Are you ready for FOFA?
As we edge closer to 1 July 2013, Fiona Mackenzie encourages practices to look at how fit for FOFA they are and what they can do to become FOFA-ready.
As we are all acutely aware, the financial planning industry is currently undergoing one of the most significant periods of change in recent times, and as is the case with many things in life, it is those who are willing to adapt and embrace the changes who will thrive.
As practices count down to 1 July 2013, planning firms need to focus on what they are doing to adapt and be clear on how they are going to approach the new world.
Navigating the new environment
While the Future of Financial Advice (FOFA) reforms are currently a big focus for the industry, they are just one of a number of changes that are currently underway in the financial planning world.
The whole environment is changing – markets and technology are evolving – and therefore FOFA needs to be put into the context of these broader issues.
If we revisit why we need FOFA, the key takeouts from ASIC Deputy Chair Peter Kell’s 12 March 2013 speech indicate that it is “because we want to improve the quality and accessibility of financial advice” and “better align the interests of advisers and consumers”.
So while planning firms need to be clear on the compliance requirements of FOFA, Peter Kell’s words highlight that this is about much more – it is about re-visiting what clients want from their advisers, which is of course advice, and making sure these needs are met.
These principles need to be kept top of mind when developing and evolving value propositions and business models.
How planning firms are finding their way
As with any change, it is being embraced in different ways by different businesses, but there are some common traits emerging among practices, which can be categorised into three broad groups.
The Pioneer
The pioneers have already done the work, having viewed change as an opportunity to improve their business models.
Driven by the desire to have a clean, transparent business, they have already adopted the fixed fee pricing model under the realisation that being an earlier adopter would stand them in good stead for the future.
Having undergone change early, the pioneers can provide referral partners a stronger offering as they can clearly demonstrate, through examples of previous success, the value they can add.
These firms have typically enjoyed improved profitability from making these proactive changes, having carefully managed their client base to make sure they have the right client mix for their business.
The Proactive
Looking beyond the compliance requirements, the proactive firms see change as an opportunity to position their business more effectively going forward.
Having taken a ‘wait and see’ approach until recently, the proactive firms kept a close eye on developments and waited to see how it all came together before making the necessary changes in one go.
However, in the past six months or so, these firms have been very active in the steps they have taken to make the required changes happen.
Many in this group have identified an internal champion to take responsibility for the strategy behind the change management program. The internal champion has helped to engage advisers and clients and has identified cost savings as part of the review of processes.
The Procrastinator
These are the firms who are yet to take hold of the opportunities that change presents.
Usually more established firms with principals who are looking to retire in the not too distant future, these businesses typically have an ageing client base, inconsistent pricing models and an undefined value proposition.
With little appetite for change, the procrastinators need to take a step-by-step approach to change and familiarise themselves with some of the requirements of FOFA, such as the fee disclosure statement, and how this needs to be adopted.
Upping the ante
Regardless of which group firms fit into, the focal point for all should be: what does the client want? While FOFA has drawn heightened attention to this question, it should not take regulatory change to force practices to make this such a focus.
At a very basic level, if practices understand what their clients genuinely want and need, and provide it at a fair price which generates a fair and sustainable profit for the business, they should be able to achieve success. But how can that success realistically be achieved?
Reviewing and re-engaging clients are important first steps. Taking a closer look at the client base is a must; practices need to be able to identify areas of advice that are critical to their ideal client, and also understand what this ‘ideal client’ actually looks like to the business.
If the practice does not already provide these key competencies, have they established a referral partnership to help meet their client’s needs?
Asking clients what they value most can be a worthy exercise too. Client communication and engagement have strong links to client satisfaction. The happier clients are, the more likely they are to become active advocates.
Receiving client feedback through satisfaction surveys can help drive strategies and decisions going forward and can help to improve client engagement in the process.
Gaining these sorts of insights not only from clients, but from referral partners too, can further strengthen relationships.
While the industry undergoes change, the one key constant for practices is the need to continue delivering something of value to address clients’ needs and help them overcome their challenges.
What ‘value’ actually is can only be found in the minds and perceptions of clients, which is why it is so important to understand what they want and what they value through methods such as the satisfaction surveys.
The key to success
Never before has the industry seen so much change across so many areas in such a compressed time span. However, the key to success, buoyed by FOFA, is about truly understanding what the client wants and making sure these needs are met.
Financial planning firms are in the business of providing advice and this is what every change needs to be brought back to.
If adapting to the environment is the key to success, then it is essential for financial planning businesses to understand and accept the new environment and most importantly, understand and accept the needs of their clients.
Fiona Mackenzie is the associate director of Macquarie Practice Consulting.
AUTHOR
Staff Writer
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