For too long now the Financial Planning industry has been bashed in the media from pillar to post and with good reason. The industry was essentially born some 25 years ago from a growing number of converted insurance salesman who made a good life for themselves earning commissions from the product they sold and the model seemed to fit nicely when it came to flogging investment products. The industry has faced an uphill battle ever since.

forbid been involved in, the recent scandals of Westpoint, Opes Prime, and Storm Financial. I can assure you that every one of these financial collapses was caused by the greed of the Adviser to earn a huge commission from the client or the investment product provider.

Now when markets were flying between 2003 – 2007 no one batted an eyelid about the commissions paid to their Adviser. In many cases people appeared to be making more money than ever imagined, without questioning what the downside risk to such a strategy might be. In each case mentioned it was the Adviser’s responsibility to make appropriate recommendations to their clients without placing them with undue risk. But the temptation to grab that extra commission was too great. The Adviser’s interests were conflicted and the needs of the client went out the window, all because of the commission.

It is no surprise that only 20% of the Australian population use a Financial Planner.

For many years now a select few in this industry (yes I am one) have been campaigning for more stringent regulation and legislative change to either ban commissions or lobby industry bodies to support a switch to “fee for service” remuneration models.

In a significant leap forward, the Industry’s peak body, The Financial Planning Association, recently released a paper stipulating that, from 2012,
fee based remuneration is to become the standard model for financial
planning advice.

This means that the profession will be encouraged to transition away from commission paid advice. Jo Anne Bloch, CEO of the FPA said that “The FPA Board…concluded that a move away from commission based remuneration is key to protecting both consumers and the reputations of financial planners”.

“Removing commissions will dispel accusations of conflict of interest. Payment for financial planning services should come from the client not the product provider,” Bloch said.

It was further encouraging to read that another peak body, The Investment and Financial Services Association (IFSA), have also called for an end to commissions on investment products. This not only impacts Financial Advisers. Many of IFSA’s members are the product providers themselves, such as Macquarie and AMP, who will be forced to restructure their products so that they do not pay up front and trail commissions to Advisers. What a breath of fresh air I say.

But the battle does not end here. Education standards also require an overhaul. Currently the minimum educational requirement by the Australian Securities & Investment Commission to become a licensed Financial Adviser is four units of an Advanced Diploma in Financial Planning. That is half a diploma!

At the other end of the scale, the industry’s peak designation, the Certified Financial Planning (CFP) mark requires tertiary education, the full advanced diploma or equivalent and four years industry experience before being able to enter the program. I applaud these measures, but they are not a legal requirement.

If you are planning to seek the services of a Financial Adviser be sure to ask them if they are CFP qualified, or at least what educational training they have.