Can Financial Planning Provide Social Value?

Professor Peter Shergold discusses the advantages of financial planning in his latest blog for the Centre for Social Impact. 

Let me begin with an extended apologia. Actually it has two elements.

First, I plead tardiness – back in October 2011 I wrote a blog on the residential property developer, Stockland as a ‘shared value’ company creating social good (building communities) even as it seeks financial return. I promised I would soon provide a second Australian example. So here it is, I hope better late than never. It’s AMP.

Second, I acknowledge conflict of interest. I sit on the Board of AMP Ltd, its subsidiary AMP Life and a member of the Audit Committees of both organisations. That means I understand AMP from the inside. It also means that I can scarcely pretend to objectivity. What follows are my personal reflections which, I should emphasise, don’t necessarily reflect the view of AMP.

Financial planners get a bad rap. Last year’s Roy Morgan ‘Image of Professions’ survey suggested that only 28% of respondents awarded financial planners a high or very high rating for honesty and ethical standards (up from 25% in 2009 and 2010). To put that score in perspective, car salesmen rated 3%, real estate agents 7%, journalists 11% and Federal politicians 14%. At the other end of the scale, nurses scored 90%, school teachers 76% and police 69%.

The portrayal of financial planners in the media is often hostile. The most egregious characterisations present the profession as little more than glorified loan sharks, squeezing from their hapless clients outrageous high fees for self-serving advice.

The inadequacy of the government and the opacity of their financial dealings have fuelled the anger and resentment of Wall Street Movements world-wide. Financial planners, nearly all whom operate as small and medium community-based enterprises, have become associated with the dubious ethical standards that were displayed by some of the grants of international banking.

I suspect that many blog readers will think it purposeful provocation when I suggest that financial planning might have a positive social value. Yet I’m not being a political contrarian. Rather I’m returning to my academic roots as an economic historian.

It’s too rarely remembered now, only a generation after the great wave of demutualisation, that the AMP was born in the Australasian colonies of the mid-nineteenth century as the Australian Mutual Provident Society. Geoffrey Blainey wrote a fine business history of the company, setting its growth within the fiercely competitive world of friendly societies, mutual benefit associations and cooperatives that were the foundation stone of much nineteenth-century enterprise.

In those days providence (the exercise of foresight in the management of one’s own affairs) was seen as a positive social value. It was based on the unwavering belief that working people had both the responsibility and capacity to look after themselves. By lives of exertion, punctuality and thrift the ‘deserving poor’ could become self-reliant. Through frugality, without government assistance or charity, they could provide for the future needs of their families.

The means to achieve that was through mutualisation. AMP – and other great institutions like National Mutual Life Assurance and Temperance and General (now both part of AMP’s corporate genetics) – were run on the view that ordinary working people possessed collectively the power to control their lives and care for themselves. Those who paid subscriptions for protection were members of the businesses they ran. Surpluses were reinvested for their mutual benefit.

One key to this remarkable ambition was what today we would call financial planning. The ‘mutuals’ provided life assurance, income protection and deferred annuities. They issued endowments for children and made loans available on the security of the policies held. Friendly societies offered reimbursement of medical expenses or, failing that, the cost of a funeral. The broad sweep of wealth management (to use contemporary jargon) was perceived to have social purpose. Those who provided it were driven by a sense of social mission.

Today AMP is one of Australia’s top investing publicly-listed companies, with 980,000 shareholders, around 6,000 employees, 2,900 self-employed and employed financial planners and relationships with a further 6,000 independent financial advisers. It provides planning advice, superannuation, income protection, life assurance, banking products and investment (including shared, fixed interest, property and infrastructure). It’s a large, modern corporation. Yet what it offers, in its essence, is not so very different from 150 years ago.

That’s why I am so delighted that the current CEO of AMP, Craig Dunn, in addressing employees and financial planners, has restored that sense of societal value in espousing the ‘noble purpose’ of what they do.

It captures the sense that AMP has the capacity to make a positive social impact even as it seeks to maximise the long-term value to its policy-holders and shareholders.

I see at least four ways in which AMP (as an institution) and financial planners (as a profession) have the capacity to deliver societal value.

First, by helping Australians and New Zealanders take personal responsibility for the financial security of their families. AMP is not a business that accepts that the challenge of solving social problems – of creating social impact – resides solely with government.

Second, by making the opportunities for building financial security as accessible as possible, catering to those with modest incomes not just those who have accumulated high net worth. AMP needs to provide low-cost entry to superannuation.

Third, by recognising that AMP contributes directly to the public good and civil society. It does so, for example, by reducing pressure on publicly-funded retirement savings and by investing capital assets in building Australia’s productive infrastructure.

Fourth, by emphasising the integrity of its corporate behaviours and transparency of actions, AMP can help to restore faith in the market economy (generally) and the responsibility of our financial institutions (particularly).

In the nineteenth century AMP’s mission was ‘to be a sure friend in uncertain times’. Today, in more contemporary language, it is committed to ‘helping people own their own tomorrow’. Both statements, appropriately pursued, have the potential to create societal value in pursuit of investor returns, underlying profits and shareholder dividends.

This, at least, is the message that I’ve now twice had the opportunity to deliver to senior executives at AMP. If you would like to read the longer version of my address to them it’s now available.

Professor Peter Shergold is the Macquarie Group Foundation Professor at the Centre for Social Impact (CSI) at UNSW and Chancellor of the University of Western Sydney. He was the founding CEO of CSI from 2008 – 2011. This article is from the CSI blog.