The financial advice industry is on the cusp of change. But change also brings opportunities, and in this, the first of a series of blogs where we look at what is on advisers’ minds, we cover the potential threat posed by new market entrants.
Financial advisers are unquestioningly facing increased competition. Already we have seen the growth of automated, so-called ‘robo’ advice. And from 1 July 2016, the door will be opened for traditional accountants to enter the advice market, with a requirement to operate under a new conditional AFSL.
To see how advisers can transform these challenges into growth opportunities let’s look first at the impact of a possible convergence of accounting and financial planning services.
Over 60% of accountants see the potential of financial planning
For many accountants, financial advice is a natural fit with their core activities. A CoreData report published in May 20161 found 60.4% of accountants believe financial planning services are - and will be - a relevant function for their business.
The hurdle many accounting firms face is the prohibitive cost of obtaining an AFSL. Consequently, close to half the accountants surveyed do not intend to alter their current licensing arrangement or enter a new arrangement within the next 12 months.
This creates a huge opportunity for financial advisers to tap into new sources of business growth by working closely with like-minded accountants. Though it is a strategy that should be approached with commitment towards the accounting practice.
As a guide, CoreData found those accountants offering financial planning services typically do so via a referral arrangement or joint venture. But unless they want to continue servicing SMSF clients there may not always be a pressing incentive for the accounting firm to operate this way. Less than half of the accountants surveyed (45%) believe this type of arrangement can be “extremely beneficial” for their business. Worryingly, two-thirds (67.3%) say it is “very difficult” to find a good financial planning business with whom to enter into a working partnership.
Experience tells us these types of arrangements can work – and with a high degree of mutual success. Nevertheless, they work best when the accounting firm and financial planning practice hold similar values, have open lines of communication and, importantly, the nature of the relationship is agreed up front. This can call for an investment of your time but the potential rewards are there.
Robo advice – eying a $1.9 trillion prize
Let’s turn now to another issue identified by CoreData – that of automated, algorithm-based portfolio management, also known as ‘robo’ advice.
On the one hand it’s fair to say that robo advice providers have their sights set on the $1.9 trillion pool of wealth owned by Australians who don’t use professional financial advice2. And certainly, robo advice may have a place when it comes to delivering low-cost investment advice to tech- savvy consumers. What it cannot do is deliver holistic, and highly personalised services based on individual clients changing needs and life goals.
So while robo advice may be considered a threat to financial planning models, it is really only a threat to advisers, who have built their value proposition solely on investment advice.
Turn disruption into opportunity
Good, holistic human financial advisers have the ability to turn this disruption into an opportunity.
By incorporating managed portfolio functionality, similar to the technology behind robo platforms, into their own business, advisers can cost-effectively manage low touch clients and free more time to focus on client engagement and business growth.
Indeed, BT Panorama’s 2015 Managed Portfolios White Paper3 revealed 30.5% of advisers are already using managed portfolios for clients’ investments – often enjoying increasing profitability as a result of the time-savings managed portfolios can provide.
Manage portfolios also offer the potential to fuel business growth. We know for instance that fees are a major consideration for many unadvised Australians. Broadening the accessibility of advice among younger generations and less affluent consumers, many of whom want a lower touch relationship – but a human relationship nonetheless, can ultimately expand the potential client universe for advisers to target.
1. CoreData What’s on Advisers’ Minds in 2016 White Paper, May 2016.
2. CoreData/StatePlus Financial Advice in the Digital Age White Paper, December 2015
3. BT Panorama Managed Portfolios White Paper, August 2015
Information current as at 1 May 2016. © BT Financial Group - A Division of Westpac Banking Corporation. This document contains material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation and needs.