As one of the youngest professions,financial planning is continuously evolving,trying to create space for itself and fit into the broad framework set by regulators across various countries. Financial Planning Standards Board Ltd. or FPSB, a nonprofit association that manages,develops and operates certification,education and related programs for financial planning organisations,is playing a key role in this process. Noel Maye,CEO of Denver-based FPSB,who was in India recently,spoke to Sandeep Singh and George Mathew said that consumers in India are largely unaware of what financial planning is all about. He also discussed the role he hopes to play in establishing financial planning as a profession. Excerpts:
What is your take on the financial planning industry and where does India stand?
There is tremendous need and demand but it may not have woken up and realised financial planning. So opportunity and challenge in India is to communicate what it is and then be ready to respond to that demand. We finished the year 2012 with 150,000 CFPs across the 24 territories and India has the tenth largest CFP professional population… I see a substantial entrepreneurial opportunity in India. There is opportunity for financial planning to emerge here both by delivery through large firms and through the independent advisor community. That does not happen in all the markets.
Do you see acceptance of financial planners and advisors among consumers? How do people look at CFP certified professionals?
The challenge is that consumers are largely not aware of what financial planning is and then the term itself is largely overused,misused and abused and the fact that almost everyone is an advisor goes to the heart of the problem. There are product sellers,advisors and financial planners and the first challenge for us is to communicate that it is a distinct practice and its actually process based and not product driven.
The other thing is the line of separation. Its the governments role to create that line and we would say,why not create a box. We have invited regulators for protecting the term financial planner or financial advisor by defining it clearly as someone who has demonstrated competence to be an advisor in some way and has been assessed to be competent by a professional body and follows code of ethics and puts the consumers interest first.
In how many countries have governments and regulators been receptive to such an idea?
Financial planning is the worlds youngest profession and we are still emerging as a profession in many places. And so when we go to the regulator and ask for protection of space,we are asking for something that lawyers and doctors have had for centuries. Right now in the UK,with FSA they require that if you are going to practice,you must have a practicing certificate from an accrediting body and our organisation in the UK has been recognised as an accredited body authorised to issue practicing certificate to CFP professionals. In Australia there is a legislation being considered to protect the term financial planner. In Africa our organisation has been recognised as one of the examining body for broader advisory space. So in some instances they provide exemptions to CFP professionals and in others they provide some form of recognition. So it is emerging,evolving and we expect to see more of it.
What is the approach of Indian regulators?
One of the things Indian regulators feel is that they need to act and feel the need to (based on what happened in 2008) step up consumer protection. So what you see here in India is a move to reduce the effect of conflict of interest,reduce the potential for bad consumer outcomes. What regulators try to do is create a box as large as they can,so that they can bring in the greatest number of people. My discussion with regulators tends to focus around the fact that if you have make the box so big that everyone is in it,then you lose some ability to differentiate what’s in the box. Within advisory space you have some people who work within a limited capacity and others in more holistic capacity. We have to make sure that we create space for both to work.
Do you think Indian regulators are slow?
I think the regulators around the world are looking at India to see how it works out. To some extent you are in a leadership position in terms of what you are trying to do around banning commissions and around creating some clarity in this space. I think you are leading along with UK and Australia.
When you look at financial planning space globally,where does India lag?
There needs to be a model that needs to be worked out for them to work. The other challenge is that it is a huge country with different languages,cultures,so bringing out an idea which is nationally recognised as an approach to financial planning will be a challenge. But what goes for it is the economic momentum,a highly educated and entrepreneurial population.
What is the biggest challenge you see in Indian markets misselling,lack of acceptance of financial advisors by consumers or consumers not willing to pay?
I think one of the biggest challenges,and perhaps the biggest opportunity,is that there is a need. I dont think enough people have woken up to the need and then I think the other big challenge is the number. In a country of 1.2 billion,we can have a lot more CFP professionals who in turn can reach out to more Indians in a more innovative way.
In 2008 a lot of complex products were sold and people lost a lot of money. Who is responsible?
FPSB globally became a member of International Organization of Securities Commissions. On suitability of complex products,we think that ultimately manufacturers need to be made accountable for products they produce so I think regulators should pick that up. It wasnt that the products blew up,they were made to blow up. When it blew up,those who knew that it will blow up benefited while others got seriously hurt.
On the flip side,when it comes to consumers accessing complex financial products our position is that if there is a product A that is simple,and a product B that is complex then there is no need for an advisor to recommend B. You should ideally be recommending the simplest product that will do the thing.
In case of complex products regulators said that they will split the market between sophisticated and unsophisticated clients and give them different protection but we feel that you cant assume wealth is equal to sophistication. We suggested that people should have the ability to opt down from a ranking of a client type to avail the highest level of care.
How tough is the job of financial advisor getting with the continuously evolving financial products?
It is tough because the code of ethics requires them to be diligent and that requires that you actually understand the products and services you recommend. I would suggest that if there is a financial planner who is providing clients with products that he does not fully understand,he should stop.
Your ambition has been to get financial planning recognised as a profession. How are you treading that path and where have you reached?
When we look at what is a profession,they typically have clearly defined body of knowledge. We are doing a lot of work globally on defining competency profiles,frameworks and then developing content for global body of financial planning. Another area that is typical for a profession is adherence to a code of ethics and that is something which is central to our program. There has to be recognition by community being served and that is going to be our biggest challenge. As of now among trades,emerging professions and professions,we are in the emerging profession category.