Alexis George (left), Colin Tate and Renato Mota

The industry still values products over advice and the focus must be on having the client paying for the service rather than product according to heads of the two largest advice groups in the country, AMP and Insignia Financial.

Speaking at the Professional Planner Licensee Summit in Katoomba, Insignia chief executive Renato Mota said the industry needs a foundation where it’s economically viable to invest and innovate in advice.

“The industry still values products and continues to give away advice for free. Our view is that the value is all in advice. When a client walks into someone’s office they want some advice; they very rarely ask for products.”

AMP CEO Alexis George echoed the comment and said the industry has to be centered around advice as a professional service.

“The client has to pay for the advice and we should not go back to acting like a seller of product again,” she said.

Mota said the industry needed to build relationships that are built around cashflow, budgeting, awareness and knowledge.

Renato Mota

“We have an advice industry with a large moat around it. Our job is to bring down some drawbridges around that moat that allow people to opt in and out of advice and have a series of other services around it that are right for them at the right point in time.”

Mota said the industry is “tying itself in knots” over the issue of vertical integration, and the measure of success should be client outcomes.

“If the client is getting a great outcome… then I’m not sure there should be an argument around that.”

Sobering numbers

Alexis George

As AMP transitions away from a product selling business model the downside is the reality that being a licensee has been unprofitable.

At AMP’s AGM last month, George attributed this reality to the current regulatory environment. The advice business is projected for another loss in the next financial year.

At the summit, George said it was a “big decision” to disclose the profitability of the individual businesses after the wealth management arm had a loss of $146 million in its FY21 results.

“I’m not hiding from it, $150 million is a sobering number. We [disclosed those numbers] because we believe that different elements of our business need to stand on their own two feet.”

George conceded vertical integration has a “bad connotation” now but having advice in the company was important.

“I’m a fundamental believer in the benefits of advice. Together with Matt [Lawler, AMP Advice CEO] we are really moving forward to create a modern financial advice licensee that charges for the services it’s providing, that brings new people into the industry because my goodness we need new people in the industry.”

Lawler had previously described AMP’s model as being in verticals but not vertically integrated with the distinction being every element of the business is sustainable.

Scaling the summit

Both heads of the two largest licensee groups expressed apprehension about scale being considered a catch-all solution for the industry.

George said scale no longer comes from how many advisers or funds under management you can fit under one roof.

“Technology has changed the world we operate in and brings scale to practices in different way. You can have $5 billion [under management] and have no scale. We have to be careful about the word scale.”

Mota argued Australia’s market is half the size of California so it was important to recognise the breadth of what the industry can support.

“When some describe the Australia economy it’s four banks, two supermarkets, an airline, a telecommunications company and a couple of quarries. It tends to be highly concentrated.”

There’s a very large difference between advice businesses and licensee businesses, Mota continued, and the economics of the two are drastically different.

“We have had an industry built around the licensee model that has been heavily subsidised. If we want to remove those subsidies – which in our case we certainly do – that means there has to be a new model that emerges out of that.”

3 comments on “Industry values products and gives advice for free: Mota”
  1. Avatar
    Stuart Holdsworth

    Some big issues here, and clearly for long term sustainability both licensee and adviser businesses and those who work in them have to find a new sustainable normal. Ultimately this comes down to the value that the customers see and in a world of new technology based offers on the web, this means value relative to alternative sources. The industry is moving from a price making environment to a price taking environment and as consumers become increasingly aware of low cost investing solutions (ETFs etc), then the value proposition for advice based investing is perhaps less around performance, but more about caring for the client which ultimately means personalised servicing, taking into account what’s unique about them. The real question for this unprofitable businesses is what is the long term sustainable customer value proposition and how can it be delivered at scale. With margins compressing on platforms and products, these can no longer subsidise advice, and so it has to be about value in the eyes of the customer. With technology advancing at such a rapid rate, key to this formula will inevitably involve technology, but it has to be technology built around each and every customer, not products.

  2. Avatar
    Jeremy Wright

    The arguments put forward are true for holistic Financial Planning, except for one of the most important parts of the advice chain, which is risk advice.

    The advice around types, structure, amounts and the purpose of Life, TPD, Income Protection and Trauma Insurance is crucial to enable clients to properly put in place their appropriate covers to meet their needs.

    However, advice without the product is a waste of time and all the knowledge in the world, will not help you when you are no longer able to generate income to pay down debt and all the costs associated with living in Australia.

    The Insurance product is the only thing that pays cash to protect people, not words with lots of meaning, though nothing to back it up.

    Australians have made it clear that they will not pay a fraction of what it costs to provide risk advice, which leaves the only viable Business model that will work, is to include commission on the end product recommended and implemented.

    This leads me back to the ONLY viable solution to fix the disaster that has occurred with the Life Insurance Advice Industry, which is to separate risk advice from Investment advice and have risk as it’s own specialist field, so risk advice is not continually dragged into unworkable and totally unviable Regulatory imposts that has now decimated the specialist risk Adviser Industry.

    This MUST be the number one priority.

    Financial Planners are confident about their futures, though most of them have scaled back risk advice as it is currently too hard.

    Risk Advisers are struggling and need help to rebuild.

    That will not happen with the current maze.

  3. Avatar
    Wayne Leggett

    It is factually incorrect to say that the “industry” is focussed on product. Smart advisers recognised YEARS ago that the value lay in the advice, NOT the product and that is precisely what those advisers have been “selling” to their clients. We’ve just been waiting for the product providers to catch up!

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