The low balance client growth opportunity

Lower balance clients – and the ability to provide a reasonably priced advice offering to them, while also making a reasonable margin – present a particular challenge for advisers. 

The challenge becomes more pronounced when it comes to servicing larger balance, higher margin, typically older clients, while also considering the financial needs of their (usually lower balance) children, along with the importance of planning for the tax-effective transfer of intergenerational wealth.

As a child I could watch the Newton’s pendulum for hours, soothed by the continuity of the swinging spheres. This effortless transfer of energy and momentum from one end of the row of spheres to the other end, and back, also services as a good analogy to how the transfer of intergenerational wealth should also be effortless. 

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All too often, however, it is not. 

Nevertheless, the intergenerational wealth transfer challenge is increasingly relevant with Australia’s superannuation market rapidly maturing. In all, 65% of Australia’s $2.8 trillion in superannuation is held by fund members who are aged 50 years and older. This is not surprising, when you consider that baby boomers typically had children and bought properties earlier, and have benefitted from huge house appreciation. By the time they reached their 50s, their liabilities are relatively low and excess income is higher, giving increased relevance to the role of advice for this cohort.


Intergenerational wealth transfer will become even more important in the future when advisers are valuing their business for potential sale or merger.

When valuing an advice practice in 2021, an astute buyer not only considers profitability and size but also the client demographics of the book. An ageing client base is a mortality risk to any prospective buyers. Smart practitioners are increasingly realising that this mortality risk can be offset by providing aged care services and by focusing on the need for intergenerational advice. 

All up, Australians will inherit an estimated $3.5 trillion over the next 20 years, and this amount is growing at 7% a year. Griffith University researchers have estimated that each recipient will inherit an average of $320,000. When you consider that in many cases it will no doubt be much more – the need to ensure the next generation is provided with an affordable advice offering, before they inherit, is clear. 


The second challenge of providing a profitable advice offering for low balance clients is actually also an opportunity. The recent Adviser Ratings 2020 Australian Financial Advice Landscape report, an annual study of the Australian financial advice industry, highlighted that around 34% of those aged 25 to 34 said they would be open to seeing an adviser, while 45% of those under-25 were also interested in seeking advice. 

Equipping advisers with the right tools to enable both a smooth transfer of intergenerational wealth, and growth in lower balanced clientele, is key to resolving these challenges. 

One of the primary solutions in the advice value chain is the investment platform. And the ongoing challenges facing financial advisers only serve to highlight the importance of the platform’s role in increasing efficiency, driving down the cost of advice, increasing practice profitability and providing intergenerational low balance solutions.


Some options are quite straightforward. Removing superannuation minimum fees or additional per account fees, for example, are areas where platforms can simply and easily lower the barriers to advising lower balance clients. Low-cost offerings, family fee linking, and increasing digital experiences are other areas that can lead to a lower client of advice and better client engagement. And all of these options are needed to cater for financial advice needs of the dependants of clients. 

Advisers who partner with platforms that offer these options, as a matter of course, as part of an intergenerational play, help to improve loyalty with the next generation. It can also help hedge against large outflows from the advice practice when clients pass away.

Advisers with family office style clients have long been using effective tax strategies that result in variable income for members of the family in portfolio construction – thus optimising the tax outcome of each individual for the benefit of the family whole. 

This practice of portfolio optimisation could be further deployed within the intergenerational construct to further engage the children and demonstrate the value of advice.

Involving the adult children in the discussion – and demonstrating the value to them of that advice in retaining and growing the inheritance – can be a mechanism of engagement and promotion of the profession.

Family trusts with goals-based portfolios aligning to the underlying beneficiaries (including the adult children) is another approach often used in private client advice practices. 

The automation of administration such as the generation of electronic signing of records of advice for investment switches, and the seamless integration between consent and execution, is one example where platforms can reduce the administration and compliance burden. Another example is the use of managed accounts – specifically, using an investment platform that provides the ability to advise within best interest duties while gaining access to the efficiencies of managed accounts. 

According to a State Street Global Advisors (SSGA) report, 25% of managed account users (advisers) prefer using managed account structures for lower balance clients (<$100,000), while 22% said they were appropriate for millennials (aged under-35) or self-managed super funds (SMSFs). 

While record of advice (ROA) generation and managed accounts assist in efficiency, adviser support and client experience, it is when this is coupled with a significant investment in the technology that it becomes key to the overall client experience. 


There are other ways to engage the children of clients as well. An investment platform offering holder identification number (HIN) based accounts, for instance, provides the younger clientele with a nice segue into the current post pandemic rise of the DIY share trader. Indeed a recent Investment Trends survey found a marked increase – of 34.8% – in the number of people who considered themselves active traders in 2020. Of those who were new to share trading altogether, nearly 18% were younger than 25 years of age, and 49% were aged between 25 and 39. It is clear that millennial and Gen Z Australians have taken to trading with gusto.

Hence the ability to track online their portfolio of stocks, listed investment companies (LICs) or exchange traded funds (ETFs) held in the name of these younger Australians – as a result of the advice received – can aid in bridging the gap between the perception that their parents are only invested in opaque investments or managed funds. 

Add to this the option of using instruments such as Chi-X transferable custody receipts (TraCRs) means the advisers of these younger clients can easily, and at a low transaction cost, add holdings of the likes of Facebook or Tesla to align to the younger client’s interests. Investing internationally typically adds an increased platform cost, and a high foreign exchange cost and exposure, not to mention the brokerage transaction costs. Using these innovative paths like Chi-X TraCRs through a domestic broker via an on HIN investment platform can keep the costs low, whilst delivering to the demographic.

Of course, the question of profitability in providing advice to lower balanced clients doesn’t rely solely with the platform. However, the total cost to client and to the adviser practice is certainly influenced by the investment platform and its fee structure and investment options. 

The total cost to client comes from both the cost to access the platform and the cost the adviser charges. The resulting profit margin for the adviser comes from how much the upfront advice document and process costs, and how efficiently that ongoing advice is managed.  


When it comes to lowering advice costs and increasing practice profitability, only the newer technology platforms can afford to shift the margin from a product-led/ product-paid approach, to an advice-led and advice-paid focus. Platforms that haven’t kept up with the latest developments in technology have a higher cost of operation that is often recouped through hidden or layered fees. Hence the newer investment platforms that don’t rely on cash fees, MER uplift or separately managed accounts (SMA) fees for revenue, can lower the overall cost to the client even further. 

The next generation of client is one who has lived with Royal Commission and the resultant media focus on poor advice practices. This means clients are now much more aware of possible hidden fees. Transparency of assets and of fees through a digital client experience is key to engaging this client demographic. 

The new generation of platform, for the next generation of client, is not only client-centric, delivering efficiency and scale, but is one that uses technology innovation to deliver a digital client experience, to make advice more affordable, advisers more profitable and replaces revenue bias from products to service. 

Putting the newer generation of advisers’ clients at the heart of the experience, engaging with them through the digital medium and demonstrating that value and transparency can coexist, will aid in the transfer of great advice from one generation to another. The advisers who adopt the newer technology and innovation are already on that road to success.  

Shannon Bernasconi is managing director of WealthO2.

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