Wealth management fee structures will continue shifting away from percentage-based funds-under-management models to fees-for-service arrangements, according to the managing director of listed financial services provider Clearview’s, Simon Swanson.
During a candid presentation at the group’s annual roadshow in Sydney this morning – where he eschewed the dais and microphone in favour of pacing amongst the crowd – Swanson called fee-for-service models “the new normal”.
Swanson cited figures from researcher Investment Trends and said that while the proportion of fee-for-service models is “obviously getting a lot bigger”, asset-based fees are “shrinking” and hourly basis rates “have actually gone nowhere for the last 10 or 12 years”. The data showed that fee-for-service arrangements have steadily increased from 14 per cent in 2010 to 28 per cent in 2015 and 37 per cent in 2019. Investment Trends predict 53 per cent of advice will be fee-for-service by 2022.
“You can see fee-for-service on a fixed basis is where it seems to be all going,” he said.
The comments come a week after the government released draft legislation proposing annual opt-ins for service renewals and ‘lack of independence’ disclosure for advisers, with both Bills putting further pressure on advisers to adopt conflict-free remuneration.
Clearview provides insurance, financial planning and investment management services and was the 16th largest licensee owner in the country in Professional Planner‘s 2019 licencee list, with just over 200 advisers spread across its Clearview Financial Advice and Matrix Planning Solutions brands
While they face what Swanson called a “wall of regulation coming down the line”, Swanson reckons there will be a flood of opportunities for advisers as the workforce shrinks from a peak of 30,000 to “20,000, maybe a little bit less”.
“Your phone, ladies and gentlemen, is about to take off,” he said. “As of today, 41 per cent of people want to get financial advice and 25 per cent want it in the next year, which is fantastic. There are only about 11 million adults in Australia so that gives you about five million people to talk to. So good luck, knock yourselves out.”
Swanson drew on figures from the corporate regulator to show the issues that Australians seeking financial advice are looking for, which was topped by Investments, followed by retirement income planning and ‘growing your superannuation’.
Other pressing areas included budgeting and cash flow management, aged care planning, risk protection and self-managed superannuation funds.
The market for advice will widen, he said, but the costs burden will increase as the 2021 banning on grandfathered commissions squeezes revenue. Advisers will lose 20 per cent of their income after the ban, Swanson predicted – Coredata put the figure at 12.5 per cent – but the real cost increase will be seen in licensing.
“The dealer groups actually get totally shafted through this process, because they have also been living off these rebates and that’s been the difference between profit and loss,” he explained. “So the dealer groups are now increasing their fees.”