Seen the latest predictions for the Australian financial advice industry?
Check it out – Deloitte’s – “Advice 2030 – The Big Shift”
The main objective of ‘trend’ reports is to position the authors as experts.
I’ve done it myself several times, starting twenty-two years ago.
That’s when I teamed up with John Bowen and Russ Alan Price to produce “The Road Ahead.”
It was Australia’s largest qualitative survey of advisory firm owners at the time. In August 2002, 630 advisers were interviewed to understand their view of the future of advice.
Deloitte surveyed 250 advisers to produce their report.
The numbers interviewed are less important than the trend analysis, which was unfortunately lacking in this report.
There is, however, much to extract from the Deloitte analysis.
APPLAUD
I applaud the report for its focus.
My sense of the report’s essential question is, “How will firms strike the right balance between client complexity, fees, and scalability?”
For those enthused about their future in the advice industry, and an extraordinarily high 21% interviewed were not, this question should be a discussion point at every firm’s planning session to prepare for some of the radical changes predicted.
Advice will remain in short supply and long in demand for some time to come, guaranteeing increased spending on advice.
Profits of advice firms are rising.
The report highlights that despite upheavals in licensing, regulations, and institutional distribution models, most advisers still cling to familiar and historical approaches to managing their client’s financial lives.
It concludes that advisers and their choices are the biggest impediments to success.
A similar conclusion to our 2002 report – The Road Ahead.
Twenty-two years ago, we found firms intended to:
- Focus on private clients
- Adopt comprehensive advice models
- Run the firm as a business, not a job
- Outsource to third parties and
- Commit to ongoing learning.
I believe all are still relevant, with a slight but important change to focus on clients with complexity rather than ‘private’.
This was also hinted at in the Deloitte report.
Every advice firm’s focus should be on client complexity.
BIGGER SHIFTS
Clinging to the historic business models based upon high net worth clients misses the report’s predictions about complexity.
The divider between financial advice and product distribution will be client complexity.
Building firms specialising in managing (real or perceived) client complexity will enjoy better retention and stronger protection from the radical changes fintech is bringing.
Trends remain invisible until they present as shocks.
It amuses me how shocked some advisers are when they hear how non-technical advisers successfully, compliantly, and productively present non-product terms of engagement to clients.
These different ‘advisers’ are qualified in other areas than those required to sign off on a Statement of Advice.
Their qualifications in client, strategy, and project management complement their teammates’ technical qualifications, who can compliantly sign statements of advice when specific financial product recommendations are needed.
The skills of the ‘different’ advisers are based on complexity identification, management, and pricing, which supplement the technical skills of the ‘traditional’ advisers within their teams.
The more significant shift missed by the Deloitte report is the shift of accountants from tax into advice.
The many historical models of failed financial planning/accounting integration convince most seasoned advisers accountants will continue to fail to build financial advice revenues.
However, the new generation of accountants is not following the hourly rate and compliance-based paths endured by their senior partners or founders. They are learning to charge valuable fees for valuable relationships and manage their clients’ complexities.
Most new firms joining my Certainty Advice community are trained in accounting – and they are far younger than the average age of most financial advisers today.
This broadens the advice propositions away from The Big Shift’s focus on the product-based retirement markets.
IT IS NOT ABOUT RETIREMENT
The Big Shift maps the choice between simple product-centric or complex non-product advice.
Thanks to technology, simple product-centric retirement propositions will require the equivalent of a financial obstetrician or midwife, whose services will no longer be required, valued or paid for once the complexity has been treated (i.e. once retirement starts).
Today’s ongoing revenue streams from simple product-centric retirement advice will be toast, leaving the thinnest of margins upon which only the future financial supermarket product giants will survive.
These organisations won’t be filled with advisers but highly paid lawyers, actuaries, fintechs, lobbyists and distributors, who will provide a vital product service but could never be confused for impartial advice for clients concerned about their long-term consequences.
MISSING TREND
For me, the most vital missing piece from the “The Big Shift” is:
What will happen to every adviser’s ongoing revenue?
Since introducing compulsory superannuation, the financial planning industry has enjoyed guaranteed ongoing revenue streams year after year.
These were charged as commissions until outlawed, then converted to trail fees.
Now, they are presented with a “fee-only” combination of flat up-front and ongoing amounts, all still based roughly on an amount of product, which becomes an increasingly slippery foundation as fintech products proliferate.
The Big Shift nails the impact of technology, the overreliance on historic advice models, and thus the radical change the industry has not yet made, but it fails to predict how advisory firms will continue to earn their fees year after year without reliance on products.
BACK TO THE FUTURE
Most advice firms I have worked with since 1989 aim to help clients make better financial decisions.
However, the majority have hitched their remuneration to the management of a client’s product rather than the management of the client.
While the role of product experts will be vital, the role of client experts will be even more vital.
Firms that have withstood the ridiculous and intense regulatory uncertainty of the past six years may have good reason to draft business plans based on their historic business models in the hope their risk and lost returns will be compensated.
However, it is telling that 21% of Deloitte’s participants do not intend to stay in the industry much longer – the radical change is only for those prepared for it, building different advice models to thrive in the fintech era.
It will be the best of times for those advisory teams most prepared to focus back on their origins, helping their ideal clients make their best financial decisions.
What do you reckon?
Photo credit: The Road Ahead – Copyright CEG Worldwide LLC & Strategic Consulting & Training Pty Limited
ABOUT JIM STACKPOOL
Since 1989, Jim has influenced, coached, and consulted financial advice and accounting firms across Australia. His training firm, Certainty Advice Group, skills comprehensive advisory teams to price and deliver valuable, methodical, non-person-dependent advice relationships with their clients. He has built a collaborative community of firms aligned to his firm’s comprehensive advice model – Certainty Advice – Australia’s only Certification Mark accredited by ACCC and IP Australia for impartial financial advice. He presents at conferences, has judged professional advice awards, written industry white papers, chaired practice management curriculum for tertiary institutions, and authored four books on financial advice – his latest being What Price Value.