Reading Riting n Rithmetik

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Here’s my latest blog for financialplanet.org. A bit wonkish but it was nice to read the feedback I got on that blog from my views.

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“Call ten people, make three appointments. One of them will cancel, one won’t be interested, and the third will make you a sale.”

That golden rule, along with some explanation of how to calculate premiums from the company rate book, was the essence of my first training course as an insurance agent in 1987 – the background of many of Australia’s financial advisers.

How far we have come!  For some time, financial planning representatives have worked with the Government and institutions to establish educational qualifications at Diploma, Advance Diploma and post-graduate levels to bring the necessary academic rigor to financial planning.  Of course, all of these integrate with the educational requirements of being a Certified Financial Planner.

This education is a necessary component of achieving recognised professional status.  More importantly, it is what our clients deserve.  Some of the poorest outcomes can result from well intentioned, but technically uninformed advice.

Bachelor of Financial Planning

It is the vision of the Financial Planning Association to have a recognised graduate degree, the Bachelor of Financial Planning, as a leading academic qualification for aspiring financial planners.

In 2011, the FPA established the Financial Planning Educational Council.  FPEC, composed of representatives of the Academic and Professional communities, was asked to review the existing programs on offer for financial planners and design a pathway to a recognised tertiary qualification.

This involved input from many tertiary institutions to develop a curriculum that:

  1. suitably prepared advisers for their responsibilities, and
  2. could be delivered consistently across a range of institutions.

Recently, FPEC announced it would be developing an Australian Curriculum for Financial Planning, as well as a framework for education providers and courses to be accredited.

Contemporary Research and Libraries of Learning

My hope is that along with this curriculum, a recognised research protocol, similar to academic journals, can be established. That way, students and professionals can access a deep library of learning and information with which to inform their advice.  With so much regulatory and economic change, it is too easy for planners to rely on ‘rules of thumb’ that can lose their veracity over time.  Our advice needs to be contemporary with the latest research.

I also hope that this body of knowledge about financial planning has a heavy emphasis on behavioural finance.  As corny as my sales training was, it contained enough elements of truth regarding how people act with money to make it useful, even today.  Every experienced planner knows that the single most critical element of success in a financial plan is how people act with their money. This element is more important than tax law, asset allocation, or changes of government. Unless our education recognises this, I believe that it will fall short of what is required.

How does your doctor get paid?

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Some Background: Recently, I was asked to join the Editorial team for the website Financialplanet.org, an initiative of the international Financial Planning Standards Board. With an editorial team made up of Certified Financial Planner professionals from around the world, Financial Planet explores issues that speak to the heart of financial planning professionalism. Readers and subscribers gain international perspectives on ethics, regulation, rebuilding consumer trust, education, compensation issues and more, and have the opportunity to add to the discussion through monthly opinion polls, comments and discussion threads.

Here’s my first column, on a topic that is very hot amongst planners: how do we reconcile our professional obligations with our business models, having regard to the varying needs of people for quality financial advice?

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I recently went through a procedure that is all too common for middle aged aspiring golfers. It was the same sad story – my brain refused to recognise that my body is no longer 21 years old, and this resulted in a shoulder injury that eventually needed an operation. Initially, my surgeon didn’t want to operate.  But after a long year of trying less invasive methods, we concluded that the best option was to proceed with surgery.

(My fellow golfers will understand that giving up the game itself was never an option).

Now, I know a bit about financial planning, but very little about medicine.  I met my surgeon through a referral from my doctor, who told me he was one of the best. Compared to financial advising though, the ‘fact find’ process is minimal.  Some questions, a few arm movements and an MRI scan.  Still, this was better than the anaethetist, whom I only met minutes before he put me under, and who couldn’t remember the phone conversation we’d had the day before, where he asked me about allergies and existing medication.

Still, I guess he’s a good surgeon. I mean, not only am I alive, I am writing this blog with both hands!  And, thankfully, my shoulder is feeling a lot better.

Compensation Wasn’t a Conversation

Not once did we have a discussion about how much he would be paid. I don’t know if he paid my doctor a referral fee, or got a kickback from the hospital that he chose or even if the company that makes the scalpels he uses ever took him to a conference.

My lack of curiosity was partly because I had good insurance, partly because I just wanted to get better, but mainly because I knew that he would always act in my best interests.

I knew this because:

  • He was bound to an ethical code and had demonstrated behavior consistent with this
  • He was highly educated and independently assessed by a professional body
  • He was licensed by and subject to government law

When it comes to financial adviser remuneration, I believe a similar approach needs to apply.  Here in Australia, we are taking important steps to have the definition of “financial planner” enshrined in law, so that our clients can have the same comfort and clarity, knowing exactly what their adviser is required to do.  Combined with a peer accountability through an ethical code, and a regulatory ‘best interests’ test, clients can have the same comfort as I did with my surgeon, knowing that their best interests are protected.

Business Model Variety is a Good Thing

Within the context of this professional framework, I do not believe that there is one ‘right’ business or remuneration model for financial advisers. Each model has its strengths and weaknesses, and each has its potential for conflict.

Why? We need to be honest and acknowledge that there is a demand in the community for a variety of financial planning business models.  Just as some prefer to use public health, or to self-insure, over having choice and convenience, there are plenty of people who need quality financial advice but can’t afford an upfront fee and would rather amortise the advice cost over a period of time.

Just as there are those who prefer their adviser to charge a flat dollar fee and be completely agnostic towards their investments, there are others who take great comfort from knowing that their adviser charges a percentage of assets and makes more money, if they do well.

Too often, I see advisers take their defence of their business model or remuneration approach a step further and argue that what is right for them and their clients is also right for everyone else.  Frankly, the needs of our clients and their own styles and preferences are broader than that.

We need a diversity of business models to ensure that the greatest proportion of the community gets the advice they need.

I kissed the waitress

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And I wasn’t the only one in our party to do so. Last night, at dinner at San Francisco, the service we received was so good that many of our party said goodbye to our hostess like she was an old friend. It was genuine emotion, and a perfect example of how a business model (running a restaurant for profit) can produce an authentic human moment (both her and we had a great time) that results in lasting memories.

Too often financial planners get into their ‘left brain’ mode, crafting advice from a rational and clinical perspective.  The emphasis is on asset allocation, cash-flows, risk management. The client experience, the communication, understanding, and appreciation of what is done is neglected. The paucity of soft skills in financial planning curriculums is evidence of this.

Ironically, the latest government ‘shadow shop’ found that technically the overall quality of advice was lacking. Yet, the client experience was almost unanimously positive, even where the advice was most technically deficient.

Typically, the government’s attitude is one of paternalism.  Those poor unsuspecting schmucks, going out into the wild up against the unscrupulous financial planner.  It begs the question as to how they managed to accumulate wealth in the first instance. But increased regulation and blaming the planners is not the answer.

Clients aren’t dumb. But, they usually don’t see a planner to become educated enough to be one themselves.  I didn’t want to know how the chef cooked my meal last night. As long as I ate a healthy delicious meal and had a great experience I was happy.

My point is, the felt emotional experience our clients have as a result of dealing with their planner is equally as valid an assessment of quality as is the technical construction of that advice. The former doesn’t obviate the need for the latter, but neither should it be discounted to the extent that is usually is at the moment.

 

A Profession is Born

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Editor warning: he gets up on the soapbox here.  Read on at your own peril….

It’s not every day you get to witness the birth of a new profession.  Usually, you have to go back through hundreds’ of years of archives to understand just how, for example, surgeons raised their status above that of their 17th century colleagues, the barbers.  But this week we saw just that.  In a late Thursday afternoon in Canberra, at the end of a long parliamentary sitting week, we saw the birth of the profession of Financial Planning.

With the passing of the Future of Financial Advice laws, the inchoate calling of Financial Planner moved away from being an industry serving its participants, to a profession serving the people of Australia.

For some time, many ‘Authorised Representives’ have embodied professionalism, only to be undermined in substance by  the reality of the law that failed to fully capture the difference they make in their clients’ lives.  A law that myopically viewed everything financial planners did as only relating to the sale of a financial product. A law that was easily exploited by charlatans and mountebanks, a law that was turned against financial advisers by the very parliamentarians that wrote it.

Like many acts of creation, its birth is surrounded by ambiguity, polemics, denial and gainsaying. But only a little publicity, as it’s not the sort of thing to attract a lot of press attention.  But there can be no doubt as to the moment of the moment.

In many ways, the vast majority of the proposals originally made by the government almost two years ago were warmly welcomed by financial planners.  But there were a few parts that, frankly, sucked.  (ed: Sucked?! How quickly loquacious oratory makes way for vernacular) There were parts of the reform that didn’t do anything to make life better for consumers, and some parts were simply partisan ideology only masquerading as reform, serving only to strengthen Union superannuation funds.

For a long time, planners argued their case seeking to achieve an ideal outcome. Over time, despite persistence and logic, realpolitik became the order of the day.

Now, we face a future undoubtedly improved for both consumers and practitioners.  All advisers are required to meet a Best Interest test, but those prepared to be accountable to a higher standard through an approved Code of Professional Practice can put aside a lot of the red tape and focus on their client relationships.

Consumers ultimately will be able to choose the level and ability of advice that suits their needs.  They’ll be able to easily distinguish between the spruiker and the professional, in a way that they can’t right now.

There are a lot of really good financial planners right now that see this as a threat, and it is if they don’t addresses the issues this reform raises.  But just as surgeons realised that it took more than a brief apprenticeship to be more than a barber, so must financial planners see that times have changed.

Your Brain in Love

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Imagine spending just 10 minutes each day, meditating on the person or thing you love most in life!  Would this have a positive effect on your life?

For me, the most exciting frontier of biology is understanding better the connection between our emotions, our behaviour, and the biology that drives this.  In doing this, we can improve our lives, decrease our stress and increase our happiness.

This video from Stanford University is a great example of this.  It has nothing to do with money – it’s about a much more important topic, love.

I admit, I find the concept of a ‘Love Competition’ incongruous….but it is riveting viewing and I am grateful that the participants let us into their lives.

See if you can guess who wins.

Your Brain in Love

 

So, you want to change the world?

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I’m old enough now to know that a few student demonstrations isn’t going to change much.  But I still want to help others learn to fish in this here pond called Earth, because I understand how wealth is created.  There’s no limit.

Capitalism is, in many ways, the most sophomoric and inefficient system in which to create and distribute wealth.  Except for all the other systems.  

A year ago I stumbled across a way to act on my desires to help others, to turn my theoretical knowledge into experiential behaviour, all in a way that was within my budget and didn’t require malaria inoculations (how’s that for a sales pitch!)

  • Kyrgystan
  • Philippines
  • Sierra Leone
  • Ecuador
  • Peru
  • Cambodia
  • Viet Nam
  • United States

Thanks to Kiva I have been able to make micro-finance loans to people in each of these countries over the past year.  Embarrassingly small amounts actually, but enough for them to change their lives.  And it wasn’t a donation – all I forgo is interest.  The capital itself gets repaid to me and I can choose to re-lend to any number of projects.

Go on, go and change your world – and theirs.

 

 

The 2011 Official Christmas Financial Advice Post

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Yes Virginia, there is a Eurozone.

What a year for investors. Between US politicians squabbling over taxes, Australian politicians bringing in a tax on everything that moves, and European politicians deciding that floggings would continue until morale improved, it’s been a tough year.

But, that in a few years time, very few of us will remember the details of all of that (Don’t believe me?  What was the return on the ASX for 2008?).

Rather, we will remember all the really important  things that happened to us this year:

  • We became parents and grandparents
  • We got sick, and then we got better
  • We got married
  • We said goodbye to loved ones
  • We started businesses and changed jobs
  • We had holidays of a lifetime.

So, fuggedabouddit! Money, that is.  The markets will soon be closed.  Nothing you can do about your money.  No-one’s interested and worrying isn’t going to change anything right now.  Whatever decisions – good or bad – you have made with your money this year, are made and can’t be un-made, improved on or corrected this year.

If you have had a great year and prospered materially, congratulations.

If you have overspent and are struggling, don’t let your worries ruin your Christmas time.  No-one except the Mob chases debts between now and the new year, so just chill and regroup.  We can work it out in January.

Leave the resolutions till new year, which is where they belong.

Enjoy your real present, which is the present!  Put aside money and focus on all that we have to give thanks for in this wonderful country we live in.  Be happy with your family and friends.

Because life is for living.

Here endeth the lesson.

Poke the Box

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Books can be powerful things, more powerful than dynamite.

I’m a fan of Seth Godin, although I only learned about him and his work this year.  He has a knack of getting to the point and communicating with a clarity that I yearn to replicate.  One of the reasons I like him, I think, is that he is consistently pragmatic.  If the ground you stand on doesn’t match the map you are looking at, well then Seth will not only tell you that your map is wrong, he’ll ask you why you haven’t started drawing a new one yet.

And, I’m a fan of books.  Since I was a kid I was a bookworm.  I’ve filled up bookshelves and then given them all away (except my long time favourites) and started over. Recently yes, I am a convert to electronic books.  But I still like the physical journey, as well as the mental one, you take when you grab a hardcover and turn each page.  Books are great to receive, and even better I like giving books as presents.

Seth published a small book with some powerful ideas recently, called ‘Poke the Box.’ It’s all about taking action, not waiting till perfection is achieved, being brave enough to back yourself.  It’s not a big book – you could read it in less than an hour, I reckon.

You should get yourself a copy.  And, being the marketer that he is, Seth offered in a special 50-copy pack.  How could I resist?

So, I bought a box of these books, to give them away.  Except I was a bit naughty.  I kept track of who I gave them to, and whether they said anything to me afterwards about it (and to be honest, I wanted to make sure I didn’t try and give it to the same person twice!) I gave them unconditionally, and I accept that not everyone will like the book as much as I did.  So, I didn’t follow up with anyone – just thought I would wait and see if anything happened.

I kept one hardcover for myself, and gave away 48 copies.  I gave them to my kids, my colleagues, business partners, my team at work.  I gave some to clients.  I mailed a few copies to different business acquaintances that I met at functions.

Of the 48:

  • 42 haven’t said anything to me beyond an initial ‘thank you’ if I gave it to them personally.
  • 1 was inspired enough to finish a diploma that she had been procrastinating on.
  • 1 used it as the catalyst to make a business acquisition.
  • 2 people expanded their businesses into new markets that have significantly increased their revenue.
  • 1 lady quit her job and started the interior design business she had always dreamed of doing.  She’s already made more in 6 months than in the previous 2 years.
  • 1 guy left his job as a lawyer to start a mining company in Africa.

The 49th copy? It awaits anyone who wants it.

Books can be powerful things, if you let them.

Celebration and Commemoration

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I had the honour to recently address members and guests of the Western Australian Club in my role as President.  If you weren’t there – you missed a great night!  Here’s what I said:

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Welcome to all our members, guests and particularly former presidents of the Western Australian Club on this auspicious day.  Auspicious because it is Remembrance Day, and because it is my first President’s Dinner, and because we are celebrating with some excellent wines, including the wonderful Bollinger champagne that we enjoyed on our arrival.  And, if you will indulge me, it is even more personally auspicious for me because my father joins us tonight, after emigrating to Australia from the United States just 5 days ago.

It seems apt on Remembrance Day that I recall the quote that if the Allies hadn’t fought with such courage on the battlefields of France, then Champagne may well now be made with Riesling grapes!

It is an unusual juxtaposition that our celebrations tonight occur on a day when we remember the sacrifices in battle that others have made for us.  These sacrifices have resulted in us enjoying such a free and peaceful modern society and all the blessings that stem from that. It is unusual that the remembrance of bloodshed coincide with an event of celebration. It is said that it is easy to take liberty for granted, when you have never had it taken from you.  So tonight, we should remember those that have given their all for the liberty we enjoy.

But also, we should celebrate tonight, for indeed we live in a fortunate time and a fortunate place.  As I reflect on my own journey, I recall arriving in this country as a young boy, with no real connections for our family.  My parents taught us manners and courtesy, but we had humble means, and I was taught in a government school.  I remember being excited about moving to Perth from Tasmania when I was 14 because it meant I could more easily get a job and save for those things that were important to me.  And to my delight, I found that this was a country where you could create the life you sought to, realise the dreams you had, were you only prepared to work hard, live honestly and respect others.  

I share this with you not to brag at but rather to give thanks for this wonderful country that has accepted me and my family.  I give thanks for those that have gone before us and sacrificed so much to make this wonderfully egalitarian society we live in.  I share this to encourage us all here to recognise that we have a role and a responsibility to the next generation to continue to ensure that Australia remains a place where all can achieve their potential, regardless of background or means.

Winston Churchill once said ‘Meeting Franklin Roosevelt was like opening my first bottle of champagne.  Knowing him was like drinking it.’ It’s not too much of a stretch to say that’s how I feel about the Western Australian Club.  It was amazing to be able to become a member some eight years ago, to be part of a Club where some of the great leaders of Western Australia have been members, both in the past and now.  And to now be President is humbling and somewhat surreal, and nearly as intoxicating as champagne!

We are a wonderful community that welcome all, and I have enjoyed many fine occasions here. But on Remembrance day it is worth asking if  the club is merely a forum to facilitate an Epicurean philosophy?

I would be the last person to argue that to eat, drink and be merry is a less than admirable approach to life.  Yet I would encourage all of us to decide, at this critical time in our Club’s history, to go beyond this corporeal approach and seek to reestablish our Club as a community of thought leaders. It is this generation of Club members that determine the fate of our famous Club.

And what an exciting opportunity that we have, to be the ones that are appreciated in the future, for ensuring that this Club continues on.  That it is a Club that welcomes all, that demonstrates and promotes the highest values of our society.  And, that it was re-energised through the commitment of those that recognised a cause beyond themselves.

So, in many ways, we fight for our Club’s future, and we prevail to ensure that Australia remains a free and prosperous society.  And on this day of Remembrance and Celebration, let me conclude by again quoting Churchill: ‘Remember gentlemen, it’s not just France we are fighting for: it’s Champagne!’

Experts Schmexperts

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For over several years now, the government has been making a structural review of financial services.  A lot of really good initiatives have come out of this, but of course when there is money involved, the vultures emerge too.  This has seen some nutty proposals get into the draft legislation, which have served to distract from the government’s stated claim, which is to increase the availability of quality financial advice to all Australians.

Anyway, Adviser Voice (www.adviservoice.com.au) invited me to submit an opinion piece.  As usual, I couldn’t resist standing on my soapbox:

I’ve heard that the worst thing about being an author is that everyone else thinks that they can write a book too.  Everyone has a story, everyone reads…so everyone thinks that, ipso facto, they are an author.  The years of study, thought, toil, constant revision and drafting are taken for granted.  The lack of income, the low chance of being a commercial success – none of these are given a second thought.  I mean, you can write an email, a book is just a bit longer, right?

As a financial adviser who runs a profitable practice, I’ve been feeling a lot like those authors lately.  It seems everyone that has even a passing interest in money knows better than me how to provide quality financial advice. 

Each day I read politicians, research houses, Treasury officials and David Whitely telling me how I should run my business and advise clients.  When I should contact them, what I should say, what and how I should charge – the opinions are never ending.  It’s easier to get information from an ISN call centre than it is to make sense of them all.

Despite their opinions being more conflicted than, say, a consumer advocate taking mortgage referral commissions, they do all have one thing in common: they’ve never been a financial adviser. Sure, everyone has money and an opinion, but that doesn’t make you a financial adviser.  Follow that logic, and we are all proctologists.

I’ll love to see these experts interact with a variety of people, understanding their hopes and dreams, adding up their savings and their income.  Let’s see them not only come up with a plan that allows for markets, tax structures, cashflows and risks, but then explain that comprehensibly  on paper.  Can they describe complex structures in everyday language and encourage people to make the changes they need, to live the lives they want?

And not only do this once, but year after year.

No, easier to be an expert than to actually write the book.