After 30 and one third years in the financial services industry, i feel sufficiently empowered to ‘have a go’ at those who profess to know all or those who show stupifying levels of self-ignorance or those who are just downright greedy. This post is a reflection on a little bit of each of these characteristics.
The financial planning community is a rather small one, and like all small communities, it harbours all shades of human nature – from the highest of egalitarian approaches right down to the wantonly criminal. Over the decades i have been charged with tracking down the criminals, attempting to hire the ethically driven, and doing the high-wire act of being “commercially realistic” while attempting to keep well over 100 advisers ethical, enthusiastic and profitable. This makes me reasonably confident that i have an accurate historical narrative of the industry, as well as a grasp on what “makes it tick”. And overall, i’d say that the planners i know are hard-working, have their clients best interests at heart, and endure genuine angst when navigating the tightrope of commercially realistic and perfect outcomes.
This is what makes me so very, incredibly angry when i see the kind of tripe being dished up as journalism or market commentary in the post-GFC period. It seems that everyone is out to carve a kingdom in the post-GFC landscape through cashing-in on the fear and uncertainty these cyclical periods cause.
I’m going to be quite specific here, and break one of my own rules, in that i do not like to speak ill of others - so please accept that i do this with some hesitation. However, there are too many things left unsaid in this post-GFC environment, and i am going to use my “Soapbox Rant” area to speak them aloud.
Financial Planning Bias, it’s all about bias
Regular readers will be more than familiar with my opinions on bias, and on the ridiculous proposition that it is possible to remove all bias from financial decisions. Aside from the circular reference of a decision requiring bias to even eventuate, there are the vagaries of human nature that make bias an essential component for human happiness (probably a little too philosophical for this post but you get the idea…).
Hypocritical stone throwing
My rant starts with financial commentators who fail to see their hypocrisy. Pointing to ignorance is as charitable as i can be for such folk, because the alternatives for motive aren’t pretty.
We could start anywhere – but we’ll start with Marcus Padley – a stockbroker whose media columns i have read with a great deal of enjoyment over the years. Here is an extract from a recent article that showed up on the Sydney Morning Herald business/markets website. The title of the piece is “Spreading risk only works if you don’t spread too far”.
“And if you go to a financial planner, by the time you leave their office you will have bought 3000 stocks in three different countries and 10 different asset classes.
But amid all this risk minimisation no one bothers to explain that at best your end return is going to be an average of all the averages less fees iced by the inner glow that comes from having kept a lot of BMW dealers in business”.
Let’s get something very clear here. Marcus Padley is a stockbroker. He makes money from trading securities. i am a financial planner – i make money from providing advice on a range of issues as well as from helping people buy financial services (including shares) and from my part ownership of a financial planning business. i refer people to stockbrokers for the kind of trading that Marcus Padley is talking about in his article. i don’t think it’s for the average person but i acknowledge that market timing and stock selection has a place in the overall world of money. Therefore, i see those who have expertise and experience in such areas as offering very worthwhile services to investors.
However, i completely fail to see why anyone needs to build their business by disparaging someone else’s. Does Marcus own a BMW or a Getz? Is it relevant to a discussion on diversification? Aside from Marcus bagging a solid chunk of peer-reviewed research, does he need to suggest financial planners are crooks just to make a point about diversification?
Maybe we could look at the room for motive here…?
How about the fact that Marcus operates a stockmarket newsletter, in which he cashes in on his media exposure to attract people to a highly active stock picking process. That’s not a crime, and as i have mentioned above, that is a very specialist skill set. For those who are interested in checking out the service offering, here is the link to Marcus’ website. It offers a free trial, so why not give it a go if it is your thing?
Marcus ain’t no Robinson Crusoe
There’s a bucket of folk out there right now, pointing out how the “old” way of doing things has failed, how you need to take control of your own money, move to cash, trade your pants off, sack any financial advisor that attempts to discuss money in a time frame greater than 12 months, and offering great deals if you sign up to their newsletter/ website/ trading platform today.
How about the Eureka Report? There is a fantastic publication that has lost its way. It has historically been very difficult for the self-directed investor to obtain in-depth, independent research, and the Eureka Report has built up one of the best offerings on the market. However, the average report in recent times makes absolute recommendations that can only be considered personal advice, includes conflicting recommendations on asset classes, strategic shifts and takes every opportunity to highlight all that you should be very, very, very worried about in an uncertain, fearful world. Some articles acknowledge the place of financial planners in the money world but a good many suggest that you’d be better off running your own operation or in some other way downplaying the role of financial advisors.
Oh yes, did they mention that the holding company is being sold off to private equity at the moment? There’s an awful lot of money sitting behind every publication, every suggestion that you need to do-it-yourself, and every denouncement of the financial planning business.
Next time you read an article bagging financial planners, look carefully to see what book/ newsletter/ website/ seminar is being promoted, and then try to distill the logic from the farce. Take my word for it, there’s hours of fun to be had.
Do you think i’m stupid?
One of my favourite lines from the kids movie “Bug’s Life” – but can anyone else perceive a little bit of vested interest here? There’s nothing wrong with vested interests – they are the core of capitalism – but there is something wrong with bagging an entire industry sector simply to promote your own way of doing things.
If you think i’m angry, think again. i am stark raving mad about this parody of authority that is pervading all things financial at the moment.
This high-and-mighty claim to moral and academic authority was arguably started by the Industry Super Network, when they set out to build their industry superannuation empire by bagging the entire financial planning community (even though a large chunk of financial planning has nothing at all to do with superannuation), and using their member’s super admin fees to do so. The consumer group Choice jumped on the bandwagon, and continue to rant about the financial planning community, even in the face of outcry over their hypocrisy in taking commissions for a mortgage swap service. The Federal Government then chipped in with its poorly thought out legislation that has so far managed to achieve the EXACT OPPOSITE of what it is theoretically supposed to do. Every independently owned financial planning business in Australia is feeling intense pressure to join one of the Big 5 (NAB, ANZ, WBC, CBA, AMP) who own the recommendation lists of the vast majority of Australia’s financial planners.
If you want proof of the complete and utter failure of all these big-thinking folk to work out how to be effective, just ask me one day about the average expense ratio of super/investment funds prior to the early consumer group movement to abolish “up front” commission charges.
Is this a pandemic of rampant adviser-bashing?
To some extent, i should feel honoured. After all, only a small fraction of Australians actually utilise the services of a financial planner – so maybe i should feel pretty chuffed at being seen as a target worth hitting? But no, i’m so thin-skinned these days that i find each and every utterance of The Very Clever People as an affront to thinking Australians everywhere. i don’t have access to mainstream news channels, and my business is too small to fund a national campaign to highlight these folk, so i’m simply going to post this little rant, and then get back to the job that people pay me fees for.
Financial Planing – Back to my day job
And what is it that people pay me for? Fretting over the conundrums of modelling uncertain future outcomes, analysing and researching products and processes that are proffered by those with greater access to knowledge and research than me, corresponding with clients about their day-to-day worries on money, goals, relationships and the minutae of all that is financial in a modern world. Oh yes, and spending an inordinate amount of time trying to extract accurate answers from those customer service centres that the Government is so determined to deliver financial advice from to make sure people don’t have to pay fees to me.
And a little anecdote of the kind of things we deal with in my little lunch box… Last week our office was trying to help someone who had come to us for assistance after encountering financial difficulties for the last few years. We (it wasn’t me, it was another adviser) acknowledged their plight, confirmed that there was quite a bit of work to do, and assured them that we would work with them to get an outcome – our fees would be kept within what they could afford, even if that meant it was substantially below our going rate, and we would not charge unless we were sure that we could recommend a suitable outcome.
And the comment from that person? From being very guarded about the discussion, the person relaxed a little and said that they were surprised that we would do this for them – their perception of the financial planning community, based on public financial commentary, was that financial planners charged like bulls and were basically out to rip people off. This person only came to see us because an existing client had made the suggestion, and they knew that they needed help.
There may be a warm glow available from helping people – but the balloon is pricked fairly efficiently when you are reminded that you are lumped in with a rather shabby impression of your industry.
Ok. This is my soapbox rant spot, and this is what this spot is for. If you don’t like it, please feel free to leave a note or comment. Criticism cheerfully ignored, and constructive comment possibly even more so – after all, we’re moving into Easter, and i intend to spend that enjoying my newly expanded family, and reading all about existential psychotherapy – because those folk don’t generally feel a need to bash financial advisers to get ahead at their day job.
For those who feel compelled to ‘have a go’, let me start the ball rolling so you don’t have to think too hard just prior to a public holiday Friday.
- Michael, you’re an outdated dinosaur, working in an industry that simply won’t own up to a changed world.
- Michael, your business model is outmoded and you’ll be sent packing out of this industry along with all the other people who have fleeced customers for so many years.
- Michael, you have missed your own bias. All you are doing is bleating on about honest critical appraisal of a flawed industry.
- Michael, i don’t like the way you abuse alliteration in the search for pithy comment.
- Michael, i have been ripped off by a financial planner and your words are hurtful. i blame you just as much as all the crooked planners because … well, just because.
- Michael, you’re throwing stones from within your own glass house. You charge percentage fees, which the government tells me is corrupt, and you charge ongoing fees when you cannot categorically prove that i would be better off at the end of the year than at the start of the year.
Please feel free to top up the tank with your own versions. If you’d like to call me to debate the relevant issues then please feel free to do that as well. My hourly rate is $330 (including GST) and i’m quite happy to charge in 10 minute increments instead of 6, just to show i’m a big-hearted guy.