Oh Lord, it’s hard to be humble…


Come on, admit it – we all love to be able to point and say, “i told you so”. Sadly, i also am all too human. Therefore, i’m going to point to an example that is already emerging of my warning that the current changes afoot in the industry will move towards greater bias and less personalised tailoring of financial planning outcomes.

The industry journal Money Management has recently pointed out that the “Approved Products Lists” (otherwise known as “APL’s”) of many financial planning dealerships have been reduced in size, and that “model portfolio’s” are being introduced more widely.

Why is this of any relevance? It is because an adviser is only allowed to deal with accounts that are on that APL. What started out as a process to ensure that advisors understood the accounts and products that they recommended became instead a tool to limit the range of options that could be put before a client. For example, this rule stops most of Australia’s financial planners from providing advice on Industry Funds. It stops many Industry Fund planners from being able to give advice across the broad range of market options. See the problem?

And what about “model portfolios”? What is wrong with having a robustly constructed, academically researched investment model that allows advisors to stay focussed on the long term strategic outcomes? On the face of it – nothing. However, the end result is that the entire gambit of human ability, desire and folly will be expected to be accommodated by a handful of model portfolios. And here’s a quick question – how many of those model portfolio’s account for the individual owning an investment property? Very few, if any. Running your own share portfolio will be difficult to deal with on this basis. In addition, the model approach begins to look a lot like a standard diversified fund, only more costly. It is a fact that financial planning is a costly business. One way of reducing that cost is to reduce the amount of tailoring that is required to provide an outcome. And so we move to a more concentrated list of available options and more room for bias to creep into recommendations.

This has been a never ending war that Wealth & Security Planners have had to wage since the day that the business was established. At considerable cost to ourselves, we have sought to maintain the maximum flexibility of options. To reduce the room for bias and to ensure that we can leave the level of our involvement up to our clients – and not impose it upon them.

It’s more sad than satisfying to see that in this particular area, my worst expectations are coming to pass much quicker than expected. Business in a capitalist based society is always a tussle between opposing interests, so let’s hope that the eventual outcome is a better deal for the average person rather than simply making every offering ‘average’.


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