The Evolution Of Advice

“I wish I could help all of my clients who need some help, but because of everything that’s happened over the past couple of years - FOFA, Royal Commission, FASEA, increased compliance – it’s just not possible.”

It appears that the sort of frustration that Kate, a Melbourne-based financial planner, expressed recently is not uncommon. There’s little doubt that the increasing costs of delivering financial advice, due in part to increasing regulation and qualification regimes, is a bigger roadblock than ever.

If financial planners aren’t in a position to provide advice to people who need it, the industry has a real problem. The days when it was fairly common practice for financial planners to provide advice through cross-subsidising fees, particularly when specifically requested by long-standing clients, appear to have passed.
Consider this scenario:

“My daughter, Zoe, has $30,000 sitting in a bank account earning nothing. Can you advise her on what do with the money and where to invest?”

In the interests of maintaining the existing client relationship, the answer has tended to be “Sure, I’ll invoice Zoe $3000 for the initial advice and with a minimum ongoing fee of $1500”.

Tongue firmly in cheek, of course!

The reality has been that most planners would either do it pro-bono or politely say no.

The problem is that the first option means that the planner isn’t getting paid for their work (or it’s implicitly subsided by her parents’ fees, which is perhaps more problematic), while the second option has the potential to upset an existing client and lose a potential future client.

The intergenerational issue
The lure of that potential future client is a strong one, given that the ‘cost of acquisition’ of the children of existing clients is lower than that associated with pitching for and winning entirely new clients.

However, data from US publication Investment News suggest only a third of children stay with their parents’ financial planner after they receive an inheritance.

A big issue is that many planners are ill-equipped to connect to these tech-savvy younger clients, who are expecting a very different service experience.

Whereas the older generation has been accustomed to simply handing over responsibility to a professional, and paying the fees, the new world expects coaching, education, and empowerment, to go with visibility of their investment portfolio. And all things must be accessible online.

Planners need to embrace digital solutions now so that, as the next generation takes over, they’re speaking their language and meeting their expectations. If they don’t, the planner’s services won’t satisfy them and the relationship that existed with their parents will amount to nothing.

The keys to the next generation
The only way to move forward effectively is to find the nexus between what the financial planning industry is able to provide and what younger and future clients demand.

The industry’s new business model needs to take into account:

1. the increasing costs of doing business;
2. the increased compliance burden of advising;
3. ensuring ongoing engagement with and servicing of clients;
4. integration of new digital solutions to service currently unprofitable clients, who may become the clients of the future (children of existing clients, C and D clients with potential to become A or B clients).

Therefore future-minded planners are focusing on value adding services:

1. helping clients understand their personal cash flows;
2. providing strategic advice on how to build wealth (debt management, contribution strategies);
3. understanding risk capacity and risk tolerance;
4. contingency planning;
5. providing education to clients to help them feel empowered.

All forward-thinking planners are asking themselves: “How can I help my ‘Zoes’ - the ones who may not be ready for my strategic advice just yet, but who I want to maintain a relationship with?”.

It’s a clear opportunity to make potential future clients aware of the value of their services while increasing the goodwill within the existing family relationship.

The opportunity is to guide them towards a digital solution that can meet their needs now.

Guidance rather than advice
The ‘trick’, if we can call it that, will be for financial planners to provide the sort of advice that they are both allowed to (by regulations and licencing) and comfortable offering, while pointing clients toward digital solutions that help them with the rest.

That means the client is not being advised on what a planner shouldn’t advise them on, for example investments.

What the planners should be offering is an understanding of what digital options are available so that they can direct clients to an online solution offering some guidance with some control.

For example, the ability to choose their preferred investment manager and investment model which is then fully managed. They still need to make a choice informed by their own circumstances, but there are tools and information at their disposal to do so.

That’s how things played out for Kate, our planner in Melbourne. She was keen to understand what digital solutions are available and a meeting with OpenInvest led to us providing discussion points and a useful client-facing fact sheet of online options that she is now able to provide to her existing and potential future clients.

After she points them in the right direction, her clients are in a position to make their own informed decisions without the need for full financial planning fees that would typically have been charged.

The goodwill from the provision of this actionable information and guidance will be immense. When those clients are ready to seek financial planning advice, the person who provided this initial assistance and support will be the obvious person to turn to.

Unmet advice
The recent ASIC Report Financial Advice – what consumers really think (August 2019) highlights the ever-increasing number of Australians with unmet advice needs.

The ASIC survey found it to be 50 per cent, although other data would put the figure nearer 70.

Other interesting data in the report shows:

1. 41% of Australians intend to get advice in the future;
2. 69% want a financial planner to educate them about financial matters; and
3. 35% perceive financial planning as too expensive.

So, for the sizeable chunk of the population not getting advice, many think it’s too expensive (given their current circumstances), however they do intend to get advice at some time in the future (presumably either when their circumstances change or they find a more suitable way).

For planners wanting a relationship based on goals, objectives, coaching, engagement, and empowerment (rather than being seen as the quasi investment manager), the understanding of direct-to-consumer digital online portfolio solutions that aim to help clients with choice, control, and information, will be key to complementing existing full advice (and portfolio) services offered by the firm.

That way the current needs of existing clients and their family members is covered, as is that point in the future when they will want to get financial planning advice.

About Openinvest

Ravi Verma is a BDM at Openinvest, a unique end-to-end investment solution for self-directed investors including Individuals, SMSF Trustees, Family Trusts, and Australian Corporates.

With the resources and expertise of reputable investment managers, a selection of diversified portfolios, and a simple online interface, it’s the investment platform reinvented, from the investor perspective.

As well as providing an independent and conflict free means for clients to access, assess, and engage with leading global and Austrlalian investment management firms, OpenInvest offers a range of other resources to help clients understand more about investing, stay informed, and remain in control of their wealth.

Helping clients get guided control of their wealth: www.openinvest.com.au

Article by:

Ravi Verma

Was this helpful content?Let others know - share and vote-up