Up to 30 per cent of risk-focused advisers are expected to sell their practice and retire in the next few years, driven by the convergence of four major factors.
- Demographic changes
- Technology and digital disruption
- Changes to adviser remuneration under the Life Insurance Framework
- Stricter education and training requirements.
This isn’t a new phenomenon. It bears the hallmarks of 2004, when the introduction of new standards under the Financial Services Reform Act led hundreds of older advisers to exit the industry. An entire generation of invaluable knowledge and experience was lost.
As a result, the industry lost its emotional connection with many clients. Moving into 2017 and looking to 2018 and beyond, it’s important that there isn’t a repeat of 2004.
While the reform act admittedly drove out many unqualified and poorly qualified agents, many competent, hardworking mature advisers were caught up in the confusion as well. There was little support for those who wanted to upskill and stick around but didn’t know how to adapt and manage the transition. Similarly, little was done to give retiring principals a proper send-off that recognised their contribution to the industry.
This generation of resilient pioneers who had built successful businesses and raised awareness of the value of insurance were cast aside and forgotten.
Their client books were gobbled up by the institutions, divvied up and sold.
This time, the insurance advice industry has an opportunity to get it right.
It has another chance to hold onto mature advisers who still want to learn and help clients. Licensees and professional bodies have a critical role to play in providing the education, training and support necessary to help advisers adapt their business models and meet their obligations. For those in or nearing their 60s, who plan to retire soon, the industry must find creative ways to retain their knowledge and expertise.
That may include formal and informal mentoring programs that marry experienced advisers with newcomers.
The client relationship manager
Another practical solution could be for practices, licensees and product manufacturers to create a new role for senior advisers or former advisers with flexible working hours and conditions.
This new position, let’s call it “relationship manager”, would allow advisers to ease into retirement while staying actively involved in the industry and continuing to give back.
A relationship manager’s client-facing responsibilities could include welcoming new and prospective clients, articulating a practice’s value proposition and connecting clients to an adviser. Behind the scenes, a relationship manager could focus on developing and managing referral relationships with centres of influence.
If the industry can successfully close the generation knowledge gap, the result will be a profession that’s not only more educated and technically proficient but also empathetic, passionate and brilliant at articulating the value of wealth protection.
It will retain the art of winning new clients and building personal relationships, not just business relationships.
Broad changes, big opportunities
The demographic, structural and regulatory changes underway present potential opportunities for advisers.
Mature advisers approaching retirement should consider formalising and implementing their succession plans, if they haven’t already. Being well-prepared will help them attract the right buyer at the right price on their terms, which may include a transition period to ensure the smooth handover of clients and retention of key staff. This approach would also allow retiring principals to coach and mentor new staff.
Advisers who are focused on growth will soon see a strong supply of practices hit the market. There will be some good buys but there will be some minefields, too, which is why it’s wise to seek independent advice to help identify quality practices and negotiate price and terms.
For new entrants, there’s a unique opportunity to build a compliant and sustainable fee-based business.
Under the proposed remuneration changes, which will halve upfront commissions and, subsequently, cut practice revenue, advisers will probably provide holistic advice on a broad range of issues, including superannuation, investments and insurance.
This will allow them to build a diversified revenue stream that isn’t heavily dependent on upfront commissions.
The thing for advisers to remember in this disruptive season is that the businesses that emerged from the mid-2000s in a strong position were those that accepted change, maintained a positive dialogue and relationship with clients, continuously looked for opportunities to grow and grabbed them when they arose.
The ClearView white paper What’s Old is New Again covers how to retain valuable knowledge and experience in the modern advice world. It can be downloaded here.
