Challenge and consider changing your licensee
- published on 17/05/2012
- 4
The professional obligations of financial planners trump those of their employers and should guide their behaviour in dealing with practices or processes that ... [more]
New clients to come wrapped … in red tape
- 25 January, 2012
- 1 comment
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“Although they are more sophisticated and knowledgeable about investments, they have become much more risk averse,” says Taylor.
Compliance costs, both in terms of time and money, are shaping as the single biggest long-term threat to planning practices in a post-FoFA landscape.
The Future of Financial Advice (FoFA) process has seen financial advisers and dealer groups scrambling to reposition themselves since April 2010 and while many have made the transition to a fee-for-service model, the battle to attract and retain clients remains the ultimate test.
Financial services research consultancy CoreData took the industry’s temperature this week, releasing a report entitled Planning for Success, which looks at threats and opportunities facing the financial planning profession.
Compliance costs weighed especially heavily on the minds of many practice principals surveyed.
Mark Taylor of Stature Financial Group, part of Hillross Financial Services, illustrates the time wasted in fulfilling compliance requirements.
“You might have say, 250 clients for which you have a review annually,” he said.
“Let’s assume that equates to approximately 460 documents that need to be reviewed annually – that is 10 documents a week!”
While the industry is still waiting to hear what impact FoFA will have on compliance, especially with scaled advice, it is bound to have an impact on growth as resources are channeled towards compliance rather than client work.
Craig Banning of Navwealth, licensed through AMP Financial Planning, was similarly concerned about the burden of compliance, arguing that FoFA’s implementation means “practices will need to start achieving scale via consolidation. That is the most economical way to do it”.
Although all practices target various segments and some envisage changes in the sophistication of clients, there is consensus around the need to maintain a homogenised client base in future.
“The advantages of a homogenised client base are clear: standardisation and systemisation is easier; better solutions due to familiarity of the target segment; simplification of the marketing strategy; and cheaper statements of advice due to precedent,” the research concluded.
While some planners anticipate a move towards one-stop shop type service offerings, others are witnessing a change in the type of advice that clients are after and are already adjusting their models to better tailor the advice to these evolving needs.
Many advisers see the challenging macroeconomic environment fundamentally reducing client appetite for complex investment strategies whilst simultaneously pointing to the rise of sophisticated retail investors.
“Some groups are much more conservative than usual,” said Taylor.
“Although they are more sophisticated and knowledgeable about investments, they have become much more risk averse.”
It is an irony the financial planning industry is only too well aware of.
I am always intrigued to read about scale being the solution to all and sundry in the planning community. Whenever a something that requires better levels of efficiency is raised, someone always quotes ‘scale’ ( I would suggest they are thinking large numbers and size. ) In actual fact being small nimble and using technology intelligently often creates a better result. The lack of use of planning software to its true potential is a contributor because if it is coded, implemented and understood properly (not easy) by the backoffice it creates scale……………..isn’t that whats being called for in the article?
While FoFA clearly adds paperwork, it shouldn’t be that impossible unless thousands of clients are involved. FoFA is picking up that planners may need to have smaller client bases, charge more for advice and be specialists. The ugly side of it is that only new clients and new SoA’s are really impacted ……this implies lower workload for not issuing new advice and SoA’s – a real unintended consequence but captured by client best interest being served maybe.