrs a day...!! But rather a fair and just system for working out a price for a seller who wants his capital out and is happy to sell to a buyer wanting in.

    Look for sustainable investments in quality efficiency producing enterprises and sensible infrastructure. It does not mean backing every crazy local scheme dreamed up by the local Pollie looking for his name to go on the brass plaque outside of the white elephant monstrosity...but working with the good people, that you trust, to patiently build long term assets that are really needed and are therefore profitable and therefore able to produce the income your clients need. Assets that are respected and loved by the locals, managed by competent people. People who are patient and kind and hard headed and good at making money and running a business and dealing with unions and greedy lazy entitle people and greenies (good luck finding such people, they are a rare breed indeed but they do exist...) Look especially for people who want their community to prosper as much as you do and who understand that the capital they are using is the life blood of their community ...and when its spilled the community will suffer.

    What law says that we have to send 40% of our treasure to Wall Street to buy Johnson and Johnson or Microsoft at 40 + times earnings for no income yield ....in the hope that one day it will go up in price...It has gone up a lot, but if you look at why it has gone up, the reasons may surprise you. With more people in the world piling in to the S& P 500 Index there are more buyers crowding in to buy this index... so. Naturally it's gone up. It does not mean it will continue to do so. That is the point. You don't drive your 4WD in rough terrain by looking in the rear view mirror...Otherwise you will end up in a ditch!!

    Never base your decision to buy or sell something on the past!!

    Always look out into the future. I know it’s hard and the windscreen is all dirty and you can't see clearly. Try anyway!!

    If the A$ rises (because we have the best economy in the world and the best lifestyle in the world) you lose on overseas shares, it’s as simple as that!! If you are counting on growth to make 90% of your returns and a new Office App or some other mishap occurs and Microsoft falls to a more reasonable multiple say 20 times the growth your clients were counting on is gone…!

    No, I am living here in Australia and backing the dockers (my father was a life member of South Freo FC and is willing them on this weekend... I know it) and I'm investing my clients’ patient capital here too. Close by...where I can watch carefully what is done...and take action if things are not going to plan! Action like chipping to help when times are tough and taking capital out when the job is done and it’s time to move on to newer better things.

    Investing is a very important thing. It is not about getting rich quick or making a killing or buying a stock for 10 cents one day and selling it for 50 Cents in 6 months. That is not investing! It’s not smart either...its theft...[from the poor bugger who has owned the stock for 6 years and is pissed off that nothing was happening and sells them at 10cents when his broker....whom he hasn't heard from for 5 years....rings him up to have a chat....!!???]

    [to be fair the stock is up from 4-8 cents where they have been trading for the last 8 years ... and the broker is only doing his job...it’s the seller himself and his adviser I blame for this tragedy...they were not patient enough...were not watching carefully enough...His adviser should have told him to hold on because things are happening and all the effort and hard work and capital put in to the company over the last 10 years is just about to bear fruit...I also blame the system [our industry] that treats the stock market like a casino and complains when it behaves like one ]

    It does not have to be this way. Capital and enterprise and hard work has made Australia the best place in the world to live and work...I am proud to be an Australian and I know we can keep building toward an even better world starting today.

    Go Australia

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