Article by David Smith, Director, DBA
Remember the 1980s. Greed was good. Until Paul Keating killed it – it was the era of the long lunch. Technology’s relentless march gained momentum with computerised tax returns and other marvels changing the accounting industry forever.
It was also the end of the 100% loanback superannuation fund. Money needed to be invested. Financial planning was emerging as an industry. It should have been the domain of the accounting industry due to the trusted relationship with the client but it was never to be on any scale.
For the accountants knew that something was crook with the idea of taking commissions for advice given with the focus on product selection more than strategy. Interestingly, it has only taken 30 years for the rest of the financial services industry to catch up to realise the conflicted advice is problematic and commissions drive behaviour that is often not in the client’s best interest.
Now in 2019, we see the brands of the big institutions being trashed and all sorts of conflicts and poor behaviour has been revealed in their wealth management businesses by the Royal Commission. Many are packing up their bags and going home – leaving the wealth advice business completely.
The problem is that Australians need a strong, vibrant, innovative and ethically strong financial advice sector.
Everyone needs to plan for their financial future. Everyone needs to ensure they are adequately protected should they be adversely affected by a life event. So how does the industry restructure itself to ensure that consumers receive cost-effective, ethically strong advice that is focussed on their best interests?
All of a sudden the stars are aligning for the accounting industry to take the lead. Everything accountants despised about financial planning is either gone or going. Commissions are disappearing with remuneration models based around fee for service (the same model as accounting practices).
Advice is focussing much more on strategy rather than particular investment products which is again more aligned to accountants way of thinking. Sure problems remain – the affordability of advice remains an issue with the complex and burdensome compliance load.
Advice documents are also too legalistic focussing more on minimising risk to the adviser than providing quality, easy to understand advice. However, the goalposts have certainly moved. This is a great opportunity for accountants.
Every accounting practice needs to assess how it is going to address this issue. They already have clients’ trust. How are they going to safely navigate the options to move into the advice space?
Many accountants do not have the time. They keep getting sucked into the compliance vortex or see other opportunities to explore an expansion into bookkeeping or business advisory. They see the regulatory framework as too complex, the educational requirements too onerous and are concerned that it will be difficult to turn a profit.
These days financial planning is a scale game as there is an investment in technology, processes, compliance, governance and education. Many smaller practices lack the scale to justify an investment in this infrastructure.
It was for this reason why James Malcolm (ex APS), Tony Bates (ex Macquarie) and I created Crescere. It is building joint ventures with accounting firms to provide financial planning services to their clients. For the accountant, it is light touch. Crescere provides all the infrastructure, employs the planners and provides the planning services all under the accountants brand.
The Crescere planner appears to the client as a colleague of the accounting firm partner operating under the same brand. Revenue is shared between Crescere and the accounting firm.
The result is that smaller accounting firms (2 to 9 partners and some solo practitioners) are able to provide high-quality financial planning under their own brand without any financial risk and without any significant impact on their valuable time.
There couldn’t be a better time with the disruption being caused by the Royal Commission to consider the opportunity for your firm to provide the ethical, non conflicted financial planning services your clients have always needed that has a singular focus on the best interests of the client.