Fund management must find a new maturity in 2010, says John Atkinson.
Entering a new decade, it's always tempting to crystal ball gaze about the changes we expect over the next 10 years. Committing oneself to print on the subject may be a bit high-risk, but as we reach 2010 it seems to me that our industry has many parallels with your
average 10-year old boy - robust, energetic and full of promise - but that the next decade will see a process of dramatic transformation.
Just as the teen years, for most of us, brought their fair share of challenges before we emerged as adults, so too I believe the teen years of this century will force us to mature in ways not dissimilar to a teenager if we are to evolve into a more fully resolved profession.
There are many in the industry who have already recognised these dynamics and built quality businesses in response to them. The success of our own companies may well depend on the extent to which we can rise to meet the following challenges.
To begin with we will have to become more accountable. As things stand, much of the industry finds itself in a peculiar no man's land where it provides advice to its clients but is paid by its suppliers. To whom is it accountable?
In Australia, the Ripoll report and the FPA's proposal to end commission payments both point in the same direction, and many of us on this side of the Tasman believe that the transition away from commissions is long overdue.
One of the dynamics of the teen years will therefore be the trend for advisers to become more accountable to their clients, in a complete and transparent way.
Competence in accessing all asset classes will be another growth area. Just as a 10-year-old can be excused the same arithmetic lapses unforgivable in a 20-year-old, we can't expect clients' continued support for investment strategies which depend on fund managers who, over the long term, consistently fail to match even the average performance of the markets in which they are invested.
Active fund managers still dominate many portfolios, but the shift to Modern Portfolio Theory is already under way.
Credentials will also become much more important. Already emerging as a theme, if we fast forward 10 years we'll almost certainly find a profession - rather than an industry - in which consultants are qualified at tertiary level and, like learner drivers, must demonstrate a certain level of experience before being allowed unsupervised access to clients.
Just as in the teen years we keep coming up against the unsettling realisation that it's not all about me, in the decade ahead the demands of more educated clients will also force financial planners, both individually and as dealer groups, to the recognition that our survival depends on reciprocating the trust of those on whom we depend - our clients.
When clients become our paymaster, commissions and platform rebates immediately become redundant issues. Of primary importance is delivering professional excellence in what will become a very much more client-centric industry.
Right now, if a research survey was carried out on the role of financial planners, we'd most probably be seen as people who invest money on customers' behalf.
This very narrow definition will also change. While investment will always be a crucial part of what we do, we will also grow into a broader role as purveyors of holistic advice about the full range of financial considerations that concern our clients and their loved ones - services from household budgeting to tax strategies, protection to inter-generational wealth transfer. As individual planners we will not necessarily be expected to do it all, but we will be expected to step up to the plate and manage much more complex and inter-dependent considerations than investment matters alone.
All this will come at a cost. The financial impact of advanced qualifications, audited fiduciary processes and the support of dedicated specialists will be a new burden and we'll see a high attrition rate as the old schoolers leave, and smaller operations close or come under the umbrella of dealer groups. Scale will become important.
My vision of the average planning practice in 10 year's time is therefore a physically larger, more accountable, competent, credentialed, client-centric and multi-faceted version of its current self.
There may be growing pains along the way, but with maturity comes opportunity. For those companies who have already anticipated these needs, the next 10 years are bright with promise.
* John Atkinson is chief executive of Plan B Wealth Management.
