Investment Trends' Recep Peker

As advisers deal with client portfolios shaken by market shocks and massive disruption to the way they work, it should be a fait accompli that the COVID-19 crisis is by far the biggest challenge facing the industry in 2020.

Research from Investment Trends, however, paints a different picture, with compliance still rated the main business challenge for advisers.

According to an ongoing study by the researcher, 59 per cent of planners cited ‘Disruption from COVID-19’ as one of the main business challenges they are dealing with. This was second to the ‘compliance burden’, which was cited by 68 per cent of advisers.

Professional Planner has partnered Investment Trends to better understand in real time the challenges and opportunities advisers are facing during this crisis period and beyond. To be part of this project please fill out this quick survey here.   

“The compliance burden has been one of the top things that advisers have been calling a challenge since the Future of Financial Advice reforms were announced,” explains Investment Trends Research Director Recep Peker. “It’s been continually top of mind for advisers over the years since 2014.”

The real issue with this data, Peker says, is what the compliance concern means for advisers.

“Fifty-five per cent of financial planners say the key challenge for them is providing affordable advice to those who need it,” he explains. “Advisers recognise that a lot of people need financial advice – late last year there were 2 million people looking for it – but there are cost and restrictions so they are not able to service the clients they want to.”

Investment Trends has been tracking how financial planners are adapting to the post-COVID-19 environment and will join forces with Professional Planner for an extensive study on advice business continuity and how the industry is coping with extraordinary levels of change.

Regulatory reactions

Earlier this week ASIC took a step towards easing the compliance burden by allowing advisers to provide limited advice on early access to superannuation without statements of advice, as long as the client is charged less than $300.

While broadly welcomed by industry, the changes are problematic for advisers concerned about the viability of providing compliant advice for roughly an hour’s pay. According to Investment Trends providing scaled advice takes between three and four hours.

The costing issue is not a new one to advisers, Peker says, with the compliance burden making some parts of the advice delivery process less than profitable.

“Historically financial advisers only break even on the upfront fee and make their margin on the ongoing charges,” he says. “Last year, however, and for the first time since we started covering this, instead of breaking even planners lost an average of $500 on the upfront part.”

If the upfront cost of advice isn’t profitable, it’s reduced to being a loss leader for advice businesses that rely on the ongoing piece. As Peker notes, however, compliance pressure applies to both ends of the remuneration structure.

“Because the cost of providing the ongoing advice is going up as well the margin advisers make from that ongoing relationship is also compressed,” he says.

“For most financial planners client retention then becomes critical from a margin perspective,” Peker adds. “Every client you retain… that’s where the revenue comes into your pocket.”

Technology cavalry

Part of the reason the compliance burden is still rating higher than COVID-19 in terms of disruption is that advisers have seemingly latched onto technologies like Zoom to maintain their businesses.

While advicetech and regtech solutions have not done enough to ease the compliance burden  so far, Peker says the industry has been successful in leveraging technology to adapt to the current crisis environment.

“The great thing for financial planners is that 60 per cent say they were prepared for the disruption from a technical and internal operations perspective,” he says. “Thirty-nine per cent of advisers said they were unprepared but they’re adapting, while only 1 per cent reported that it’s causing major disruptions. That reflects the technology that advisers have been putting in place to become more efficient.”

Three quarters of advice principals now say that every single member of staff can work from home, Peker says, and 97 per cent of advisers are still holding client meetings.

“At the end of March 83 per cent of advisers said they were conducting all meetings online,” he says. “From a client servicing perspective, many advisers are not allowing the virus to get in the way.”

Responses to this survey will be used as a basis for future articles and research in this publication.

2 comments on “COVID-19 the second biggest challenge for advisers in 2020”
    David Phillips

    Technology is surely the answer for advisors to supply affordable advice and not fall foul of the regulators. Dynamic cash flow modelling technology incorporating goals and all finances gives full client reports and assessment prior to first meeting and shows any deleterious effects of any advice decision.

    Jeremy Wright

    There is a very clear message from this article.
    Technology is the enabler to allow advice practices to quickly and efficiently look after clients needs.
    In actual fact, technology allows advice practices to ramp up their client numbers in a cost effective way.
    What stops this from happening dead in it’s tracks, is compliance.

    Regulators and the compliance regime we live under, do NOT work in a time and cost efficient manner, that enables advice practices to be able to build efficiencies and growth, while still providing great advice.
    Current regulatory requirements have been misinterpreted and in actual fact, fail the Best Interest Duty, by turning advice into a maze of complexity that sucks the life out of advise Businesses and takes what has always been a relationship Business model, into a compliance monster that drives Business away by making it too expensive for most Australians to attain.

    Every adviser cannot be wrong when they say the current compliance regime is killing off any incentive to grow their client base and is in actual fact, for most practices, a loss for the practice on most new clients when they commence.

    Clear, concise, easy to understand regulation that enables all parties to work together, in a profitable manner, that still protects consumers, is the only way forward.
    Today, we have the exact opposite.

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