Educating financial advisers, what will they think of next!
There was some good news last week for anyone looking at getting financial advice in the future. The government has finally introduced a bill into parliament regulating the minimum level of edu- cational qualifications needed to become a financial adviser. It seems they have finally seen the light, no doubt as a result of all the recent industry ‘kerfuffle’, and ensured that practitioners must now obtain the educational levels required of other professions.
At last clients will now be guaranteed their advice comes from a university qualified adviser who is bound by a professional code of ethics.
As wacky and kooky as this will sound until this bill, entry-level educational requirements had not really evolved much since the start of the century. Quite simply, for anyone wishing to enter the industry you were only required to complete a four subject qualification, a task that could easily be done within 4 weeks.
Once completed, you’re considered to have achieved ‘RG 146’ status, a Government stipulated standard, and are ready, willing and able to join the financial planning ranks as a fully fledged adviser. There is absolutely no apprenticeship period required. In fact the only real need is the ability to find a willing employer to hire you, and the big four banks have always been very accommodating in this regard.
And as you can imagine an industry with such low entry requirements will end up attracting candid- ates that are totally unsuited – and guess what, it didn’t stop them being employed.
Thankfully as a result of recent media scrutiny we have finally seen the result s of allowing ‘all comers’ into such an important industry. For a while there, our large financial institutions treated what should have been a professional role, as merely a sales channel and applied performance metrics accordingly. Having been an employee of a bank, I can assure you that the costs they have borne in both reputation damage and financial compensation are well and truly deserved as there were plenty of internal warnings about particular behaviors that went totally unheeded.
And for those who have read much of what has gone to print on the subject, I can assure you that senior management was fully aware of the issues within their adviser ranks and how it affected clients – strangely, it would seem that they didn’t care – go figure that one.
It wouldn’t surprise me to see the major banks jettison their financial planning and funds management businesses as a result of the brand damage they have all suffered. No doubt it will be within the next five years as this coincides with the last of the baby boom generation retiring which is a very profitable segment. So keep watching out and remember you heard it here first.
Anyway, at least in the future we can be certain that advisers will be academically qualified to a level expected of such a role, creating an industry that does indeed provide quality advice, and not just saying they do.
The rule of 72
Here’s a simple method to calculate how long it takes to double your investment. Quite simply all you need to do is divide the current investment rate into the number 72. Let’s say you’re getting a 5% return, just divide 72 by 5 = 14.4. Presuming you keep up the 5% return for the life of your invest- ment your money will double in 14 years time.
It’s called the Rule of 72 and has been around a long time. It comes in handy when using mental arithmetic ‘to analyse potential investments.
The Trump Rally
The current market rally, thanks to Donald Trump’s election, has only two ways to go; either up or down!
If you recall on Election Day the market fell like the proverbial stone the minute Donald Trump looked likely to become the President. The world of finance seemed to immediately throw itself into a deep melancholy at the thought of a Trump victory and there seemed little light on the horizon. Well not until the next day, anyway!
Suddenly, after sleeping on the news everyone awoke with a realisation that Donald Trump may actually be a help to the US economy. And you know the rest, a huge rally which has continued for at least 2 weeks.
But give some thought to what is fueling this rally – pure conjecture, fueled by Trump’s rhetoric. There has been no Presidential action from him, and there won’t be any until his inauguration in mid January. Therefore an obvious question to ask before buying into this rally is, ‘have there been any signs of President elect Trump reneging on his election promises?’ and the answer is a resound- ing, yes.
There have certainly been a number of reversals on key policy statements which to me means the likelihood of more to come. This doesn’t bode well for continued share market support if all of a sud- den he starts back flipping.
And the market has two ways it could go if this happens. Investors may overlook any reneged promises and feed the rally based on a perception that Trump can truly make America great again. Alternatively, investors may suddenly wake up in the near future with the realisation that thoughts and promises need to be followed through on, and may well start running for the exit if this isn’t happening.
Either way, it seems too much of a gamble because everything so far has been built on promises and perceptions. If you are a long-term investor and not wanting to sell into the rally, I would hold tight and sit it out. Investing is about recognising cycles, big and small and using them for entry and exit points. Knowing these machinations is how we can increase the probabilities of success, unfortu- nately a 50/50 opportunity like the current rally, isn’t giving any strong chance one way or another.
Of course you may hold alternative views, if you do, don’t forget to comment because I would love to hear them.
