GFC helped financial planners fight back

The global financial crisis (GFC) acted as a catalyst for many financial planners to change their business models – something that has placed them in good stead as they deal with the current market volatility, according to new Wealth Insights research.

The research, released to Money Management, reveals that 29 per cent of financial advisers surveyed by the company had managed to grow their profitability back to levels commensurate with what they were experiencing before the GFC.

According to Wealth Insights managing director Vanessa McMahon, this reflects the degree to which these people re-engineered their businesses, stripping out costs and moving further into areas such as mortgages and insurance.

She said her research also indicated that the financial advisers who had most successfully re-engineered their businesses were those who had most fully embraced a fee-for-service model and were relatively unaffected by product.

However, on the downside of the Wealth Insights’ research, 41 per cent of the financial advisers the company surveyed reported a decline in profitability compared to levels before the GFC, with half of those reporting profits as being down by between 20 and 40 per cent.

This compares to the 29 per cent of respondents who said their profits had increased beyond those they had experienced before the GFC.

The current bout of volatility and economic uncertainty has also created a significant shift in adviser recommendations to clients, with allocations to safe harbour investments rising significantly.

The Wealth Insights data pointed to 40 per cent of financial advisers telling their clients to take a very defensive approach, with 50 per cent or more of their allocation being directed towards ‘safe’ investment products.

The degree of caution being exhibited by financial planners had risen significantly in the six months spanning April to September. The number of financial advisers prepared to recommend their clients keep at least some money in the markets (and keep 25 to 50 per cent safe) dropped from 71 per cent to just 54 per cent.

McMahon pointed out that the number of financial advisers recommending clients put all their money in the markets had halved in the period between April and September, reflecting not only caution on the part of the financial advisers but also on the part of their clients.