Industry clean-out is a good thing

Bruce Brammall, The West Australian, 13 August, 2018

Sometimes the rules of any game need an update. It’s just time to raise the bar. To modernise and improve.

It can cause a bit of havoc. The bigger the change, the more difficult the transition.

Some players will give up because they can’t adjust. Others will try to lift themselves to the new level. (And some of those will fail.)

But there are two types of players who will always be fine when the rules change.

There are those who were already playing at the new, higher, level – the rules have only been raised to meet them.

And those who were already playing on a level that is, after the changes, still well above the raised bar.

Both were already playing to a higher standard, usually because they were better than, or didn’t like, the standard rules.

It could be any game, including sports like AFL, or a boardgame like Monopoly, both of which seem to get constant updates.

But, yes, obviously, today I’m talking about financial services. The whole lot.

The Royal Commission’s cyclonic wrath has already cleared the way for dramatic changes to the rules by which banks, insurers, super funds and platforms, mortgage brokers and financial advisers must “play” the game of financial services.

There will be a raft of legislative change coming out of Canberra. Not even the industry is arguing this is a bad thing.

More reputations have been damaged, destroyed or blown to smithereens than probably any other inquiry, of any sort, in Australia to precede it.

The greedy, the shonks, the bare-faced liars, the thieves and the unscrupulous. However, not all individuals who should be outed are going to be. It will be up to organisations who want to fight at the new level to make sure its people and culture are clean.

The point is this: It doesn’t matter what industry, the bottom end could always do with a clean out.

Police, teachers, doctors, clergy, builders, public servants, bankers, lawyers, accountants, journalists, administrators. The bad eggs of each profession are constantly in the news, in the courts, sullying their industry.

Every industry would be dramatically improved by a semi-regular sweep-out of the bottom 10-20 per cent of the people in it.

It’s the pareto principle – the 80/20 rule. It means that 80 per cent of effects come from 20 per cent of the causes.

With a positive spin, 80 per cent of the profits of any industry come from 20 per cent of the clients.

On the negative, 80 per cent of the complaints in any industry come from the bottom 20 per cent.

Every single industry could be improved.

Including financial services. So, as consumers, what do you do? You try to find people to work with who are operating in the top half of their profession.

There is no fool-proof way of doing this. But a good start is referral and reputation.

Your colleagues, friends and family are likely to refer you to someone who they believe has done a good job for them, or who would do a good job for you.

And reputations … well, they’re priceless. Professionals live and die by them. You can’t survive long on your own without them.

The Royal Commission’s findings will lead to new regulations, or even a disbanding, of what’s known as “vertical integration”. This is where the bigger players in the market own the products (investment and super platforms, managed funds, insurance) and the distribution network (financial advisers) that sell those products for them.

The argument is that it’s far harder to get quality advice from an adviser who is “owned” by a product maker, whose products they are effectively the sales force for.

It doesn’t mean that there aren’t good advisers in the major institutions. There are many. And it doesn’t mean that all advisers who operate from smaller, boutique firms are all great. They’re not.

There will be a cleansing of the industry. Laws are going to change. The reputations of some pretty big institutions, and some smaller ones, have been cut to shreds.

But there are quality advisers out there, who have always operated at a higher standard. Find them.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial advisor and mortgage broker. E: bruce@brucebrammallfinancial.com.au.