Advicetech adoption driving advice practice dividends

advice advicetech technology financial planning netwealth

13 July 2020
| By Mike |
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The adoption of advice technology is paying significant dividends for advice practices, with the latest Netwealth Advice Tech Report revealing that it can generate an up to 20% advantage for the firms that do.

The report, released to Money Management, reveals that advice firms which could be regarded as “AdviceTech Stars” had a significant advantage heading into and managing the lockdown environment of COVID-19.

It found that more than two-thirds (67.9%) of them generated revenue of $2 million or more, and on average, revenue was up by more than 85% in the year ended June 30, 2019.

“More importantly, more than eight-in-10 (81.8%) of them generate earnings before interest, tax, depreciation and amortisation (EBITDA) of 20% or more of revenue,” the Netwealth report said. “No other segment comes close in generating such healthy margins.”

“Well over half (57.1%) of AdviceTech Stars employ more than 10 staff. Despite the greater employment costs, their healthier profit margins mean they’re more scalable businesses, underlining one of the key benefits of AdviceTech employed intelligently,” it said.

The report analysis pointed to the COVID-19 shutdowns as having been an exemplar of AdviceTech adoption in action, with “businesses that had little or no experience of supporting a distributed workforce receiving a crash course in how to make it work”.

“AdviceTech Stars are businesses we can all take lessons from and at Netwealth we believe that COVID-19 will be the catalyst for many advice practices to bring forward their technology investment plans. We have heard many stories recently to support this, such as businesses having to abruptly prioritise IT infrastructure and back office administration technologies,” it said.

“We suspect that practices will prioritise AdviceTech investment in the parts of the advice process believed most likely to be affected by technology in the next five years, including:

  • Preparing financial plans and statements of advice;
  • Complying with ASIC and other regulatory requirements;
  • Defining the initial scope of client engagement; and
  • The client review process.”

The Netwealth report also pointed to its so-called AdviceTech Stars as being more likely to have broken away from a focus on investment and insurance to offer more holistic services, encompassing a broader range of elements including accounting, tax banking and even philanthropy, healthcare and aged care.

“As advice firms respond to changing client demands for advisers to be more like financial coaches than the traditional salesperson, they will have to fundamentally rethink their service proposition,” it said.

“Learning from AdviceTech Stars could be the key. They are more likely to offer accounting services (28.6% versus 7.9% for the rest of the industry), aged care services (53.6% versus 38.4%), business advice (35.7% versus 19.7%), cash-flow management (71.4% versus 58.6%), and more.

The Netwealth report also noted that in 2020 almost a third of AdviceTech Stars used scaled advice technologies for the provision of advice including production of statements of advice (SOAs) and records of advice (ROAs) and a further 52.6% were looking to use them in the next 24 months.

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