Financial advisers need to gain a greater understanding of their existing and target client base as they seek to adjust to the changing economics of the financial advice market.
That is one of the bottom lines of a new report compiled by consultancy, Oliver Wyman dealing with the Australian financial planning market: Future of Financial Advice – The Australian Renaissance.
The report has pointed to the growing mismatch between supply and demand in the advice space leading to a “growing advice gap”, stating that “Australians increasingly need advice to manage the conflicting demands on their money, but they are less able to access financial advice in an affordable manner”.
“Currently, few providers have a viable model for the mass market in Australia,” it said. “Generally, financial advice business models have been focused on the high net worth and ultra-high net worth segment, and to some extent, the affluent segment as well, leaving the mass market segment underserved.”
“We estimate that advisers currently manage about $962 billion in investible assets for less than 10% of the population of Australia,” the report said.
The report recognises the current challenges facing financial advisers while suggesting that amid this uncertainty there exists “an opportunity for rebuilding a sector that better meets customer and regulatory outcomes and is economically sustainable”.
The report identifies the exit of financial advisers as being due to the removal of commissions and grandfathering and the rising cost of advice, including compliance and the impact of the Financial Adviser Standards and Ethics Authority qualification requirements.
However, it also points to “an up-market shift” with increased competition for high net worth clients seeing boutique wealth providers rapidly expanding their staff numbers, while “private banks have continued to sharpen their focus on ultra-high-net-worth individuals, tightening their target client segments and sharpening their propositions”.
One of the authors of the report, partner in Oliver Wyman’s Financial Services practice, Angat Sandhu said he believed advisers would benefit from gaining more information about their customers but that there would be an inevitable gravitation towards more affluent clients.
He acknowledged that this would leave an advice gap with the challenge being to find viable commercial models to help close that gap.