Professional Planner has tapped the brains of some of the industry’s best known and important thinkers to traverse four separate categories – advice (what the client sees), investment implementation & research, licensing & business structures and technology – in order to triangulate on the question: “What does the future of financial advice look like?”

Last week, we canvassed the shape of advice and the way technology will affect it in the coming years.

In this, the second of our two articles on the future of advice, Professional Planner looks at the perspectives on licensing and business structures, as well as investment implementation & research.



TOM REDDACLIFF Encore Advisory Group / chief executive

In the short to medium term I expect the licensee to experience significant disruption as a result of regulation prohibiting the receipt of revenue from product or any derivation of it. This includes legacy margin income, managed accounts margin and MDA margin. The licensee will become a service provider to the adviser and practice and their income will relate to this service only. The licensee will interact with a central disciplinary body, but it will continue to be heavily accountable to ASIC around areas such as annual fee attestation, education and overall supervision and monitoring. Micro licensees – less than 10-15 advisers – will continue to grow, and supervision will need to become heavily data driven. With a centralised disciplinary body, greater involvement of professional bodies and implemented educational standards the building blocks will exist for financial planning to become a recognised profession under law and therefore gain access to a limited liability scheme working alongside professional indemnity in the longer term. With these developments, the licensee will become a redundant layer in the system and financial advisers will be individually certified like any other profession, which will represent an opportunity for an integrated model.

SIMON CARRODUS The Fold Legal / senior lawyer

If the industry gets a new disciplinary body – as per Ken Hayne’s suggestion – it would make sense for that and the code monitoring body to be the same organisation. A key question is whether the new disciplinary body would have power to suspend and expel advisers from the industry, or be limited to imposing lesser sanctions on advisers and leave suspension and expulsion to ASIC. Hayne certainly believes it should be the former. Currently only ASIC has the power to ban an adviser, so this would represent a major change to the regulatory framework and ease ASIC’s regulatory burden. We don’t believe each individual adviser will require their own AFSL; this would create a two tiered licensing regime with one set of rules for advisers and a separate set of rules for the rest of the financial services industry. It would also place ASIC’s licensing department under immense pressure. I note some commentators are conflating individual adviser licensing with individual adviser registration. We believe that the latter, coupled with a robust and properly resourced disciplinary body, will go a long way toward solving the problems identified by ASIC and the RC. There is unlikely to be any additional benefit in moving to an individual adviser licensing regime.



PAUL HEATH Koda Capital / chief executive

I don’t think advisers are going to be able to completely outsource investment decisions to a third party in the future, they will need to have a much deeper engagement with portfolio construction, individual strategies and the funds managers themselves. It will be important for advisers to be able to articulate the connection to the portfolio and the desired outcomes, thereby demonstrating the value add of their investment advice. The trend towards a cookie cutter, one size fits all approach like SMAs and managed accounts might create efficiency for advisers and their practices, but I believe these structures drive gaps between what the client is seeking and what the adviser is delivering. The big trend in the industry at the moment to build systems to make advice businesses more efficient I believe is pushing advisers further away from what client wants. Further, clients will only pay for alpha. The fee for delivering beta will be in the single digit basis points. A full advice fee needs to consider and deliver on the niche and idiosyncratic needs of individual investors. A lot of advisers are charging full advice fees for beta but that practice won’t last. No longer will advisers keep product margins, it will be the adviser negotiating hard for fees and performance, for the client, against the investment manager.

DOMINIC MCCORMICK DPM Financial Services / founder

Managed accounts are obviously where the biggest change has happened in advice recently around investment implementation. An area that’s had less attention is investing purely via listed vehicles, which some advisers do and it’s where I think advice practices are looking when they’re navigating issues relating to selling in-house product and also keeping transaction costs low and moving off from traditional wrap and master trust platforms. By listed vehicles I’m referring to funds listed on stock exchanges including Listed Investment Companies, listed hybrids, active ETFs and the like. I know of some advice practices using an administrator like Class and a broker and build out their research function with an investment committee. Whether or not you can do that in a scalable way is a big question and certainly at the moment the technology solutions aren’t there but if technology can evolve to enable advisers to create a more tailored approach to constructing listed portfolios I think the advice model could be pushed in that direction.