The difficult economics of financial advice has seen increasing numbers of financial advisers looking to shift their high net worth and sophisticated clients into the wholesale space, according to Netwealth joint managing director, Matt Heine.
However, a Money Management Practice Management webinar was also told that there was good news in the form of Treasury, the regulator and the Government signalling that, perhaps, things had gone too far with respect to financial planning and the cost of providing advice.
Heine said that the trend towards advisers trying to increase the value of clients was driven by compliance and increased licensing costs and, generally, the costs of providing advice.
“The shift to high net worth clients is on and unfortunately it’s because they’re the ones who can afford to pay to receive advice,” he said.
Heine’s position was backed by HUB24 group executive, advice and technology solutions, Nathan Jacobsen who pointed to a supply and demand gap having developed in the financial planning industry.
“It’s estimated in 2025 there will be 3.1 million households in Australia which will require financial advice and will be able to afford it but what is currently happening with advice in terms of the exit versus the new entrants means that advisers will be able to service in the traditional way only two million of those households,” he said.
“So there is a huge gap which is emerging which is not a great thing for our country but into that gap is where I think innovation will respond with practices innovating and finding way to be relevant to low-value clients,” Jacobsen said.
He said that while robo advice had not been a useful tool up until now, he believed that ultimately it would prove to be useful but very much in a hybrid role within which advisers had full service clients but a suite of capabilities which allowed them to service other clients at much lower cost.
“The good news coming from a Government perspective is that we’re increasingly hearing from Treasury, from the Australian Securities and Investments Commission (ASIC) and the minister’s office recognition that things have gone too far and they need to look at this question around the cost of advice,” Jacobsen said.
Heine said that switching clients to a wholesale environment was a complex move and not something that could simply switch on or off.
Further, he said the rising cost of advice and how it played out for smaller clients engagement models would be important with the way in which advice was delivered in the future being very important.
“Certainly for those servicing more client numbers, looking at that engagement model, looking at how you can deliver efficient episodic advice but make sure you’re not losing contact with those clients is important – using things like the client portal to give them reasons to interact with you and your business,” Heine said.
