Movers and shakers in scaled advice

Video advice takes off, older Australians take up phone-based advice, and more people want comprehensive advice instead of scaled, Jessica Amir finds. 

The Australian Securities and Investments Commission (ASIC) calls it scaled advice, some advisers call it scoped advice. Whatever you call it, it has been around since 2012 and was mandated by the Future of Financial Advice (FOFA) changes in July 2013.

According to Investment Trends, 88 per cent of planners provide scaled advice to their clients, while 80 per cent of those who receive scaled advice were open to comprehensive advice.

Investment Trends, wealth management head of research, Recep Peker said, "this is a big opportunity to get clients."

However, what lacks is a text book definition of comprehensive and scaled advice.

The Financial Planning Association (FPA) chief executive, Dante De Gori, said scaled advice should be given in stages throughout a client's life but over time this meant the client would have received comprehensive advice.

"Consumers only want what's relevant to them," he said, noting that scaled advice was affordable, appropriate for clients, and would help clients achieve their immediate needs.

What consumers want

[[{"fid":"10532","view_mode":"default","fields":{"format":"default","field_file_image_alt_text[und][0][value]":"","field_file_image_title_text[und][0][value]":""},"type":"media","attributes":{"style":"float: left; margin: 5px;","class":"media-element file-default"}}]]An Investment Trends financial advice survey, carried out in 2015, found 30 per cent of people wanted scaled advice, and only seven per cent wanted face-to-face comprehensive advice, after fees for advice were factored in.

On the flip side, 26 per cent of clients wanted "piece-by-piece scaled advice", while 67 per cent said that they could not afford advice, or would prefer to manage their finances themselves.

"What's really important to recognise is that almost everyone who gets scaled advice (80 per cent) are open to getting comprehensive advice as well. It could be later on, or it could be immediately," Peker said.

"But what you'll find is that there's actually a really big opportunity for financial planners to use scaled advice as a hook to get people in, and then do the pitching of their full offering and their full value add."

What planners want

Fintech provider Midwinter managing director, Julian Plummer, said he was seeing three main groups using scaled advice:

1) Younger clients who were increasing or decreasing their contributions to superannuation, or changing their insurance cover;

2) Transition to retirement (TTR) clients; and

3) Intra-fund advice clients who were switching investment options, or buying and selling investments.

Investment Trends found that since the introduction of FOFA, scaled advice had "grown rapidly" with 27 per cent of planners providing scaled advice in 2010, growing to almost 90 per cent of planners in 2015.

Peker said the majority of planners used scaled advice as it was an efficient way to provide ongoing service to existing clients.

The Investment Trends data showed that 38 per cent of advisers wanted to provide even more scaled or simple advice over the coming year alongside the over 40 per cent of advisers who said they wanted to give more single issue advice, such as transactional advice.

Dealer groups and advisers want move back and forth between scaled, holistic, and self-directed advice in an efficient and compliant way, said technology solution provider, IRESS.

But IRESS group executive of product, Aaron Knowles, warned that if advice practices are giving advice through a "single solution system", and there are multiple systems, there could be a compliance risk such as best interest being missed.

He said advisers should be using an integrated platform for all types of advice.

Investment Trends also found that there had been a shift over the last four years towards higher value clients. Their data found the average client balance increased from $110,000 to $160,000 as planners said these clients were profitable and efficient.

"Financial planners have to do things like opt in, and fee disclosure statements… so they are really focused on clients and where they can show value," Peker said.

Software and technology

Plummer said banks, credit unions, large institutional dealer groups, and independent financial advisers were all giving scaled advice, but some firms were doing it digitally.[[{"fid":"13740","view_mode":"default","fields":{"format":"default","field_file_image_alt_text[und][0][value]":"Julian Plummer","field_file_image_title_text[und][0][value]":""},"type":"media","attributes":{"alt":"Julian Plummer","style":"margin: 5px; float: right;","class":"media-element file-default"}}]]

"For example StatePlus are running a $50 million future operational model, where their advice processes are all digital and the client is engaged from updating their information in the fact find, to writing their objectives in the client portal," he said.

"This hugely decreases the amount of time it takes to provide high quality scaled advice.

"What we are also seeing is the size of the statement of advice [SOA] decrease, but the size of the appendices increase."

He also recommended that SOAs be as short as possible.

Video meetings

Plummer said Midwinter had an "overwhelming response" from regional planners in country Victoria and New South Wales who used its new online video meeting capabilities.

"It's like Skype for financial planners and it's perfect for regional planners," he said.

He said video interviews could help clients go through everything from the fact find, to product disclosure statements (PDS) and even through to the final SOA.

"All video meetings are recorded in the advice cloud, so there is a full audit trail or for later reference by the planner or the compliance department or auditor," Plummer said.

Time and cost of advice

According to Investment Trends, scaled advice saved 33 per cent of an adviser's time, but they only received half of the revenue compared to comprehensive advice.

Peker said one of the biggest problems was that both scaled and comprehensive advice took longer to provide.

FPA professional standards and advocacy manager, Benjamin Marshan, said this was due to members spending more time with their clients and getting to know them and their goals.

However, IRESS said the time issue was because planners were managing more compliance risk than ever before.

Knowles said if the industry wanted to reduce the time it took to provide advice, it would require a joint effort from software/technology providers, the Australian Financial Services licence (AFSL) holders, and the advisers and their strategies.

Peker said in 2015, it took planners 4.12 hours to provide scoped advice, from the fact find stage to personalising the SOA, and they charged $1,400 on average. This was an increase from 2014 when planners took 3.37 hours.

On the flip side, planners are making more money when they provide comprehensive advice, but it takes 6.3 hours, and they charge $2,800 on average, Peker said.

"This highlights that there's not much of a time saving between comprehensive and scoped advice," he said.

"However, it only takes 2.4 hours to provide scoped advice to existing clients, as advisers typically know their client."

Phone based advice

Financial advice and education firm, Money Solutions, said older Australians were seeking more scaled advice over the phone than ever before.

Money Solutions chief executive, Ross Bowden, said the firm provides 35,000 pieces of scoped advice every year over the phone, and 40 per cent of those consumers were over the age of 50.

This varies significantly from just five years ago, when only 25 per cent of their advice was for those aged 50 and older.

This demographical shift reflects the ageing population and the increasing time efficiency to give TTR advice over the phone, particularly for those in remote locations, Bowden said.

He said the video-based advice industry would only grow, but there would always be clients who still prefer face-to-face advice. This view was echoed by Midwinter.

Bowden noted that phone based planners were usually younger and not overtly against scaled advice.

"They are typically around 25 years of age and are easy to teach as they don't have an aversion to giving scoped advice," he said.

He said telephone advisers were often "better qualified planners" and came from contact centres, but the female to male ratio was generally the same throughout the industry, with about 30 per cent being female and 70 per cent male.

"We find that more males apply [for the jobs], but we want the industry to have a fifty-fifty mix," he said.

Legislation and regulation

[[{"fid":"9087","view_mode":"default","fields":{"format":"default","field_file_image_alt_text[und][0][value]":"","field_file_image_title_text[und][0][value]":""},"type":"media","attributes":{"style":"margin: 5px; float: left;","class":"media-element file-default"}}]]Boutique financial services legal firm, The Fold Legal, said planners were nervous about scaled advice, particularly independent advisers who struggled with it.

The Fold Legal managing director, Claire Wivell Plater, said planners "fear and are concerned they may have some sort of liability if they don't provide holistic advice".

"They fear if they don't work with the client on all their financial issues that they will somehow be found liable, if and when at some later time, something wasn't attended to and the client comes back to blame them".

She recommends advisers overcome their fears about providing scaled advice by providing clients with a list of services and activities, of "what they will do and what they won't do" and get the client to agree with that upfront.

Wivell Plater said often industry super funds and large institutions tackle scaled advice with more success as they have the resources to manage it well.