So the Parliamentary Joint Committee set up to advise the government on the Future of Financial Advice (FoFA) legislation can’t seem to agree on a set of common recommendations.
It matters little.
It’s inevitable that significant legislation like FoFA will face hurdles. Particularly when those hurdles are erected by politicians playing politics rather than statesmen arguing over the foundations of the emerging advice profession. Good initiatives only become great initiatives by overcoming the hurdles thrown at them. FoFA (or son of FoFA) will materialise, when is the question rather than if.
The bigger issue for anyone building advisory firms is the continuing and unmistakable consumerisation of financial advice.
Consider a company like Count Financial Limited.
Back when it listed it enjoyed unsustainable Price/Earning (PE) Ratio of 30+ – people didn’t understand their business model and because it was one of the first on the market, it was rewarded with ‘dot-com’ type valuations. Today, it is being acquired by Commonwealth Bank for $373 million.
The founders of Count long heralded their ‘independence’ and despite their appeals to their pioneering foundations that they were looking to be a consolidator themselves, they took the view that CBA’s offer was in the best interest of shareholders. A key factor driving their decision was the large amounts of money Count was receiving in the form of platform subsidies from suppliers such as Westpac/BT.
I believe the real story is that the financial advice world changed and Count didn’t.
Back when Count listed, financial advice was the ‘add-on’ like software years ago used to be the ‘add-on’ sweetening hardware sales. Back then, advice was seen as the expensive option spoken about in the same breath as high net worth clients.
A great article in last week’s New Yorker magazine (good read) about the demise of RIM – makers of the Blackberry – pointed out that when phone services were first introduced in New York, the monthly phone bill was the equivalent of two thousand dollars a month.
Similarly, financial advice today is regarded as being only affordable by a few.
People may be missing the point.
Australian advice groups (particularly Avenue Capital, Matrix, Australian Financial Services, WB Financial) are coming to grips with similar challenges faced by Count, but without Count’s large numbers of advisers or funds under management (funds under management equals the old currency). They are all grappling with the consumerisation of advice trends such as opt-in, scalable advice models, and increasingly expensive technology demands.
The issue at hand driving FoFA, driving the industry funds v “the rest”, driving consolidation of distribution groups such as AMP/AXA et al, is the consumerisation of advice.
How are owners of financial advice businesses (or all sizes and shapes) going to give consumers greater financial certainty, in a consistent, methodical and profit-oriented approach that delivers on their client proposition, that delivers to their staff, that delivers to their shareholders and, of course, to the owners themselves?
Aren’t these the best of times to be building the great advice firms of the future?
What do you think?