Remembering that “we” refers to WSP Financial Services Pty Ltd, trading as Wealth & Security Planners.

In many ways, we are no different from the majority of financial planning groups operating in Australia today. That is our services and processes are similar to those that you would expect to encounter in any financial planning firm:

• Preparation of full “financial plans”,
• Preparation of strategy papers,
• Assistance in placing various financial products such as listed and unlisted securities, superannuation and retirement products etc,
• Assistance in placing various forms of life insurance and income protection,
• Referrals for professional advice on loan products, general insurance and estate planning issues.

A good starting point to look at just what financial planners do, and how they operate, is the website for the Financial Planning Association.

So, how are we different?

The key area is that we are quite happy to provide advice to “do-it-yourself’ers”. In other words, we do not have a requirement that you invest into products that we recommend or even that you invest at all. We are quite happy to provide a second opinion on advice you have already received or to simply chat through your own strategies and objectives, without the obligation for you to place investments with us.

That may not sound like much – but were you aware that many financial planning groups do not let their planners charge you for giving broad strategy advice? They MUST sell a product to you in some way or another. It does not mean that the planner won’t do the best that they can for you – but our guess is that this is something you’d like to know about.

Wealth & Security Planners have for years offered the ability to simply sit and talk through your situation with one of our planners, for a standard hourly fee.

We are also different from many planning groups in that we do not require that you operate through a specific investment platform or service. Again, that may not seem like much of a big deal – but it is a common practice for financial planning firms to only recommend one platform or service, as it helps to improve the level of customer service that can be provided (by streamlining operations and reducing the number of institutions and technologies that have to be dealt with) and for some, it provides a higher level of remuneration from platform rebates (feel free to query just what all that means if it does not make much sense).

Many financial planning groups argue that such rebates and platform arrangements (such as part ownership of those platforms or services) are simply part of their business model and do not detract from the services that they offer – and in many cases this may be true. BUT any planner that can only recommend one particular platform or service is only able to give you one part of the total story.

The current argument and debate about the virtues or otherwise of commissions or fees is unhelpful at best and simply misleading at worst. Wealth & Security Planners have offered their clients a choice of how they choose to remunerate their planner for many years. Some people like to write out a cheque (or use their credit card or EFT) for any advice that they receive. Some don’t. Some are happy to see their planner’s remuneration tied to their portfolio returns, others are not. The choice should be up to the individual – not mandated through legislation.

It is important to keep in mind that we do not consider ourselves any better than any other financial planning firm. In fact, in some ways we are less efficient (because we provide genuinely tailored, personal advice) and less pretty (we are generally not interested in building up a marketing hype or offering what we cannot deliver or do not believe in). We just happen to think that what we offer is a more strategy based service, and one that is free from institutional interference. And we are proud to offer YOU the choice of how you pay for our services. You can pay by cheque, credit card or ETF (we can’t take cash, sorry). You can have our fees deducted from your investments (if you are looking to invest and if we recommend something that this can happen in). It is all up to you. We have the knowledge and skills to help – you tell us what you want and how you want to pay for it.

The current (December 2009) argument raging around the mainstream media focusses on the idea of legislating to ban the payment of commissions from products.

The United Kingdom already has such legislation, and on the face of it, there seems no reason why Australia should not be doing the same thing. Except that it is likely such changes will do nothing to reduce the bias and lack of independence available to the average person seeking advice. The reasons are manifold but here are just a few:

1. The vast bulk of financial planners in Australia today are working for either Banks or businesses owned by the major Banks.
2. The bulk of those left are either working for or are solely tied to, major product providers – such as AMP or AXA.
3. All of the above and most of those not covered by (1) and (2) receive volume bonuses, rebates or incentives to place business in particular products, platforms or services.
4. The (pitifully) few remaining planning groups are under constant pressure to fold their businesses into (1), (2) or (3) above. Why? Because the regulators of the industry (ASIC, APRA, ATO) are understaffed, underfunded and therefore unable to provide the certainty of compliance monitoring and control that is expected of them if they try to cover too many planning groups. Therefore, they want to see the number of groups reduced. They see consolidation into the bigger groups as a good thing – leading to EXACTLY what the mainstream media, regulators and consumer groups are telling us we should not have. Go figure.

The current debate (there really is very little debate – just a series of well-funded campaigns) is spearheaded by the diverse grouping of superannuation funds that are somehow allowed to market themselves as ‘Industry Funds’. These funds are currently spending a lot of money marketing themselves as “profit for members” (a double-speak distortion of the traditional “not for profit” lable), while using member money to pay for advertising to take members from other super funds. That is bad enough (but to be expected, as historically mutual funds or not-for-profits eventually become vehicles for the egos of their management - eg. Capita, National Mutual, MLC and AMP) but the farce is continued even further, with ‘Industry Fund’ members bankrolling a campaign to stop commissions being deducted from super accounts. Ask yourself why a member of a fund that does not allow that, should be paying to try to stop other people from having that choice? The argument is also against commissions in total… That is, it will impact people who are not even investing money into super funds. How can that be part of the role of the Trustees, advisers or managers of a super fund?

The argument goes something like this (and it is an argument perpetuated by calculators such as those provided by ASIC, which show you how much your fees are costing you compared to having no fees at all… Find me a super fund that does not charge any fee at all. It is a joke, and provides no guidance for what a super member would encounter in the real world), IF you pay for advice on your superannuation fund directly from your pocket, you are better off. Currently, you can choose to have advice fees deducted from your superannuation account (at least, in many retail funds you can). What is not clear is the fact that this provides you with a form of tax shelter for the costs of running your fund. Paying an advice fee outside of a super fund does not provide you with a tax deduction – as it is personal expenditure of a capital nature and not related to earning an income (as the income is in the fund and not available until retirement). So the same fee outside of a fund is likely to be HIGHER than in the super fund.

And it gets worse.

The average super fund member has an account balance somewhere around $50,000. The commission that is payable to an advisor in a standard retail fund is somewhere between 0.3% and 0.6%pa of funds under management – that equates to something between $150 and $300 a year that they will pay to an advisor. The Industry Funds financial planning service charges somewhere around $220 per hour. That means a person could receive something between 40 minutes and 1 hour 20 minutes of financial advice in a year and incur about the same level of costs. However, the world isn’t that easy. The level of compliance and paperwork required to provide advice is substantial, and it would normally not be cost effective for a business to provide any less than one hours’ advice at a time (owing to the need to include all personal circumstances of the member relevant to the question at hand). Even a simple query would most likely require a couple of hours of work. And so the average fund member who needs that advice will be out of pocket.

But wait! i hear you say. There will be years when the person does not need advice – and why should they pay for something that they don’t need?

So true. But do you know the cost of a financial plan? What about a limited plan – just about superannation? It is my prediction that most fund members will end up paying more under the new regime. More because of the lack of taxation benefit. More because of the need for a financial planner to account for every moment of their time under a fee basis (something that rarely happens when the advisor is receiving an ongoing commission). More because the amount of cost for ANY advice in the early years is likely to be disproportionate to the level of funds available for investment. More because those higher amounts in the early years have a greater impact on net present value calculations than percentage figures which accumulate larger costs in the later years of an investment.

But financial planners are inefficient, i hear you say. New technologies and better customer service centres will see the fees drop as more efficiencies are brought to bear on an archaic and corrupt industry…

Fine, i reply. How much good advice have you ever received from a call centre? Have you ever wondered how you achieve efficiencies in the delivery of service? It is through streamlining operations – limiting the number of choices and promoting a ‘tick the box’ process so that answers can be definitely correct, quick and cost effective. Ponder that for just a moment… The result will be more bias than we already have. Less options. Less personal service.

Now you are free to throw away my arguments as being the death-gurgles of a dying relic from an archaic industry, who cannot see the forest for the trees, and who is so biased towards the existing regime that he can’t make an objective assessment. Actually, i rather expect that most people will see it that way. Frankly, i don’t care. The point of my saying this is so that when it happens, i can point back at this note and say, “i told you so”. It won’t make anyone else feel better but it will give me a warm glow.

Here is another prediction – at some stage, so called ‘Industry Funds’ will offer to spread the high cost of financial planning over a longer time period, to help their lower income or low-balance members. And guess what? It’ll look a lot like an ongoing fee that looks a lot like an advisor’s commission does today.

As a group of advisors who have for many years offered the type of service that is being asked for today, you may wonder why we are putting in the effort to address these issues. It is because we fervently believe that the lack of informed debate around current financial planning issues will lead to outcomes that the participants are not aware of and certainly, don’t expect. Wealth & Security Planners has a part of its business that receives ongoing commissions from various areas. That is a legacy of being in business for decades and partly as a result of individual client preference. These will be impacted – but our business will survive, and it is likely that our total business income will lift. In fact, if clients are not given the option of paying an ongoing fee through their accounts then we are likely to see a far more stable business income – and one disassociated from the returns achieved by those clients who come to us for investment advice. Our real concern is that these changes are just part of an ongoing attempt to reduce bias that won’t be achieved by the actions that are being proposed.

And the final ‘rub’ in all this for clients of financial planners? It is that the entire financial planning industry is likely to be forced to adopt a pricing regime that is right at this moment being abandoned by the legal industry – because it leads to potential overcharging, fudging of timesheets and customer dissatisfaction. Go figure.