The advice world is changing fast. Rapid developments in technology, increasing compliance pressure, education standards and public scrutiny are all contributing to a turbocharged evolution in an industry that is spinning its wheels to catch up.
Advisers are increasingly looking at their licensees as more than licensing entities, and more than arbiters of risk. Planners want licensees to be their lodestone, the thing that they gravitate around for support, for guidance, and for the source of truth.
Sean Allen, director of financial services at research house CoreData, says this means the gamut of resources advisers demand from their licensees is evolving. Quality is still key, but the needs of advisers are a reflection of their changing environment.
Speaking at the Professional Planner Licensee Summit in Katoomba, Allen used technology as an example of something that used to be front of mind for advisers but has been superseded by other concerns.
“In previous years, there has been a much stronger tendency towards advisers looking for assistance with productivity and efficiency from licensees, particularly around technology,” Allen says. “Most practices now absorb new technology. Xplan, which tends to be the benchmark and most widely used, has been taken up by organisations and that seems to be embedded into the majority of FP firms.”
The trend, Allen explains, is becoming less about systems solutions, which can be found more readily, and more about abstract concepts, like how to explain value.
“Licensees are obviously now becoming more multifaceted as items like research and technology become more commoditised,” Allen says. “The differentiation between licensees is becoming more about the non-tangibles.”
He also details how planning firms are being held to account more by their clients and being forced to validate their fees explicitly.
“Businesses are seeing more and more pressure from consumers questioning the value of ongoing advice,” Allen reports. “The challenge for advisers is to get much better at articulating that value.”
The data Allen draws on is sourced from what he calls “the largest study of adviser sentiment ever conducted in the Australian market”. More than 1500 financial planners were surveyed.
“We unpacked all the elements of a licensee offer and got advisers to quantify how they feel about that offer and qualify that by giving an insight into why,” he explains. “We also asked them about their loyalty to their licensee and about their ‘switch-risk’, which is the likelihood of them moving between licensee groups.”
Planning, education and strategy
Allen identifies three core “satisfaction drivers” advisers are seeking from their licensees.
The most prominent of these is business planning, which 26 per cent of advisers highlight as their primary satisfaction determinant. Part of the reason so many advisers want this, Allen says, is because it encapsulates many of the current challenges they face.
“It includes elements such as whether the licensee helps articulate their value proposition, segment their target client base, price the services, build and cement corporate referral partner relationships, help add planners to the firm and conduct succession planning,” he explains.
The need for assistance navigating education and training is also an important – and topical – consideration for advisers, 17 per cent of whom identify it as a key satisfaction driver. Some of the most telling data to come out of the research is around advisers’ reaction to the education pathways guidance the Financial Adviser Standards and Ethics Authority (FASEA) recently released.
“When you look at the different requirements and how advisers react, you can see how the ones that have lower or no education levels are more likely to transition out,” he says. “So education standards are certainly bringing forward people’s retirement plans.”
Allen advises, however, that talk of a FASEA-inspired mass exodus of advisers from the industry is overbaked. Figures predicting that anything up to 50 per cent of advisers will leave the industry are considerably off the mark, he says.
“The fundamental research we have – and we’ve been doing this a number of years – shows the figure is a lot lower. It’s circa 15 percent, and certainly not over 20 per cent,” he says.
One figure that does stand out in the chart is the 20.6 per cent of Certified Financial Planner (CFP) designated advisers who “may plan to exit the industry”. Allen says there is a schism between those who “rolled up their sleeves and studied” and some of the advisers who received “grandfathered” recognised prior learning (RPL) in attaining their designation.
“There could be a little bit of that sentiment creeping in with the result,” he says.
The education issue is a perfect avenue for licensees to shine. Advisers are clamouring for clarity, Allen says, and they will look to licensees to bring practical education solutions to the table.
The third major area where advisers are seeking resources is succession and acquisition, which 17 per cent of advisers pin as a key driver in satisfaction with licensees. Allen says this is all about the “growth story”.
“You either grow client by client or by acquisition, and there are businesses out there that want to do both,” he says. “Businesses want to know where their future lies.”
He explains that for planning firms looking to sell, the landscape is changing rapidly. Advisers aren’t the only ones that would benefit from more synergy in this area.
“There’s a lot of commentary at the moment about valuations coming down, and there’s more pressure on the licensees to create a market and find buyers,” he says. “It’s absolutely in the licensees’ interests to do so because they want continuation of tenure.”
For advisers who do want to leave the industry after being buffeted by FASEA and the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, licensees will be important facilitators.
“For some advisers, the headwinds are just too strong and they want to land the plane,” Allen says, “so getting help to formulate a strong exit and succession strategy is crucial.”
Licensing will cost more
Allen warns that the current adviser expectations should be accompanied by an important caveat: pressure on licensees to pull back on vertically integrated models will cause the price of licensing to rise.
“The services and support licensees have been giving has, to a certain extent, been artificially priced due to the relationships with product manufacturers,” he explains. “There’s no doubt prices will have to shift as aggregation occurs between licensees and the product manufacturers.”
Once this product subsidisation evaporates, he says, advisers will need to pay more for the licensee support they value.
“Advisers are conscious of the quality of service they get from their licensee now,” Allen says. “But they aren’t paying real value for it.”
So while advisers will get used to expecting more from their licensees, they will also need to get accustomed to paying more for it. Licensees, for their part, will have no excuse not to provide it.