A mirror on the other side of the planet doesn't always reflect well on the United States

December 1, 2010 — 5:04 AM by Timothy Welsh, Guest Columnist


Elizabeth’s note: It’s interesting that the FPA of Australia combines its certification and professional organizations in one body. Here in the states, leaders of the FPA and the CFP Board have rejected that possibility. The industry’s largest association has plenty at stake at its annual conference this weekend and DC Current: What’s behind the CFP Board’s big fee increase. Here at RIABiz, we’ve been reporting on the resurgence in the M&A market. But signs of life here and nothing compared with what’s going on in Australia, as Welsh reports. Thanks to Welsh for his keen eye and sense of news on display in these stories.

Imagine a place where Myrtle Beach meets South Beach, complete with an Asian-influenced skyline and a Las Vegas-style casino on one of the most pristine beaches in the world. That’s the 33-mile long Gold Coast on Australia’s eastern shore.

The 2010 Financial Planning Association (FPA) of Australia’s National Conference convened at the Gold Coast Convention Center located near the city of Surfer’s Paradise, about 500 miles north of Sydney.

This highly anticipated annual event showcased the many similarities between the U.S. and Australian financial advisor industries. In some ways the Australian industry is moving even faster to embrace fee-only advisory services and the fiduciary standard.

Needless to say, the trip also provided this observer with a fabulous journey down under to the magical, wonderful and beautiful country known as Oz.

Ground zero

The annual national FPA event Nov. 23-26, was ground zero for the financial planning profession in Australia, attended by nearly 1,000 financial advisors plus another 400 or so vendors, spouses and conference staff.

The conference included 2.5 days of educational sessions, networking events (top of the list:surfing lessons!) and exhibit hall promotions.

This year’s event was also center stage for some big announcements. The association presented some bold moves regarding its strategy, mission and vision as it sets out to raise the profile, brand and the professional qualifications of 12,000 members, 8,000 of whom are practicing financial planners and 5,500 of whom hold the CFP® designation.

Struggling with the same issues that the U.S. financial services industry has in restoring investor confidence after the global financial crisis, FPA of Australia is taking courageous steps to transform financial planning into a true profession in Australia.

Mark Rantall, CEO of FPA Australia, announced in his opening remarks a three-year strategy to create a new vision, value proposition, and brand, complete with a new logo for the association. The highest profile changes were to design a new structure for membership, limiting future membership to only those with the CFP designation and strongly encouraging grandfathered non-CFP members to attain the CFP within a period of several years.

Additionally, similar to how the US FPA spun off the broker-dealer division 10 years ago into the Financial Services Institute (FSI), dealer-group membership (similar to the independent broker-dealer model in the United States) would no longer be a category of membership.

“We’ve been accused of being beholden to the big firms in the past,” said Rantall. “But no longer. Our focus and priority is on you, the individual planner.”

Lastly, to raise the profile and awareness of FPA financial planners, a broad consumer advertising campaign will be launched. This marketing effort to educate investors to identify with FPA financial planners due to their code of ethics, levels of education and higher standards will be funded by levying an additional fee on members and tapping into FPA Australia’s reserve funds. For those keeping score at home, this is the exact same approach to funding for the recently announced CFP Board of Standard’s marketing campaign here in the US. LINK HERE

Members view the outlook for the new marketing and advertising campaign optimistically. Unlike in the United States where the membership and certification organizations for financial planners are separate entities (FPA and CFP Board) FPA Australia has combined both into one organization and also has the largest concentration of advisors in Australia.

This greatly simplifies the marketing and branding task at hand for a country with a population of 22 million. Compare this scenario to the virtual alphabet soup of organizations and hundreds of thousands of advisors in the United States. The challenge of launching a successful advertising campaign for a country with a population of 300 million looms large, indeed.

What does the financial advisor marketplace look like in Australia?

In the Australian financial advisor marketplace, the most common method for providing advice is through one of the 160 or so dealer-groups. Each dealer-group has its own selected set of fund providers and investment choices. The largest 20 dealer-groups hold a roughly 50% market share.

Approximately 85% of financial advisers (around 15,000 of the 18,000 total) are associated with product manufacturers in two ways; by either working within the dealer-group or using the dealer’s support and back office services. That leaves around 3,000 financial advisers in Australia that are not associated with product manufacturers and would be considered truly “independent,” and most similar to the U.S. RIA model.

Medium- to large-sized dealer-groups often operate like a franchise where the dealer-group offers back office support. The advisors operate as authorized representatives, very similar to the “hybrid” I B/D and RIA model in the United States, free to select products from across the industry. They retain a right to take clients with them if they move to another dealer-group. The dealer-group is paid a proportion of the revenue made by the authorized representative, similar to how I B/Ds here in the States take a haircut on payout. (source: https://www.aph.gov.au/Senate/committee/corporations_ctte/fps/report/index.htm)

The reasons for these dramatic changes that FPA Australia is taking on for their financial planner members can be traced back to the same product failures and questionable behaviors of financial services industry participants that caused the financial crisis in the United States.

Just as the U.S. sub-prime mortgage industry making “liar loans” or “no doc” loans, Australia had its “ninja” loans (no income, no job or assets), which torpedoed the banking sector. Combined with the spectacular Lehman-esque collapse of Storm Financial, a “go-go” Australian financial planning dealer-group that offered 8% commissions to financial planners to convince retirees to take out big home mortgages and then invest the proceeds with large margin levels, the stage was set for reform.

The collapse of Storm Financial when the market broke in 2008 caused many of these previously non-leveraged middle class citizens to lose their homes and cast a large swath of doubt, confusion and anger on the financial planning industry. As a result the Australian government jumped into action to launch a series of financial services reforms that look very similar to what is contained in the DoddFrank Act. The Future of Financial Advice reforms (FoFA) seek to implement a broad array of new rules and regulations, including mandating a fiduciary standard of care, eliminating volume-based “kickbacks” from fund managers to the dealer-groups and applying new levels of disclosure.

According to regulator Dr. Richard Sandlant of the Australian Treasury, who spoke on a panel discussing the progress of reform, “Our guiding principals are financial advice must be in the client’s best interests, but not so that it puts it out of the reach of those who can’t pay for it, all while raising the professionalism of the financial advice industry to build consumer trust and confidence.”

Easier said then done!

Dr. Sandlant’s remarks created quite a stir during the question and answer session that followed the panel, with angry advisors lashing out at the proposed reforms. “ I have over 1,000 clients and your proposed rule that I meet with each and everyone of them every year to have them “opt in” to working with me is the single most dumbfounded idea I’ve ever heard,” angrily remarked a 30-year veteran advisor.

The Regulatory update panel was followed by a compliance session that detailed examples of advisors who were the subject of regulatory enforcement actions stemming from the financial crisis. “The majority of cases ultimately came down to the risk tolerance questionnaire,” noted compliance expert Claire Wivell Plater of Gold Seal Risk Management Services. “The regulator found that these tools were inadequate, incomplete or were never presented to the client to provide a basis for the advice and recommendations.”

The many other sessions offered at the conference were practice management focused, providing insight and best practices on marketing, sales, client management and succession planning. There is actually a brisk market for buying and selling financial planning practices in Australia, with typical valuations of 2.5 times recurring revenues, representing anywhere from 5 to 10 times EBITDA. Additionally, many advisors use debt to finance transactions, and there are many lenders offering financing at roughly 10% rates, something that is not readily available here in the States.

The exhibit hall was packed with the usual set of companies: mutual funds, dealer-groups, asset managers and real estate investment programs that populate exhibit halls at US conferences. Representing Laserfiche, the leading document management provider for financial advisors in the United States, we actively engaged advisors in technology conversations on compliance and back office efficiencies. The only real competition for advisor mind-share was the heated Cricket rivalry between England and Australia that had just commenced for a five-day test and which was broadcast on all of the TV monitors in the large booths.

One remarkable aspect of the FPA Australia exhibit hall is that the food was quite good! No conference rubber chicken, here – lunches were five-course buffets, all served on fine china and the morning and afternoon “teas” showed Australia’s ancient British ties for formality and decorum.

After a full first day, the conference was highlighted by the annual “Good Advice” gala dinner, sponsored by Colonial First. A black-tie affair held in one of the massive rooms at the Gold Coast Convention Center, this year’s event featured acrobats from Cirque du Soleil, a famous Italian Opera singer, live bands and another six-course fabulous dinner.

Seated with very successful financial planners from Melbourne, Brisbane, and Sydney, I was pleasantly surprised with their interest and appetite for the goings on in the U.S. financial planning industry. They also expressed their concern for the state of the U.S. economy, because despite their thriving, resource based economy now, they know that what happens here in the United States, ultimately will happen down under. The other popular dinner topic was their interest in politics, and the incredulity and ridicule they expressed for the “Tea Party” candidates. They also showed genuine concern and empathy for President Obama, what were his chances of re-election and would we please get our act together to slow the deficit.

While the rest of the United States is enjoying the traditional Thanksgiving holiday, we finish out the conference on Friday with morning surfing lessons and a full slate of educational content. Top of the list included a popular session with FPA executives and Board members providing a town hall meeting to discuss the latest changes to the association. The FPA update was well attended, with many planners excited for the focus on the new code of professional conduct, the advertising campaign and optimism for the future of their profession.

The Aussies truly know how to make an American feel welcome and I continue to be amazed with what an incredible country this is. After a full week of thoroughly enjoying Australia, I was anxious to get home for a belated Thanksgiving dinner with the family.

As I board the plane to Sydney for the 13-hour international flight that will have me arrive before I leave (flying to Australia from the US you lose a day, but on return you gain that day back), I am once again reminded that we truly live in a global village. What we do in the States, particularly in the wealth management industry, has a big impact around the world.

So, as we work through our own regulatory reforms, here’s our chance to get it right, folks – the rest of the world is watching.

Tim Welsh, CFP® is President and Founder of Nexus Strategy, LLC, a strategic marketing consulting firm to the wealth management industry and can be reached at tim@nexus-strategy.com.

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