Putting clients' needs first

By PHILIP MaCALISTER

The arrival of a financial planner in the cast of one of the best loved soaps in New Zealand, Coronation Street, is a sure sign that the profession is becoming mainstream.

It's a shame, though, that the character, Richard Hillman, doesn't exactly represent the image and service many planners hope to portray.

Financial planners are often portrayed as nothing more than a bunch of white-shoed salesmen flogging off any sort of investment product and making as much money out of each deal as possible.

Sure, there may be some people who fit this description, but the reality is that the vast majority of financial planners in New Zealand don't.

Many financial planners are paid on a commission basis. In other words, their fee is a percentage of the money invested.

The problems with this arrangement were highlighted recently in a Government-commissioned report into the financial services industry in Britain.

One of the more controversial aspects of the report was its contention that advisers tended to recommend products based on the commission level the provider paid the advisers.

While no such research has been done in New Zealand there has always been the suspicion that many of the products advisers recommend to their clients have attractive commissions.

It hasn't been unusual for some firms, such as property syndicators, to pay an adviser as much as 4 per cent commission on each sale. This is considered quite high compared with the commissions paid by share buyers.

The British report proposed that independent advisers' remuneration should be the subject of negotiation purely between the adviser and the consumer, with no provider involvement.

The idea of paying for advice on something other than a commission basis is already happening in New Zealand and Australia.

There are a number of professional planners in New Zealand who operate in what is considered to be a far more "holistic" manner. For instance, their service isn't sell and forget, nor is it one which is paid for on a straight commission basis.

One of the planners who represents this group is Jordi Garcia of New Zealand Financial Planning in Auckland, winner of last year's Financial Planner of the Year award. Garcia says financial planning is not about flogging product - he's done that in the past and found out it wasn't the way to go. It's all about process and helping people achieve their financial goals.

Garcia first came into the financial services industry just before the 1987 stock market crash.

He worked with Broadbank and Realty Brokers offering syndicated special partnerships dealing with things such as bloodstock and kiwifruit investments - most of which were tax writeoffs.

"This was Winebox times and the actual product was less important than the tax writeoff, which is not surprising given that personal income tax was 66 per cent in the dollar," Garcia says.

"It got so ludicrous that for each $1 invested you could write off $31 in tax. I got out in 1987. About then the Government stepped in and changed the system."

Garcia left Broadbank as he wanted to work with clients using a holistic approach to financial planning.

He joined one of New Zealand's first financial planning firms, IPD Securities, in 1987, then worked for Dunlop Kidd and, after that business got into trouble, helped establish Financial Planning (NZFP) with former IPD colleague Greg Moyle.

NZFP has, over 10 years, become one of our more successful financial planning firms.

Garcia says the philosophy behind the company is pretty simple. "Always put the needs of the clients first, to truly listen to what our clients want in terms of their lifestyle, and to offer a full range of holistic products to meet their needs."

Like many of the big and successful financial planning firms in New Zealand, NZFP has a suite of five portfolios and clients' funds are invested in the one which is most appropriate for their situation and risk profile.

Garcia says this approach helps him add value as he doesn't have to keep up to date with what is happening in dozens of individual managed funds.

NZFP charges clients a set fee based on the funds under administration.

This fee is for "managing the whole relationship and making sure a client's total financial resources are being used effectively".

He has looked at using performance fees but can't see how they would work.

"I still can't get my mind around that in a practical sense," he says. "How do we get paid to provide the service we promise to provide when markets are down?"

He says that is the real dilemma, as the time he adds the most value is not when the markets are going up but when things are heading in the other direction.

Garcia says that although he is a financial planner his real business is in relationship management.

Like many top advisers, Garcia is good at putting the investment concepts into stories that people can understand.

"Most of us tend to think in visual and emotive terms. If I can come up with an analogy that people can relate to and say, 'Yes, that fits with me', then I find the decision-making process becomes a little bit easier.

"If I talk [to a client] about the volatility of markets and markets going up or down I'm talking about an esoteric concept. It's hard to actually visualise the market going down, but it's not hard to visualise me sitting in a typhoon wondering if my boat's going to survive."

Garcia says good financial planners should be keeping their clients informed and they have to be forthright and honest.

It is especially important to front up at times like this when the markets have been down for a long time, he says.

For many investors the issue is not so much the losses but the fact that markets have gone down for two years in a row.

"The focus for me is to make sure my clients run out of life before they run out of money," he says.

At the same time he wants them to have a good life.

* Philip Macalister is editor of online money management Good Returns. He can be contacted by email on philip@goodreturns.co.nz