Understand Your Financial Planning Today

Financial Planning

As we near a decade on from the emergence, evolution and consequent fallout that is known as the Global Financial Crisis (GFC) we have seen a paradigm shift across the entire sector of “financial services”.

In almost every aspect, from conduct and service through to professionalism and transparency, significant reform has occurred. So, we ask ourselves what is financial planning in this post GFC world and is it different today…? To decipher this, we probably need to momentarily step back in time in order to understand what financial planning was before the GFC.

Financial planners, often perceived as only accessible to those with wealth in the first place, possibly because most planners indeed pursued and prioritised high net worth individuals, could be considered product driven and primarily focused on a “return on investment” on a transactional basis. This in part was due to the way clients, again particularly high net worth clients, engaged with financial planners and articulated their expectations, often valuing or prioritising a planner that had access to the “latest and greatest” investment opportunity or one that would “promise” superior returns on investments. An undervalued benefit of seeking financial advice from a planner was the ability to get the best life cover. But this can now be done very easily via online life insurance comparison websites such as MakesCents.com.au.

This environment of promise and expectation became defining and repetitive, on one side planners were seen as agents or “salesmen” of financial products, BDM’s of investment funds and conduits of capital by the financial industry and similarly on the other side by clients as gate keepers to new and exciting investment products and genies of wealth and prosperity delivering solid, and expected, returns on investment.

Then, seemingly almost suddenly, we were in the throughs of a growing financial crisis and whilst the cause of the GFC was complex, primarily driven by those at the apex of the financial sector and ostensibly originating in foreign economies, the universal structure of the modern world economy meant that it developed into a truly “global” crisis that affected established economies throughout the world.

The consequences were rapid declines in the value of stock markets, liquidity failures affecting retail banks and investment funds, significant declines in property values and collapses of business that spiralled into rising unemployment, when combined with excess debt lead to defaults on loans that further undermined the integrity of financial institutions that further fuelled and contributed to the depth and longevity of the crisis, which officially lasted for four years and devalued global consumer wealth by some trillions over this period.

The causes of this period of economic history were, as we touched on a moment ago, complex and convoluted, but in essence primarily facilitated by those in the upper echelons of Government policy and the financial industry in America, which then fuelled a housing boom and subsequent credit demand, which in turn created new financial products and derivatives to be sold as investments around the world, then in order to meet the increasing demand for these investments lending policy standards declined, sales practices became more aggressive and predatory until it reached a critical credit bubble and subsequent collapse.

In response to this, Governments around the globe have scrambled to mandate and legislate around finance and specifically financial advice to ‘mum and dad’ investors. These have been largely positive for Australia and the flow on affect is now greater transparency for Australian investors.

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