According to the proverb, good advice is beyond all price, and if I were a financial planner this is exactly what I’d be telling my clients – as I happily ramped up my fees.
I tend to agree with Oscar Wilde, however, who once wrote: “The only thing to do with good advice is pass it on. It is never any use to oneself.”
Whatever your opinion on the benefits of good advice, it was a subject impossible to avoid in 2006. The debate over the ethics of charging commissions for advice, as opposed to fee for service, and the potential for conflicts of interest raged all year.
November’s parliamentary enquiry into the structure and operation of the superannuation industry, although intended to address all manner of issues, inevitably boiled down to a fierce debate between those super funds that do pay commissions to financial advisers and those that don’t.
Industry funds on the one hand will tell you that paying commissions on financial advice does irreparable damage to long-term returns, while retail funds and advisers will argue that a little bit of good advice is worth every cent. As our roundtable cover story this month shows, the debate over what constitutes adviceand how funds and advisers should charge for it will not disappear in a hurry.
However, as one attendee pointed out, this does not have to be open warfare. Surely it is possible for the industry funds, planners and regulatory bodies to work together to come up with a suitable compromise? I get the impression some industry funds would argue black was white, provided the financial planning community disagreed.
On the other hand, some planners need to be convinced industry funds aren’t a sinister Marxist conspiracy hell-bent on their destruction. And as for ASIC and APRA, well, the less said the better. Perhaps next year moves will be made to merge these bodies into a single, more-effective, regulatory body.
The other big story for 2006 was the hunt for alpha returns. Capturing this elusive beast has become an obsession for some. The fear of falling equity markets, and therefore member returns, has stalked super fund trustees this year and they are looking for alternatives.
Whether it is infrastructure, property, hedge funds, private equity, emerging markets or fixed interest – no asset class or region goes unsearched. But how effective are these strategies? By the time investors have forked out the fees and worked out their after-tax returns, will it have been worth taking on all that extra risk? Increasingly, many don’t think so.
Taking on a passive exposure that follows the market over the longer term might just be a cheaper, safer option that delivers similar returns to riskier, more expensive alpha strategies. Only time will produce the answers.
As to 2007, the editor of Investor Weekly wishes to express, in no uncertain terms, that he intends to give absolutely no advice to anybody about savings, investments or even the best way to barbeque a shrimp.
I think the final word for 2006 should instead fall to Oscar Wilde. Perhaps this quote will give super funds and planners alike something to contemplate as they munch on their Christmas turkeys.
“It is always a silly thing to give advice, but to give good advice is absolutely fatal.”
The Investor Weekly team would like to wish all our readers a very merry Christmas and a prosperous new year.
