Professional financial planning is fairly nascent in Việt Nam, meaning that I spend quite a lot of time explaining the concept and its merits to our local clients. This is invariably time very well spent, however. Indeed, taking individuals on this conceptual leap is one of the most productive – and enjoyable – parts of my job.
In short, financial planning is the discipline of helping clients make the wisest choices about their money, so that they can achieve the wide range of short-, medium- and longer-term goals most of us have. What it is not is what is known in the West as “product pushing”.
As the name suggests, this is a highly reductive approach that sees clients persuaded into buying various financial products that on the surface may suit their needs, but more often than not suit the seller’s more. The financial “advice” – if it can be called that – is made to serve a product set, rather than the client’s unique situation and financial plans.
At its most benign, this approach will see clients’ portfolios stuffed with products that at least roughly approximate their needs (although these will often be only imperfectly understood in a rush to get to the sale).
At its most malign, little or no regard will be paid to the real financial requirements of the client as they are pushed to buy those products carrying the biggest fees for the institution or commissions for the adviser.
Despite saying “malign”, it is my genuine hope that few advisers would purposely mis-sell financial products. It is more the case that, as ever, rewards shape behaviour. Whatever carries the biggest incentive to sell, sells. So far, so much human nature.
In warning against a sales culture enveloping Việt Nam’s financial services industry, I am in no way casting aspersions about this country specifically. Having lived and worked here for a few years now, I have good reason to think very well of its growing adviser force.
It is rather my hope that since Việt Nam is a new wealth management market it can avoid the systemic problems the older ones have been dogged by – and sidestep the need for disruptive reforms further down the line. The UK and US provide excellent examples here.
The Global Financial Crisis of 2008 gave rise to many ill effects, but it also shone a light on malpractice in the financial sectors of many countries to reveal widespread mis-selling of products and kick-start regulatory clampdowns. In the UK, this was a wholesale reform package called the Retail Distribution Review, which came into effect at the start of 2013.
Under the RDR, product commissions have been outlawed (apart from for life insurance), advisers have had to achieve higher levels of qualifications and regulatory scrutiny of both practitioners and institutions has ratcheted up. The result inevitably – and I would say positively – has been a huge shakeout of the sector so that a smaller, but very much more professional adviser force remains (numbers stood at 40,000 in 2011, but are now less than half that). By removing incentives, bias in product selection has been rooted out and today 97 per cent of cases examined by the regulator are found to be suitable.
Similarly, the US is now grappling with a reform programme centring on the concept of a “Fiduciary Rule” intended to impose a legal requirement on financial advisers to work in their clients’ best interests while outlawing aggressive sales tactics.
These overhauls are certainly to be applauded, but the wonder is that they were so late coming – or even, arguably, that they were necessary at all. Not only is sharp practice unethical, it is also bad business. Clients “burned” by risky or costly investment products rarely stick around, particularly when the rationale for investing in them was shaky to start with.
The pull of the plan
In contrast, financial planning at its best is a mutually beneficial journey that the adviser and client stay together on for many years. Having spent the time to really understand their needs, an adviser will propose investment strategies that are precisely aligned with a client’s goals and only then are portfolios populated. Financial instruments are yoked to the plan, rather than products – and therefore commissions – driving the whole conversation.
This distinction is a fundamental one that divides true financial advice from mere sales. It is also what will divide short-term profiteers from businesses which will achieve real longevity through providing expert, unconflicted advice.
The road to a fee-based advice model has been a long one for markets like the UK and US, but it is instructive to see how quickly Asian regulators like those in Singapore and Hong Kong have moved to implement some of the toughest suitability regimes in the world. I firmly believe that Việt Nam can leapfrog in similar style by promoting best practice in financial advice from this point on.
This is certainly a matter for the regulator to enforce, but it is the far more pleasant responsibility of advisers such as myself to highlight the over-arching value of professional financial planning advice – not only in terms of individuals getting better monetary results, but also greater peace of mind all round.
Rather than pushing products, true advisers rely on the “pull” most people will feel towards having a comprehensive financial plan. And, as my conversations with Việt Nam’s wealthy increasingly prove, that concept is one that can really sell itself.
* Brian Spence is managing partner of S&P Investments. He has more than 35 years of experience in the UK financial services industry as an investment manager, financial planner and M&A specialist. He is a regular contributor to the UK financial press and has a deep understanding of the financial services community. Brian’s column will reflect on all the challenges and opportunities within the Vietnamese market, bringing a fresh perspective to today’s hottest issues. The columnist’s email address is firstname.lastname@example.org.