Friday, July 17, 2009

Some Dirty Tricks By (Unscrupulous) Financial Planners


Like I said before, every profession has their bad hats. The new-fangled financial planners are no different. Here are some tricks to watch out for:

Dirty little secret #1

Many financial planners work to sales targets. For these planners the need to increase revenues is included in financial planners' key performance indicators or in their job descriptions.

In some cases these targets may be a figure - say $55,000 in revenue generated a quarter, breaking down to roughly $7000 a week. The way a planner gets to these targets is not by selling advice; it is by selling products with up-front fees and commissions.

Dirty little secret #2

Some banks' financial planners are ranked in "league tables'' based on who sells the most. This little secret blows away any thoughts that Joe Blow planner is a disinterested adviser.

If major planning groups keep and internally publish league tables on how their financial planners are performing in terms of "sales'' it is hard to see a workforce being motivated to offer impartial financial advice. It cements the above-mentioned industry bias towards sales people rather than advisers.

Dirty little secret #3

In the boom years, a planner on a $60,000 salary could earn up to $70,000 on top of that in commission-based payments.

Yes, we have heard a lot about commissions. Yes, we hear that commissions can lead financial planners to offer products they may not actually believe in.

But I wonder whether we fully understand that a planner regularly offering investors advice that is not attached to some form of commission are flirting with half their likely annual salary.

Dirty little secret #4

You can't go outside the system. I have spoken to two planners who left big planning groups because they felt they were unable to offer the advice they were required to (that is, sell more stuff) rather than the advice they felt they should professionally offer people (for example, go into a term deposit).

In both cases the planners say they were counselled about their perceived failure to convert existing clients into lucrative purchasers of commission-based products.

Dirty little secret #5

Churning = earning. A planner looking to lift earnings can simply recommend new clients switch from one superannuation fund to another. While this bumps the revenue up nicely for the planner, it has some particularly nasty consequences for the unwitting client.

One, they may lose the life insurance contained in the original industry superannuation. Two, if the planner offers a substitute insurance policy they frequently get the handsome up-front commissions on the new product (which are effectively paid for by the customer any way.)

While I freely accept there are honest, committed and sincere financial planners, they are currently caught in an industry structure so tangled that it's hard to pick the good from the bad.

And before those honest planners start crying foul about unfair generalisations, it's worth remembering that everything written above is based on criticism levelled by other financial planners.

These are not practices that appear in submissions made to the Corporations and Financial Services parliamentary committee currently charged with implementing change.

But it is worth spelling them out in some detail because they are practices that have threatened the integrity of the industry as a whole.

Both the industry and the parliamentary committee need to understand these practices and how they developed to fully comprehend the need for change. Let's hope they then make changes that put the industry on a completely new footing.


p/s photos: Fiona Xie

3 comments:

see said...

They now allowing insurance agents to be converted to financial planners. Talk about letting in wolves in the sheep pen

Boodyboy said...

Hi There,

I totally agree with your observations. I'm a CFP graduate but I'm not into this industry at the moment.

I'm currently 24 years old and I have this great ideals when thinking about the role of the Financial Planner to clients. But however, upon joining one of these groups, I realised that things are not as idealistic as I want it to be.


I agree the system is so screwed up, its really difficult to reward the fianacial planners that care about their clients' needs. The rewards are based on sales achieved, which i feel isn't really very professional.

Although I dont regret taking up CFP, I do wish the system would be one that would help benefit the clients.

I'm just waiting for the day this industry moves to become the one that I have envisioned of, Caring of the clients' needs and goals

Regards,

Boodyboy

max said...

hey Dali,

INTERESTING article...

In my past experiences, this is what I remembered being told by some senior colleagues when i joined a wealth management institutions in 2007.

"You got to use some of these tricks, push up your KPI and bring in the $$$. Clients in this country not looking for an advise. They're asking which gambling table to bet his/her money."

Well i was there longer than 6 months.The most i remembered was my phone Inbox was full of morning, afternoon and before 5.30pm SMSes asking for HOW MUCH YOU BRINGING IN TODAY?

In between I know more than 5 people that left after few weeks joining them. Mostly they're fresh grad, and they asked "My job is to keep their money safe, how can I do it if 8 out of 10 products I wasn't being well trained and expect my first quarter to bring in RM 3 mil just alone for Unit Trust?

"I just passed my exam in FMUTM"

Just sharing....
rgds