At the Afiniation finance technology showcase last week, at least half of the event’s 31 presenters outlined new technology platforms and tools for the wealth management and financial advice industry. It put the spotlight on what financial advice will look like 10 years from now, and how clients will be receiving it.
When you look at the financial advice landscape from a consumer’s perspective today, there are four types of advice and service they seek:
1. Tax advice
2. Accounting advice
3. Financial planning advice
4. Finance/mortgages/debt advice
Today many clients receive each of these services from different providers, or in some instances two or three services from the same provider. However, considering the ongoing changes within the advice industry, it’s very clear that further convergence of the advice model is inevitable.
So what is advice model convergence and why is it inevitable?
Advice model convergence is quite literally the amalgamation of all of the above advice services by the one service provider or practice. Some might say that sounds like the one-stop-shop model that was unsuccessfully argued 10 years ago. But let’s look at today’s drivers for this convergence.
1. Regulation
We are all aware that accountants are currently undergoing a transition to be licensed in order to continue to provide advice on self-managed super funds. Financial advisers are also now coming under the regulation and requirements of the Tax Practitioners Board; and the finance broking community similarly went through significant regulatory change back in 2009 with the introduction of the National Consumer Credit Protection Act (2009). All of this increased regulation is forcing standards for advice delivery to converge across these three advice disciplines.
2. Margin Pressure
As a result of the Future of Financial Advice (FoFA) laws, there is clear evidence within the financial planning industry that generating revenue in the future will be harder than it was in the past. Accounting practices have, for a number of years, been looking for solutions to implement recurring fees, as opposed to hourly rates, to improve business value and profitability. Many of these accounting practices have already acquired financial planning businesses to assist with this objective.
3. Competition
There is increasing competition in each of the four advice delivery segments as a result of new entrants (including industry super funds, technology-enabled marketing and/or offshoring). Additionally, technology is enabling providers to service clients without the need to be physically present. It’s interesting to note the major banks only entered the financial planning market space about 15 years ago and, prior to that, the opportunity to attract new clients was greater. Industry funds also did not have a solution for when their members left a sponsoring employer.
4. Technology
It’s clear for those who are willing to adopt technology faster that they will be able to provide better services at a lower cost to a greater number of clients. It’s also clear that technology will in fact enable the delivery of all four advice services more efficiently and seamlessly from the one advice practice.
5. Consumers
Lastly, and most importantly, the most likely driver for advice model convergence is the consumer – the client. Despite all of the above, clients are still likely to be time poor and none of the above improves their world when it comes to time management. In an environment where time is a precious asset, and clients value it highly, it is very likely that they will happily take, if not actively seek to obtain, all their financial advice from the one advice provider. The alternative – visiting two or three different professionals to get financial advice – will be very unappealing and require coordination due to advice overlap.
In our view the evidence is overwhelming. Advice model convergence is underway and your ability to adapt, use technology and outsource, while remaining the front office for clients, will not only impact your business results but also ensure sustainability well into the future.
