Small providers in the advice technology space are set to merge or fall by the wayside in the year ahead, with industry dynamic likely to marginalise niche players that don’t have a decent foothold in the market.
As heightened education standards, the Royal Commission and regulatory pressures have cut a swathe through the advice industry, the addressable market has shrunk 30 per cent to below 18,000 licensed advisers.
While the the investment platform space has posted significant growth driven by contemporary players like Netwealth and HUB24, and the digital advice space gained traction through outfits like SixPark and MapMyPlan, small players of advice customer relationship management system tools have found themselves competing on increasingly tougher terms.
According to Pete Worn, joint managing director at advice technology consultancy Finura Group, the pressure on these providers will reach a tipping point over the next 12 months.
“I think there will only end up being two or three big players left in the market,” Worn tells Professional Planner.
The annual market for the broad suite of CRM tools used by Australian advisers is around $100 million, Worn estimates. “That’s not a very big vertical compared to accounting, which is about ten times that.”
Dominant providers Iress and global powerhouse Salesforce taking the largest slices. The next tier, which includes names like Advice Intelligence, Plutosoft, Worksorted, Practifi, Asendium and Midwinter is left to fight for the rest.
“Adviser numbers have shrunk so much over the last five years that if you were writing a business case for a CRM provider I don’t think you could call Australia an addressable market,” Worn says.
In Finura’s ‘2022 Tech Predictions’ – an annual set of five forecasts for the year ahead in wealth technology – the “Reality of too much advice tech sets in” is posted at number three.
“It is difficult to see how these firms can ride through this trough in our industry without very patient backing,” Worn says, noting that the “plethora” of digital fact finding providers will also likely consolidate in the year ahead. “There are too many of them.”
Recent entrants to the CRM market will struggle to challenge the incumbents, Worn reckons, because advisers tend to stick with the software platforms they know. Some CRMs offer unique value propositions that could either help them survive or make them attractive for potential sale, he adds, but those on the fringe will be the first to go.
The UN of niche market technology
According to Scott Miller, niche wealth-tech providers are already coming up with innovative ways keep their enterprise sustainable.
In 2019 Miller co-founded Asendium, a software company that focuses on the fact find through to statement of advice production aspect of client management. As part of its plan for sustainability and growth, Miller says the company is partnering with other niche wealth-tech providers to develop each other’s offering.
For example, he explains, Asendium is looking at working with fact find provider ifactfind – but on a basis that goes beyond the traditional integration partnership.
“It’s further than data transfer, it’s about quality enhancement,” he says. “We’re looking to establish close-knit relationships with other niche providers in the market. Think of it like the UN of niche market technology for wealth.”
Smaller players banding together to strengthen each other’s proposition, rather than sell or merge, is one way to stay alive. But while he ackowledges the market dynamic Worn speaks of, Miller also believes there is a burgeoning cohort of advisers that remain willing to veer from the incumbents and bring new tech into their operations.
“There are really two realms in the CRM market,” he explains. “Those focussed on licensees and those focussed on [independant advisers]. The licensees will usually choose a core of Xplan or similar, while the advisers might take a more flexible approach to a niche provider they think is potentially more effective. So there are planners willing to use it, and even on the licensee side they’re becoming more willing to open up their network.”