Call it a sort of professional armistice. Professionalism, consumer demand for one-stop service and digital technology are the three powerful forces creating closer ties between Australia’s accounting and financial planning communities.

Peace has broken out between traditional industry rivals and is driving opportunities for innovation and collaboration the likes of which our sector has never seen.

These are formative and enlightened times, indeed. I believe accountants and financial planners soon will be competing and co-operating at the same time. They will complement and compete simultaneously.

The good news is that the size of the advice market in Australia will invariably grow. In the meantime, business leaders in both the financial planning and accounting sectors are re-thinking business models, redesigning their approach and recasting their innate value proposition.

What about the simple market economics driving this convergence trend? Standalone accounting firms are ‘cheaper’ to buy than financial planning firms, and the revenue stream characteristics of both are starting to look similar as commissions are removed. Both sectors have an ageing population of owners and succession continues to be a key issue. Consolidation in both sectors will continue but valuations will now be all about maintainable profit and discounted cash flows, not arbitrary multiples of recurring product trail revenue or gross fees.

We will see accounting firms move from practitioner to corporate models. Meanwhile, financial planning is fragmenting; the push has started to leave institutions for an IFA model. The two sides will meet somewhere in the middle. We know that 25 per cent of self-managed super fund clients that left their accountant in the last 12 months did so to obtain more than tax advice. We also know that 69 per cent of new financial planning clients are referred by accountants.

There are 213,000 SMSFs that reported an unmet advice need – 40 of the market.

The SMSF space will be the place where convergence starts. It will end when more than 2 in 5 Australians seek financial advice from a trusted, educated and certified professional.

Service, service, service

The big external forces have tilted the playing field in favour of the client. Service levels, ease and efficiency between providers and a broader shift to a ‘real-time’ mindset are also at play.

In financial planning, a growing movement towards so-called goals-based advice has required a shift to more holistic thinking. Whilst many accountants have also dropped their transactional ‘record-keeping’ mindset and adopted the notion of client engagement enabled by rich data arriving in real time.

Product sales are not part of this new approach. Planners have progressed a measurement concept known (using investment parlance) as ‘gamma’.  Whilst beta measures volatility and alpha determines performance against a benchmark, gamma measures the overall impact on clients from goals-based advice. A growing body of research demonstrates that the potential value of financial planning is not captured only through investment portfolio decisions.

In any event, it is the client who decides. Consumers will look beyond asset management to a goals-based approach. Cloud-based, real-time data and dashboards available on personal devices 24/7 will be required for validation of a planner’s strategies for achieving goals.

All aspects of budgeting and cash flow, debt management, risk insurance, savings portfolios, retirement portfolios – the lot – will come together in a user-friendly and dynamic manner that replaces the 90-page, boiler-templated Statement of Advice that some produce as a proxy for value.

The digital influence

Meanwhile, the accountancy profession is welcoming a new generation of firms that are “cloud only”, for whom compliance is all about fixed fees, technology and efficiencies.

Leading firms are leaving the old model of desktop compliance and focusing on being virtual businesses and private CFOs, providing valued, real-time management reporting to clients. Small-business clients are turning on to managing cash flow through cloud-based debtor systems and myriad apps that make record-keeping easy.

Technology will reduce the transaction and reporting burden for financial planners – the days of expensive wraps and master funds are over. Portfolio administration will be about the best application programming interface, not the longest list of features or a pay-to-play investment menu.

Data will become the new oil in financial planning.

New players in the portfolio administration space will provide data to the general ledger systems in converged practices. They will understand the elegance born out of the double-entry system that has served accountants so well for centuries.

We will see an Uber equivalent in portfolio administration that will be all about functionality for the end user and data sharing, not product distribution and data capture.

New measures of value

The convergence trend is all about how value is created for consumers.

What matters most to consumers? In order:

  • quality
  • price
  • delivery/turnaround performance
  • service that is process driven
  • prompt and timely communication
  • certification
  • reputation
  • technology
  • technical skill

The low ranking of technical skill might surprise you but, let’s face it, in a respected profession this is just hygiene, it should be a given. Professional competence is assumed.

There is a net by which value is created and captured. This net comprises clients, competitors/substitutes, suppliers and complementors. There are few examples in financial planning or accounting where there is only one way to compete.

Complementors are those players that may help increase the total value available (the total amount of money on the table) and they help increase the client’s willingness to pay. Think for one moment of a smartphone. Do you have any apps? Who doesn’t have an app on their smartphone? An app is a complementary strategy – it increases the demand for both products.

You could argue that financial planning and accountancy are complementors not competitors.

An example of where it appears to have worked well is the SMSF sector. SMSFs appear to have increased demand for both accounting and financial planning – the total value on the table for the players involved increases when they work together.

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