Why the financial advice industry has to change
The financial advice industry is in trouble, and what we’re currently seeing happening is reminiscent of an industry in its death throes. Institutions control about 85 per cent of the market in Australia, and they are looking to consolidate on this.
It feels like we’re back in the 80s with the amount of money being thrown at advisers to join dealer groups. There are too many overpriced platforms, there is too much fat in products and there are too many conflicts of interest. Something has to change.
There is now some feeling around the marketplace that the model of financial advice as we know is over. For example, in The Consumer Revolution, produced by United Capital Financial Partners, it is recognised that there is a significant consumer shift occurring that will forever change financial services. My feeling is that the industry as we know it is about to get torn apart because we have very outdated models of advice.
Twenty years ago, if you wanted to go on an overseas trip you would go to a travel agent – now you go to the internet. If you wanted to buy music, you would get a CD from a mega music store. Apple destroyed that model with iTunes. If you wanted to rent a video, you would go to your video store. Netflix changed that. If you want to read a book now you go online – all the bookstores are going broke. We’re in the middle of a consumer revolution and people are finding cheaper, easier and more convenient ways to do things online.
The financial services industry has not delivered any efficiency in 20 years – and this industry will not remain untouched by the consumer revolution. Financial advisers will have to change their business models completely, and consumers will be able to get advice online at a reasonable price in the future. Change is inevitable, and it is only a short matter of time before the financial advice industry finds this out.
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It is true that when you sell a product of any kind, you risk it being commoditised. If we sell product and not advice, Ray is correct, the profession will go the way of the dodo, or more precisely, the way of the institution (insert here any bank, fund manager, industry fund).
The main barrier to this commoditisation occurring is the need for advice by consumers and the legal requirement that this advice be provided by and adviser (someone to sue if it goes wrong) – remove this requirement and it will be a free for all. This is precisely why the banks and industry funds are so keen to dumb down and ‘package’ advice, it serves their purpose by removing intermediaries. Ask yourself how many individual advisers are out there campaigning for ‘scaled advice’ unless they work for an institution? It would be like a lawyer selling will kits and then wondering why no-one wants advice anymore.
If the government is serious about leveling the playing field, making things unbiased for consumers, and giving them access to professional advisers there would be no aligned practices (to either banks or industry funds). It is absurd that advisers are aligned in any way… for instance, would you visit a GP that had Roche or GlaxoSmithKline above the door?
No efficiencuieon the last 20 years ? I thought in your time at associated planners / genesys Ray, you did a lot of good things to deliver efficiencies ? i’m suprised to hear you think buying a family trip from a travel agent or buying a CD / renting a video = a customer having the same behaviour when they are decding to get advice from someone on assets that have taken them a whole life to build..
problem with these blokes who have written this paper Ray is that they all have PhD’s and too many other letters after their names… they havent spent enough time in front of real people.. our clients…
everyone understands structural change is happening as we speak, sigificant change.. it’s not new news… everyone’s worked it out… that some may be not be able to adapt…sure… but to say there haven’t been efficiencies would downplay all those years of hard work you’ve put in and are still putting in !… that is unless you’re the only one changing and the rest of us are sitting at the counter waiting for a cusotmer to come in and buy a CD ?
I agree with Ray’s over-arching proposition that those who don’t evolve are in danger of eventually becoming irrelevant, a natural law that applies to all industries and professions. However I completely disagree with the notion that the financial advice industry hasn’t delivered meaningful efficiencies over the last 20 years and that the industry is either unaware of changing consumer attitudes or is clinging to outdated business models.
My experience is that most financial advisers have been revamping and fine-tuning their businesses in earnest for several years, primarily in response to the GFC and in anticipation of FoFA. These very necessary adjustments have not only improved transparency but have also spawned a newer breed of financial adviser comfortable with change and flexible enough to adapt to future challenges.
While I’m not advocating a collective, self congratulatory slap on the back for a job well done (we can’t afford to relax), I believe its important to give credit where credit is due, and also have a little faith that the financial advice industry, like most other industries, will continue to evolve, stay relevant and prosper.
Does this mean that advice is going the same way as other professions where you pay for when you need strategic help like accountants and Solicitors? The days of planners expecting clients to pay ongoing fees when they don’t see the value and it really comes down to value then technology will either make advisers evolve or be left behind.
I agree Ray, unfortunately we still have the Product Manufacturers trying to tell Advisers what they think the future is ! If you are not dealing in interlectual property then you are left dealing with a commodity, which in the end will mean the supplyer at the lowest price wins.
These are the best of times , change brings opportunities , and gets rid of the dead wood.
Who are the institutions throwing money around ?.There is no subtance to it.
No one has approached me with money.
Only approaches have been by by dealer groups with lower fees / costs.
I have a LARGE risk book and RISK practice.
FES