8/18/2009

AUSTRALIAN CFP'S FORCED TO ABANDON TRAILERS

Pretty soon, financial planners who are members of the Financial Planning Association (FPA), which administers the Certified Financial Planner designation in Australia, will have to give up the practice of receiving a trailing commission from investment product providers if they wish to continue membership.

According to news reports, under the FPA proposal, members holding themselves out as financial planners will be required to give up trailing commissions from product providers. The organization is advocating that its members transition to a fee-for-service model and receive all compensation directly from clients.

While the FPA doesn't consider taking a trailing commission wrong per se, it perceives it is as a conflict of interest in the case of a financial planner taking compensation from a investment product provider, such a mutual fund company, and also offering advice on investment selection.

So far, the FPA is the only member of the international Financial Planning Standards Board (FPSB) to eliminate the practice of trailing commissions from product providers. The move seems to be eliciting new debate about the ethics of the practice, which is an entrenched compensation scheme in Canada.

The move should have an immediate impact on the Australian investment industry, since the FPA represents more than 12,000 advisors who manage more than $630 billion in assets.

Australia's advisor industry has been plagued by credibility issues, since the collapse of Storm Financial last year. Storm managed more than $4.6 billion in assets using white-label index fund products — which charged a very high 7% fee up front with a 1% annual management fee. To further juice commissions, the advisors in the firm apparently directed many clients take out collateral secured loans, which matched client money by as much as 85 cents on the dollar.

When markets went south last fall, clients losses sparked margin calls. Many clients were retirees who shouldn't have been heavily invested in equity products. In a number of cases, the clients stood to lose their homes, which they had used as collateral
, and still remain hundreds of thousands of dollars in debt on top of their market losses.


Canadian compensation not under review


There hasn't been anything quite like the Storm collapse in Canada — a colossal example of permitted advisor abuse — to make the industry re-examine compensation schemes. In Canada, trailer commissions are a widely accepted form of advisor compensation, and most professional organizations are perfectly fine with the practice, provided it is disclosed to clients.

The FPA's Canadian counterpart, the Financial Planning Standards Council (FPSC), does not take a position on how advisors are compensated as long as that compensation is disclosed to the client.

Cary List, CEO of the FPSC, says he first heard about the FPA proposal at the FPSB's semi-annual meeting in Tokyo back in April.

"Would we welcome this type of initiative? We would, if it were feasible in Canada," he says. "Until the actual compensation structure from mutual fund companies changes it's kind of a moot point. We would never require planners to give up [their trailer fees] because it would make it too difficult for them to make a living.

Under the current rules, it's your right to earn fair value for your services, as long as you disclose how you're paid."

List says concerns about a possible conflict of interest in the planning arrangement can be reduced through disclosure and transparency. Investors need to see that planners are putting client interest ahead of their own when recommending products.

"Provided the consumer is made clearly aware of how compensation is paid, we think it is an effective way to offer planning services," List noted. "Our members must disclose to their clients that they are going to be paid by the mutual fund industry. The client may be unhappy with that and opt for a zero trailing commission for their advisor, instead of paying 1% for assets under management. I think we we'll see more and more planners move to that sort of model because clients are starting to recognize that as an alternative. We support that, as long as the planner offers competent advice and puts client interests ahead of their own."

Ken Rousselle, president and CEO of Professional Investment Services (Canada), an advisory firm that has an Australian parent company, believes Canadian compensation practices are fine, as long as clients know what they're paying for and deem it appropriate for the services they receive.

"I don't believe change is needed in the compensation advisors receive for the financial planning advice they provide and/or the investments they sell. There are a multitude of choices — fixed fees, no-load, deferred sales charge etc. — advisors can utilize to satisfy any type of clients" he says. "Whether an advisor charges a fee or a commission is not the issue; the issue is whether clients are fully aware of how much they're paying for this advice?"

He adds "Some clients would [probably] prefer to continue to pay 'embedded' commissions, they should have the right to decide," he says.


(08/18/09)
Filed by Mark Noble,
mark.noble@advisor.rogers.com

8/13/2009

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8/04/2009

STAYING AHEAD OF THE CHANGING MARKETPLACE FOR CONSUMER TECHNOLOGY DEVICES AND SERVICES: THE BOOMERS ARE MOVING AHEAD OF GEN Y

June 2009, No. 1
By Kumu Puri

Kumu Puri is a senior executive with Accenture's Consumer Technology industry group.

Mobile devices, social networking applications and other consumer-related innovations have gained notoriety and generated significant revenues for high-tech, communications and content companies in recent years. These devices and applications are dramatically reshaping the way consumers communicate, learn and entertain themselves.


Baby Boomers Versus Gen Y



For the last two years, Accenture has conducted primary research into the usage patterns of various types of consumer technology devices and services among US consumers. The most recent round of research, conducted in late 2008 among 3,000 adult consumers in the United States, reveals several interesting trends related to different take-up rates for applications and devices among Baby Boomers (consumers over the age of 45) compared with Generation Y (those aged 18 to 24).

Although the popular image of the consumer technology marketplace seems dominated by the Facebook generation, older consumers are jumping on board at a fast pace. Penetration of the Gen Y population is still much higher for many applications and devices, but our research found that a kind of saturation point is being reached among that age group. Thus companies would do well not to ignore older consumers: the rate of take-up among Boomers for popular consumer technology applications is now nearly 20 times faster than that of the younger generation.

The Accenture survey also found that the much-anticipated embrace of mobile video by consumers is not yet happening among any age group. Most consumers still see their mobile handset as a communications device. Mobile Web browsing is on the rise, but the ability to watch videos or stream content live to their mobile phones isn't stirring consumers' imaginations or opening their wallets—yet.


Reality Check


Usage surveys are often an interesting reality check against marketplace perceptions, which are often driven by an understandable hype about compelling new applications. One of the most interesting questions in the Accenture survey asked consumers to note how many hours they spend during a typical week using various kinds of devices and applications.

The usage patterns that emerged reveal that the "blogging, podcasting, mobile-video-watching, virtual-world-playing" consumer is a fairly rare animal at this point. For example, 91 percent of respondents say they spend zero hours per week participating in virtual worlds; 86 percent say they never watch videos on a mobile device.

So who is actually using what? For younger consumers, the mobile device is clearly king. Fifty-one percent of Gen Yers prefer mobile phones over all of their other consumer technology devices. For that age group, the importance of mobile voice is still rising (up 6 percent) as is mobile data (up 600 percent, though still at a relatively low penetration rate). By contrast, 50 percent of Baby Boomers prefer their computers—27 percentage points higher than mobile phones.


The Booming Boomers


One striking finding from this year's study is that the already high penetration rates among Gen Y for popular consumer technology devices and services means that growth is now actually coming from the older crowd. Boomers increased their uptake of popular consumer technology applications at an average of 50 percent last year—nearly 20 times faster than Generation Y.

For example, Boomers posted a 59 percent increase in use of social networking sites such as Facebook—30 times greater than Gen Y (2 percent). Boomers also increased watching/posting videos on the Internet by 35 percent—while Gen Y usage decreased slightly (down 2 percent).

Even though Gen Y consumers still have higher overall usage rates for these applications, uptake is decelerating compared with Boomers even for those applications that do not have significant usage. For example, use of social networking applications stayed relatively flat at 80 percent of Gen Y—not surprising, given already high penetration rates. However, reading blogs and listening to podcasts also stayed flat among Gen Y, but at a much lower usage rate of 45 percent.


Devices and Desires


What do consumers want from their mobile devices? Across all age groups, services beyond voice communications, text messaging and e-mail are not yet generating significant interest. In fact, 79 percent of all survey respondents still view the mobile handset primarily as a means of voice communications and messaging rather than a source of entertainment.

Our research also found that most consumers (54 percent) don’t want to use mobile handsets for multimedia connectivity services such as watching videos or streaming content. When participants were asked to what extent availability of mobile content drives them to upgrade their mobile plan, 70 percent said “to a very little extent.”

There are some bright spots on the mobile multimedia front, however. Thirty-three percent of consumers say that Web browsing on mobile phones is a top-three mobile application. And almost 25 percent indicated that listening to music on a mobile phone is in the top three.

Igniting consumer interest in the “connected home” is also something that has yet to take place to any significant extent. Survey respondents were asked about the importance they place on consumer technology devices being connected to the Internet, either directly or through a home network. Far more consumers indicated this capability was more unimportant than important for most devices.

However, trend data shows a slow but positive increase in acceptance of networked devices. For instance, the percentage of consumers who consider the networking of TVs to be important rose from 25 to 29 percent. Similar increases were seen for game consoles (from 21 to 24 percent), mobile handsets (from 27 to 32 percent) and portable music players (from 26 to 32 percent).


Implications


What does the 2009 Accenture Consumer Electronics Usage Survey mean to high-tech, communications and content companies? The following points are among the important takeaways from the research.


Time to focus on the Boomers


In terms of the marketing of innovative devices and applications, younger and more technology-savvy consumers have been to this point a kind of low-hanging fruit for many companies. Gen Y users hardly needed to be convinced of the value of technology innovations. Baby Boomers have come along at a slower pace, but that pace is now picking up. Older users are starting to see the value of applications that connect them to their personal and professional networks.
Companies would do well to begin targeting applications and services to the unique needs of the 45-and-older crowd. For example, the right kind of converged mobile handset and computing device (often called the “Mobile Internet Device”) may accelerate Boomers' participation in the mobile world.

Don't take Gen Y for grantedThe slowdown in Gen Y take-up of consumer applications and services points to a saturation of the population, but also a saturation of interest. As with any product lifecycle, with maturation comes the need for variety. Companies need to step back and ask if they are keeping their applications fresh. Are they experimenting enough to keep products and services relevant to a generation with short attention spans?

New types of mobile data services, as well as extending choices for anytime, anywhere video, are critical opportunity areas given Gen Y usage patterns. At the same time, consolidation and aggregation of applications—pulling them into bundles of services as features, rather than separate applications all to themselves—will be ever more important to retain mindshare in an increasingly crowded marketplace.


Customize consumer offerings

Finally, maturation of the consumer technology marketplace also means that one-size-fits-all offerings will begin to decline in terms of mindshare and revenues. Therefore, it’s time for companies to look to more customization of their offerings in the marketplace. Satisfying diverging consumer needs will require consumer technology companies to think differently about their businesses—and to provide greater flexibility in functions from product development to supply chain to marketing.

The Accenture research shows that differentiation and specialization will increasingly be the keys to success in the converged high-tech, communications and content marketplace. By more closely understanding the different needs of different generations, and by refreshing the marketplace with continuously relevant devices and services, companies can gain an edge in the race toward high performance.

Accenture

08 04 2009