Don't Become Blockbuster

Remember Blockbuster? Or maybe another question, remember DVDs?

In 2000, the CEO at the time, declined buying Netflix for $US50M. Netflix passed $US100B in market cap last month. That’s a 200,000% return. Slightly above the cash rate.

The last Blockbuster store in Sydney closed in 2017.

Why is this relevant?

I had a meeting last week with an investment adviser that has been in the industry for 30 years. He completed his last qualification in 2006 – an Adv Dip FP. We are good friends, so naturally he blew up about the proposed education requirements, and asked me to solve his problems. I had one response – “Don’t become Blockbuster”. He appeared confused. 

For the record, Blockbuster started in 1985. Almost the same time as my friend.

The difference – Blockbuster is dead.

My message - either adapt to change, or get left behind. The latter being more than polite.

There is a saying “don’t hate the player, hate the game”. I cringe when I hear this. But at the same time, it has meaning here.

The financial planning industry is going through significant change. You have the following choice:

1.      Embrace it

2.      Become Blockbuster

FASEA came out hard before Christmas. This is normal. They want a reaction from advisers and the media. And they certainly got it. They will back down. This 10 year degree rule won’t get up. Having said that, be prepared for the “relevant degree” to come in to play. Most have only been around for several years, so dropping the 10 year rule really has little impact.

My view, it will be a Grad Dip level for existing advisers, meaning any Dip FP, Adv Dip and even the CFP will not count. The Australian Qualification Framework (AQF) level for advisers is likely to be a 7. Currently, RG146 can sit at 5 or below, depending on your licence. That's rather embarrassing as professional industry. Imagine receiving advice from an Accountant without a CA/CPA, or legal advice from a lawyer without a law degree. Experience is irrelevant until you complete the first step. 

Anyone hanging on to RG146, please close the gap now, or find a new career.

For those wanting to debate, I'm B.Com-Accg, CFP, Dip FP, Dip FS and Kaplan specialist courses in SMSFs, Derivatives, Estate Planning and Lending. I even completed their National Adviser Competency Exam for fun. Yet, as it stands, I'm caught out too. So I'm spending my weekends completing a Masters. #embracechange

What is more relevant though, is the fact that these changes are not limited to financial advisers. It covers anyone that is a representative or authorised representative of an Australian Financial Services licence. That means anyone providing financial product advice or dealing in a financial product. Take a moment to think about this.

If the Productivity Commission gets its way, it will soon include what is currently deemed as general advice. Apparently general advice is “misleading”, mostly because it has the word “advice” in it. Does that mean Business Development Managers, fund managers, bankers, etc that distribute products will be moved to personal advice? That’s a game changer if so (final report in July 2018).

Mortgage brokers are under fire now too, with the possibility of applying a best interest duty.

It feels like everything is heading towards personal advice.

If you don’t embrace these new requirements, you will likely be off the register. 

And trends are already happening. Take the following for example:

“Insurance only adviser” – there is no such thing. Best interest requires you to cover all aspects.

“Investment adviser” – see above.

“Stock brokers” – It’s almost criminal to charge 1% brokerage these days. It is a commission driven product that is being replaced by fee for service advisers. Commsec retail, for example, even provides third party research via Morningstar and Goldman Sachs – at no further cost. The likes of Shaw & Partners, Ord Minnett, Bell Partners, even ANZ Private, have focused on Separately Manage Accounts (SMAs) recently – a process that cuts out the normal broker relationship and significantly reduces brokerage. I can get an actively managed, personalised direct portfolio, for 0.05% brokerage per trade. Technology has drawn first blood and will continue to kill. I have no doubt the heavy hitters like Morgan Stanley, Credit Suisse, JBWere, etc will follow down this path. It’s a natural progression of survival of the fittest.

“Business valuations”. Great, now I have your attention. If you can sell for “3 times”, take it. Because that won’t continue. Goodwill aside, insurance commissions have reduced, commissions from products banned, retail adviser fees at 2 year contracts only, plus the cost of not keeping up with technology – will all apply downward pressure. Professional Planners recently polled 9 out of 10 owners don’t even have a succession plan in place. Wow. Adding to this, and in my view, the most important factor is supply and demand. The new education requirements are already enriched in law. This will create material barriers to entry. And the exodus of existing has stated. Last year saw the major banks lose 6.7% of net advisers. January 2018 saw another 92 in net lost advisers. And the Royal Commission only starts today. I hope most of these advisers have entered IFA world, but we don’t have this data. 

So you have experienced advisers with 30-40 years under their belt wanting to leave, limited new blood coming in, yet Investment Trends (Nov 17) stated “the demand for advice from financial planners is at a record high”, estimating “3 million Australians intend to turn to a financial planner for advice in the next two years”.

Huge, growing client demand, with fewer advisers.

My only advice - Protect yourself, your career and your financial reward.

Embrace the change. Bridge whatever gap FASEA deems appropriate. It is long overdue anyway. Become an industry leader, and use this to your advantage.

Get on board with new technology, not only to protect your business, but reduce costs and gain benefits for your clients. After all, that’s part of your best interest duty anyway.

One person’s crisis, is another’s opportunity.

Don’t become a DVD store.