Home / Retail advice industry at a crossroads

(picture: Angela Ashton)

Comment by Angela Ashton and Vanessa Stoykov*

Retail financial planning is at a bit of a juncture: FOFA, fee pressure, education standards, investor confidence, the bond bubble, changing demographics and lifecycle investing, SMSFs, limited licencing for accountants, continued competition from industry funds desperate to hold on to retirees. These are all issues currently facing advisors.

The next five years are likely to see a monumental shift in not only how a financial planner does business, but who they are doing business with and how much they earn from their businesses. Given this confluence of major issues currently facing the industry, we’d like to pick up on a couple of the big trends we see happening.

Education remains an important topic. ASIC has recently released CP212, which is yet another consultation paper dealing with raising the educational levels of financial advisors. This CP is essentially a re-release of an earlier consultation paper and highlights that this is clearly an issue that ASIC wants to deal with, with an underlying feeling that a higher level is required.

We don’t disagree with the sentiment – anything that helps ensure quality financial advice as the norm is something anyone who is passionate about this industry should embrace. However, we think there is a great opportunity in how we educate advisors. And it lies in their take-up of social media.

A recent Zurich/Beaton Consulting study shows us that financial advisers are very keen users of social media. Their use of business based media such as LinkedIn, GooglePlus and YouTube is much greater than the general public and is growing at a faster rate.

Educating advisors through media is something we think works well and is gaining traction. It doesn’t feel like education, it fits into a busy schedule, it’s entertaining and it can cover a wide variety of topics.  We think this will continue to evolve and help lift advisor standards.

Another trend that we’re seeing is continued growing interest in SMSFs. SMSFs are not for everyone, no doubt. But the demand for knowledge from both advisors and accountants, driven by consumer demand, is strong and definitely growing. We’ve no doubt that the trend of strong growth in the formation of SMSFs will continue. Good regulation and education around this topic, to ensure that only the right clients get SMSFs and that they are run prudently, is imperative.

Obviously, the movement to SMSFs has been of great concern to the industry funds and most have, or are formulating, strategies on how to deal with this threat, to slow the tide of members who are walking away.

We don’t have any great insights on this, but we do think that financial advisors offer a service that an industry fund can never provide. And that, of course, is tailored financial advice that takes into account all of the needs and goals (financial or otherwise) of the specific client. This, in the end, is the primary advantage a financial advisor has over a large superannuation fund. The ability to form a relationship and offer tailored services that suit the client is paramount. And this, of course, is the true advantage of the SMSF – its ability to be tailored to deliver the outcomes that the client finds valuable and to react and grow with the client through their lifecycle.

This brings us to the last major trend: lifecycle investing. More and more industry funds are offering lifecycle options, often now as their My Super option. This is a great initiative, but we think financial advisers will hold the edge as this approach becomes more prevalent. Lifecycle investing, at its heart, is about ensuring that a client has the financial means available to meet consumption needs throughout one’s life. That is intensely personal and therefore requires a high level of tailoring.

Although there are more issues than usual swirling through the retail financial advice industry at the moment, we think there are a great many opportunities, not just for advisors but for those who offer services to advisors. An open approach to things, such as education and client solutions, in a different way will be a key differentiator of those who are successful through this period.

*Vanessa Stoykov is CEO of No More Practice, an educational division of Evolution Media, that helps realise the practice potential of the wealth advice industry. Angela Ashton is a consultant and head of investments at No More Practice.