Dealer groups and advice businesses will struggle in 2013 unless they are well prepared for industry and regulatory change.
This is the view of two commentators, who warn that 2012 results are little more than a record of past activity and that new practices must be adopted for success in 2013 and beyond.
Seaview Consulting’s David Fotheringham believes the principals of many dealer groups and financial services practices are still worryingly complacent on the year ahead.
“The reality in financial services is that regulatory changes coupled with demands for higher professional standards are impacting on businesses and business models – and doing nothing is simply not an option,” he said.
“There are very few alternatives available to principals in this environment; exit or face the challenges and get on with the job. History is littered with examples of previously successful businesses that resisted change and failed to adapt their businesses.”
Van Eyk Advice national practice manager Tony Zulli said the grandfathering provisions in the Future of Financial Advice (FoFA) legislation risked encouraging complacency in the advice industry.
“Receiving passive, commission-based revenue streams from large client bases is still the dominant business model in the advice industry and with grandfathering it will be common for some years to come,” he said.
“The risk is that it will make advice businesses complacent and they won’t use this window of opportunity to adapt their business models, or they will leave it too late.”
The deadline for compulsory compliance with the FoFA reforms is little more than six months away, but trailing commissions in place before that date can be grandfathered.
A competitive edge
According to Zulli, many practices have not yet fully prepared for the end of these grandfathered agreements.
“We suspect that few have done accurate costings of how the eventual end of all commissions on wealth products will affect their businesses,’’ he said.
He added that this may explain the anecdotal evidence that many businesses, including some major players, are well behind schedule in changing their work practices and processes to be ready for the new FoFA regime.
“Businesses are still slow to properly address the major flaws in the traditional advice model, the dearth of proactive, structured engagement with clients and the poor business processes and practices that are the legacy of having relied on passive incomes for many years,” said Zulli.
However, 2013 is shaping as a difficult year for many practices looking to maintain a competitive edge.
Some advisers are also ill prepared for the growing threat from groups such as industry superannuation funds, who will use next year to lure commission-paying clients to their fee-for-service models.
“Advisers may find an increasing number of their grandfathered clients, particularly the higher balance ones, being picked off by competitors,” said Zulli.
Seaview Consulting’s Fotheringham said the challenge is to allocate time and have the commitment to fully understand what, when and how to implement the business changes required for achieving the best result.
“A business must have the discipline to implement a response to the measures they are tracking and then be accountable for driving a change. Only action and accountability will result in a change,” he said.
