The only advice model that works for advisers now and in the future is an active advice model, where advisers are more engaged and embedded into the financial lives of their clients according to Encore Advisory managing director Tom Reddacliff.
Speaking on the Advice Evolution in 2021 webinar with Consultancy Evergreen’s Angela Ashton, Reddacliff explained how the regulatory push for ‘active advice’ will become an all-pervasive trend at the advice practice level this year.
“Active is the only viable business model,” Reddacliff said. “That’s become far, far more obvious in recent times with the abolition of grandfathering that’s just occurred.”
The abolition of grandfathered commissions previously carved out of the Future of Financial Advice reforms is a key plank of that regulatory push, he said, but equally important will be the incoming change from biennial to to annual opt-ins.
“It’s also the current rules that are before parliament around opt-ins, he said. “All of the trends have been moving towards – If you don’t have active an active, valuable relationship then that form of revenue is dead in the water.”
The trend is becoming “very much reflected” in valuations, he said.
“A revenue book where a buyer is concerned about future 12 month opt-in is being discounted to a two or below revenue multiple,” Reddacliff explained. “Whereas a good quality active valuable, engaged revenue stream that you can prove is holding up is going to be somewhere in the high twos. So there’s a big difference is valuation between those, the active advice model is the only model in town.”
The adviser cohort will eventually slim down to about 15,000 by 2023, the consultant says, and the twin forces of declining numbers and increased demand will eventually put a fair amount of wind back in the sales of advice businesses. ” There’s every reason to be optimistic that there’s some greener pastures ahead,” he added.