A new report on the state of the advice market recommends Australian advice firms borrow strategy tips from the “significant success” of general insurance brokers and heed the lessons learnt from the US and UK advice sectors in recent years.
Released last week, the Future of Financial Advice: The Australian Renaissance report from management consultancy Oliver Wyman – the same group charged with helping AMP set up its ‘Culture Working Group’ after the exit of former chairman David Murray – says the current advice market disruption presents “an opportunity for rebuilding”, and provides a blueprint for advisers to realise this potential.
While acknowledging the differences across financial advice and general insurance, the report emphasizes the similarities between the sectors and the ways advisers can copy the success of brokers.
“The IFA equivalent in the general insurance sector, brokers, have experienced significant success as a distribution channel and, while there are regulatory differences across the sectors, can provide some helpful insights for the financial advice sector to consider,” the report states.
There are “contextual” differences between the industries, the paper notes, but a handful of “keys to success” for advisers to keep in mind including the trend to scale via consolidation, targeting client segments, investment in technology and extending across the value chain to provide additional services.
Angat Sandhu, a partner at Oliver Wyman and one of the report’s authors, argues that the growth of insurance broking sector and investment from private equity would indicate the success is worthy of note for advisers. “In an adjacent industry the same part of the value chain is quite successful,” he tells Professional Planner.
Sandhu says he’s very aware the comparison between financial advice and general insurance broking is a limited one.
“The caveat in this report is we are acutely conscious that whenever you do comparisons across sectors the read isn’t one to one,” he says.
There are obviously clear differences in the regulatory parameters between the sectors, he notes. The models are also increasingly polarised as advisers move further from the kind of commissions brokers depend on. Sandhu makes the point, however, that there is a level of independence in broking that makes the parallel plausible.
“They do get commissions which a lot of the advice sector is moving away from, [but] the brokers in the general insurance sector are independent and therefore not associated with any one manufacturer,” he says.
Lessons from abroad
The comparisons with the US and UK market also come with some qualification, given the difference in operating environments. Nevertheless, the authors believe there are lessons to take from.
Australia’s advice sector should continue to contract (an estimated ten to fifteen percent) before rebounding, with technology being a key factor in the recovery. “Similar to what has happened in the UK, scalable financial advice models will likely leverage digital technologies to improve the experience offered to customers while also reducing service costs and compliance burdens,” the report states.
While UK banks are starting to make what Sandhu calls a “very targeted” return to advice, Sandhu says it may take longer for Australian institutions.
“I would say we’re a long way from that,” he says. “The scars of the royal commission and the conduct challenges are still too fresh.”
From the US, the report suggests, the Australian advice sector can learn from consumers’ growing preference for registered investment advisers (RIAs) over commission-based intermediaries. “Regulatory changes and consumer demand for impartial advice will further catalyse the growth of Australia’s IFA sector,” it states.
State of flux
The broader wealth management market will remain in a “state of flux”, the Oliver Wyman report says, as regulatory reform, changing consumer demands and “evolving competitive dynamics” continue.
Looking ahead, the consultancy predicts advice models will shift towards tiered offerings and the rise of digital direct-to-consumer and hybrid models.
Private capital will also play an increasing role in the industry’s makeup, which should “help professionalise and uplift efficiency”.
Smaller tech start-ups will continue to disrupt the industry, the report adds, while industry funds will likely reassess their members needs, “particularly as those members age and have more complex needs”.