Miscellaneous concerns – Adviser Sentiment part 3
Malavika Santhebennur finds out what else is on advisers’ minds other than the 2016 Federal Budget and FOFA in part three of this feature.
Technology and disruption
A burning issue for Shadforth Financial Group private client adviser, DavidHarvie, was not FOFA, but the need to embrace disruptive technology in the financial advice space. He was concerned that the industry was neither embracing it nor was it prepared for it.
"I think we can learn from other industries. Consider this: The largest hotel chain in the world has no hotels: Airbnb. The largest retailer in the world has no store fronts and that's Alibaba or eBay depending on the day of the week," Harvie said.
"There are two examples of disruptors who now own those industries or are number one in those industries, and yet have no product. They have no store fronts, and they have no hotels."
Harvie foresaw competitors entering the industry from the peripheries and, while he did not know what form these competitors would take, he urged the industry to embrace it and become a part of it.
The industry had a "golden opportunity" to engage with clients using technological efficiencies such as robo-advice or digital tools to gather information from clients initially, and, more importantly, on an ongoing basis.
"I won't trot out the taxi/Uber argument because I think we need to think a little harder than that. Gone are the days when we relied on the client providing me with a spreadsheet or a budget or a hard copy fact find," Harvie said.
"I think we need to be malleable about how we're getting information from you initially to give you advice. I think we also need to be malleable and use technology to ensure you're getting to where you want to go financially and personally with other goals."
Commissions — a brand new world
Advisers also continued to be reluctant to accept a new world of lower or no commissions in the life insurance industry, with the Association of Financial Advisers chief executive, Brad Fox observing that while there was growing awareness that the commissions world would change, some had accepted while others had reluctantly accepted it.
Still others were waiting for it to be bedded down in legislation before taking any steps.
"There is a small proportion that is still refusing to acknowledge that the forces to change commissions on life insurance go through every political party contesting this election. There will be change. The question is what will the change be and how to cope with it," Fox said.
The Financial Planning Association's professional standards and advocacy member, Benjamin Marshan, agreed, stating that various life insurance companies had declared they were not going to implement the life insurance framework commission structures until legislation had passed.
However, he warned that it would be prudent for planning practices to think about their revenue models in the next financial year, and accept that a reduction in commissions (perhaps in hybrid form) would be a reality at some stage even if there was a delay in it becoming legislation.
"It will be implemented whether it's in its current form or in a form that the Labor government should it be elected will put into place, and businesses should start to prepare for that. Both parties have stated an agreement that this piece of legislation should come into place," he said.
However, Spring FG Wealth head of advice services, Frank Paul, argued that certain points were overlooked on the issue of commissions.
"Commissions on life insurance and mortgages are a reasonable form of compensation especially when you take into account the cost saving provided to the product producer by advisers and their networks and the level of resource being provided to clients," he said.
"These services are often highly time-consuming and complex and a fee-based model is incongruent with where the market is at as consumers have decades of conditioning that these services are ‘free'," he said, adding there was little or no appetite among clients to pay fees for services such as insurance and mortgages.
Fear of investing
C2G Financial Services Financial planner, Louise Bennett, noted an air of fear globally among investors at present, but said even the banks were telling people to invest their money instead of leaving it with them.
Data from Wealth Insights in February revealed that recent market volatility had decreased Australian financial adviser sentiment as well as investor confidence to levels not seen since 2012, and this was because of client sentiment.
There was an increase of three per cent in the number of advisers describing things as being bad.
"But a lot of the economic indicators indicate that it's a good time to be investing because the companies are leaner and better valued than they have been in a long time," Bennett said.
"Equities are good for Australian retirees because they're an imputation credit system. They should be earning more than bank interest if they've got a good portfolio there as well. They're getting about five to seven per cent quite safely."
Read part one of the Adviser Sentiment feature here: What's keeping advisers up at night?
Read part two of the Adviser Sentiment feature here: What's the cost of bedding down FOFA?
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