Traditional approaches to financial advice delivery won’t stand up in a hyper-competitive, post-commission environment, writes Cameron O'Sullivan.
Few advisers would be happy to lose 20 per cent of their revenue, but this is a very real scenario in a post-commission environment where superannuation funds offer their members low-cost or even free advice.
In less than one year the fabric of the financial planning and advice industry has changed to make an already contested industry even more competitive.
The Government introduction of intra-fund advice in June 2009, which allows superannuation funds to provide limited advice to members, marked a major turning point.
Recent announcements expanding intra-fund advice to include transition to retirement, intra-pension advice, nomination of beneficiaries, superannuation and Centrelink payments and general retirement planning will only accelerate this change.
Further moves by the Government to abolish commissions will put more pressure on advisers to justify their value.
We can expect the super funds to encroach on the turf of retail advisers’ as many clients will be tempted to receive advice from their super fund either free of charge or at extremely low cost.
Traditional approaches, including holistic advice and the vast number of hours allocated to face-to-face contact, will be called into question.
At the very least, long accepted practices will be placed under greater scrutiny, particularly the current advisory process, which is plagued with inefficiencies that will not hold up in an environment where advice will need to be provided much more quickly, and much cheaper, than ever before.
To remain profitable, advisers will be forced to lower the cost of providing advice per client. How will they achieve this?
We will see the emergence of rapid advice delivery, already key to the super funds’ strategy, across the industry.
Software that automates simple, inefficient processes using technological tools, without sacrificing any quality of advice, should also become more common.
This technology gives super funds the potential to service millions of members either free of charge or at minimal cost, and provides the rest of the industry with a fighting chance to compete with the super funds.
The potential in terms of efficiency gains and at point of sale is enormous, yet currently under-utilised by the advice industry.
Retail advisers and institutional super funds can use this software to deliver the following advantages:
- use as an initial point of sale tool, explaining the strategy while simultaneously quantifying the benefit;
- allow for complex strategies to be built step-by-step with the client, showing the benefit at each stage of the strategy;
- produce the Statement of Advice (SOA) once a final strategy has been agreed upon;
- automate much of the implementation process by integrating the advice and back-end systems; and
- dramatically lower the cost per client of providing advice.
These financial planning tools generate strategies based on the minimum amount of client information – a departure from the cumbersome approach of needing to know as much as possible about the client that is prevalent in most mainstream financial planning software solutions.
With this rapid alternative, advisers do not need heavy reliance on face-to-face interaction and can instead deliver the advice either by phone or online.
Under the traditional advice models of face-to-face meetings and mainly manual processing, it can take up around 10 hours of an adviser’s time to meet with a client, document required information, formulate a strategy and prepare a Statement of Advice (SOA).
And this is not for anything particularly complicated – it’s just the way advisers have become used to doing things.
However, some superannuation funds can already technically deliver a SOA in around 10 minutes after the discussion with the member.
This results in a dramatic lowering in the cost of providing advice to a client. It means these super funds are more than capable of intruding onto other advisers’ turf.
This could have a major impact on revenues: consider that roughly 20 per cent of clients provide 80 per cent of an adviser’s revenue, and vice versa, 80 per cent of clients provide 20 per cent of revenue.
This latter group, accounting for 20 per cent of revenues, can be easily attracted by super funds that offer advice at minimal cost.
The question advisers need to ask is: how much of that 20 per cent can I afford to lose?
Retail advisers can be expected to react in one of two ways: either start chasing higher-net-worth clients whose demands are unlikely to be met by intra-fund advice, or upgrade their own systems with a view to providing rapid advice delivery and transactional-based rather than holistic advice.
The problem with large numbers of financial planners hoping to expand their higher-net-worth client listing is that the pool of high-net-worth investors will need to expand dramatically for this approach to work. Is it big enough?
The alternative is to get creative with technology, see where it can improve your service offering while simultaneously enhancing profitability.
Use the technology in your own way: clients may still benefit from face-to-face contact or they may wish to access their advice online or via phone. Importantly, automation does not sacrifice quality.
Cameron O’Sullivan is a director of Proviso Technologies.
