Compliance and value: a balancing act

While the demand and need for financial advice is growing, advisers still feel that there are barriers to client acquisition and that the advice environment is challenging, Jassmyn Goh writes.

Despite the numerous regulatory changes to the financial services industry, volatile markets and an array of surveys stating that not enough people seek advice, experts remain adamant that there has never been a better time to be a financial adviser.

With Baby Boomer pre-retirees entering retirement and the seemingly never-ending changes to superannuation, they believe the value of advice has never been greater.

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However, “challenging” seemed to be the prevailing sentiment among planners in the current business environment, with 47 per cent citing this, according to the Investment Trends 2016 Planner Business Model Report that surveyed 878 planners.

This had grown from the previous year’s figure of 45 per cent, and 39 per cent in 2014. However 30 per cent of planners said the current environment was positive but this was down from 44 per cent in 2015, and 51 per cent in 2014.

The report found 77 per cent of planners were optimistic about the business environment as they saw that there was opportunity for great value. These planners felt that they were busy, had business opportunities, and that the environment was improving.

However, 62 per cent said things were difficult and said the environment was challenging, unpredictable, planners were undervalued, and planners were unfairly treated and perceived.

Investment Trends’ research director, Recep Peker, said the good news was that only 13 per cent of planners had a negative view of the world, believing that the environment was unprofitable and worsening.

AMP financial planner at WealthPartners Financial Solutions, Andrew Heaven said he was feeling positive about the value and need for advice and that there were plenty of things clients should be speaking to advisers about thanks to the myriad of changes.

“It provides opportunities to grow the business because there’s a need for people to, at the very least, check on what they need to be doing,” Heaven said. “Now more than ever there’s a great opportunity to demonstrate the value of advice.”

Agreeing, Quantum Financial Services Australia principal adviser, Claire Mackay said: “It’s never been a better time to be an independent adviser”.

“There’s lots of existing clients that are recognising the value-add we bring to their situation. It’s easy to demonstrate our value to their situation and Australians are recognising that they need independent advice to help navigate the super changes, how to optimise their family’s retirement strategy and their increasingly complex world and making sure we’re doing the most for them and their family,” she said.

Mackay said despite regulatory changes and economic conditions, it was important for advisers to be excited about their business.

“Well you have to be optimistic about the future or else you wouldn’t be running a business and that’s the exciting thing,” she said.


Recep PekerPeker said three-in-five planners found demonstrating their value proposition for client acquisition and client retention a challenge.

Despite the fact that the demand pool for financial advice in Australia was growing, advisers still had issues with client acquisition as there were a number of barriers. 

“With higher value or self-managed superannuation fund [SMSF] members, convincing them the adviser can help them with all their needs tends to be something that holds them back from using an adviser,” Peker said.

“So, advisers have to get better at articulating their proposition as to how they holistically service their high net worth or potential high net worth client needs.

“It’s also about increasing their brand awareness or being able to market to clients to make it easier for clients to find them. Whether there is growing demand [for advice], the challenge for planners is actually getting clients to come through the door and see them in the first place. A lot of planners out there want help with marketing and finding the right clients.”

Westpac partner, executive financial adviser, Roger Perrett said while he thought advisers did need to advertise more, the marketing should focus on the benefits of financial and non-financial advice rather than the latest investment offers.

Perrett noted that he was slightly concerned about the threat of direct channels going to customers with other businesses and product manufacturers.

“We have to be really clear in terms of our value proposition. Especially for ongoing customers that we reiterate what that value proposition is,” he said.

“Sometimes customers assume that they know what our value is. If they are approached or see another investment and if our value proposition is not clear, it gives way to another competitor in the direct space. So it’s really important to continue to remind customers of our value proposition.

Mackay said if advisers could explain how their strategies and recommendations would be able to improve their clients’ situation, then it would be easy to demonstrate value.

“If you’re not finding it easy, if nothing else, there are significant super changes. Have you called them up and said ‘I’ve been trawling through these changes and I know exactly what it means for you and you don’t have to worry’ or ‘I know exactly what it means for you and I have a plan of attack for you’?” she said.

Compliance and efficiency

knowITdigital and Business Health’s Future Ready VII report released last month based on 226 firms, found 37 per cent of advice practices deemed their operational compliance as above average, 55 per cent as average, and eight per cent as poor.

A further 57 per cent reported that there were no issues identified in their last compliance review, while 40 per cent said there had been some issues that had now been rectified, and three per cent were still working on addressing the issues uncovered.

However, Investment Trends found that three-in-five financial planners identified compliance as a burden.

“This whole compliance burden thing comes together with business efficiency. So they say ‘because of this compliance burden I have I can’t get more efficient with my business, administering FDS [fee disclosure statements] is a challenge and all of this together is making it difficult for me to provide affordable advice for lower balance clients’,” Peker said.

“We’re seeing an interesting thing where planners want to be able to service the lower balance client pool more than they are at the moment. But the thing that gets in the way is efficiency. They just can’t do it in a cost effective manner that makes business sense.”

Heaven also said the ever increasing cost of delivering advice was a barrier to giving advice to all potential clients.

“The ever increasing cost of delivering advice is hindering their capacity to take on new work and as the industry develops it disenfranchises a range of clients that would have otherwise have been accessible to receiving advice,” he said.

“Advisers have a finite amount of time to see a finite amount of clients. I have to spend time in areas of advice that I can afford to deliver.

“There are some aspects of advice where it’s just not financially practical to work in, such as maybe a young starter who is looking for advice around budgeting and cashflow management.”

Adviser Ratings’ managing director, Angus Woods, said there were a lot of technology providers that had embedded internal checking process solutions to help advisers avoid manually going through each statement of advice to look for red flags.

“Unfortunately for those licensees that have turned a blind eye to compliance, ultimately it’ll catch up to them given the scrutiny of the regulator and the scrutiny of new advisers coming into the industry saying ‘Hang on that’s different to the previous licensee that I was with’,” Woods said.

“Now you’re seeing a real divide between the licensee offering in terms of what they’re doing process wise to help advisers. Fortunately the cost effectiveness is quite low. Unfortunately for the self-licenced adviser – the one or two man band – it does require a bit of time to invest to overhaul your business.”

Mackay said compliance was not an imposition to her business as the industry was in the process of rebuilding consumer trust. 

“It doesn’t help when we have continued examples of advisers doing the wrong thing by clients but the more transparency about that means those people are being pushed out of the industry,” she said.

Mackay did note that internal efficiency was a concern for her business in terms of how to do things with less manual input so that there was less user error.

“Our clients are paying us to create and implement strategy. So, how can we provide a value to our client that complies with everything we need to comply with, that puts our clients’ best interests first, and we as a business create a rewarding work environment,” the independent adviser said.ClaireMackaySq - Copy300

Perrett said advisers could increase productivity by using total solution software that incorporated emails, planning software, communications, and that could assist in rebalancing portfolios.

However, he said this kind of implementation would be difficult for advisers who were licensed under a dealer group as software change was a lengthy process. 

This was in line with Investment Trends’ report that found planners wanted dealer groups to provide streamlined advice delivery and to optimise their planning software.

“Recognising that nine-in-10 planners said business efficiency is an issue and that it got in the way of servicing a broader client set, and client acquisition is an issue from demonstrating a value perspective, [dealer groups] could give them the tools to demonstrate the value they can add,” Peker said. “If they can do this, they’ll win and strengthen their adviser relationships.” 

Woods said compared to self-licensed advice firms, dealer groups tended to lag in terms of rolling out technology.

“You’ve got to go through marketing and compliance teams and other teams in large dealer groups to make a change from a technology perspective. So they’re not as up to date, than someone from a smaller licensee or dealer group,” he said.

Client acquisition

Woods noted that a key area that advisers were highly dissatisfied with in dealer groups were the quality and quantity of client leads.

“[This is] despite the fact that some of them will be paying X dollars of their income each month, expecting that will go to more targeted marketing and there is quite a high level of dissatisfaction in that respect.”

Peker said 43 per cent of advisers said new client acquisition was a challenge and that the compliance burden was getting in the way of servicing and acquiring new clients. He said a lot of advisers wanted support from their dealer groups to help with client acquisition.

Perrett agreed and said better quality and quantity of leads from dealer groups was important as the life of their business was seeing new customers.

However, aligned planner, Heaven said that it was up to the advisers to generate new work and that it was not necessarily the licensee’s role.

Investment Trends found that overall satisfaction with dealer groups had been increasing over the last few years.

Commonwealth Bank (CBA) financial planners, including all CBA owned dealer groups, gave the highest ratings, followed by IOOF and Westpac. 

CBA planners gave high ratings for frequency of communication, paraplanning services, and support for client acquisition. 

IOOF was highly rated for its conferences, and Westpac for its education and training. 

Peker noted that fewer planners had said their profit had been improving, but not necessarily that it had been falling.

“Over the last couple of years financial planning practice profitability hasn’t been improving as much. So the proportion of planners that say ‘My business is becoming more profitable has been falling since 2014’ which highlights the need for them to be supported,” he said.

Talent quest

Another aspect Heaven found concerning for his business was finding people to join the business who shared the same passions and values about advice.

“We are competing against large institutions so we’re seeing a spiralling of wage costs. There’s a greater demand, especially in the current environment, for a shrinking or limited talent pool,” he said.

“I think it’s fair to say that some large institutions are going through rectification or remediation work in relation to advice. The other side of that coin is that at some stage that work will finish and that talent pool will expand for us.

“My counsel for any new entrant to the industry is to make sure the firms that you join are aligned to your values around [how] financial planning should be practiced.”

For Mackay, talent has not been difficult to find as her business runs an internship program, has an existing network with universities, and finds employees through word of mouth.

“It’s more around when you’re hiring a person you have to be mindful of the people in the existing team. You need to know what the right blend of skills you need in a new team member,” she said.

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