This year will see “fewer foreign raiders” – being overseas tech providers – coming into the market, according to a prediction from Finura Group.
The wealth tech consultant is releasing its annual set of predictions for the year, and despite expectations advice business are ripe for overseas capital investment, this may not be the case for tech providers.
Finura joint managing director Peter Worn tells Professional Planner foreign tech providers see Australia’s large asset pool and growth rate as an easy market to penetrate, but the nuances of our superannuation system and dwindling adviser numbers complicate matters.
“It doesn’t take long to dig deeper and look at thematic of shrinking adviser numbers and the tech market is dominated by one or two key players,” Worn says, alluding to the further reduction of adviser numbers over the past year.
He adds the power the platform providers have in Australia is underestimated because it’s not the same way the UK and US industry develops business relationships.
“Platforms are significant players; they own adviser relationships and that’s a little different in the UK – it tends to be the tech providers that have more influence,” Worn says.
Worn adds the US and UK has less of an “oligopoly-style” market which is dominated by fewer key players which is the case in Australia.
“In Australia it’s a tougher nut to crack,” Worn says. “They always underestimate the level of effort to localize their solutions for our very complicated regulatory and technical regime with superannuation.”
Tech and business
Last year, Finura predicted the “bloated” tech market was ripe for a correction which the firm concedes only partly coming true but 2023 will place further stress on those trying to break into the industry.
“We’ve continued to be inundated with new technology and providers coming into the market despite the fact that adviser numbers have dramatically reduced,” Worn says.
“The reality is the total addressable market in terms of financial advisers has been shrinking quite quickly.”
This year Worn expects the financial services sector will find it tough to raise capital and access capital, although he notes this broader trend across all business sectors.
“The strongest business opportunities are getting funded right now, that’s the reality,” Worn says.
However, one area of tech that will be in greater demand is the use of client portals, with data supplied from Finura showing less than 45 per cent of clients currently have access to a portal.
The topic will be discussed during a session at the Professional Planner Advice Practitioner Summit with cybersecurity issues having gained prominence in industry discourse last year with emails viewed as an inferior and unsafe way to conduct confidential client communication.
“The use of secure client portals is a very logical strategy to solve the cyber security challenges facing advice businesses right now,” Worn says.
“This technology has been around for years, but with advisers the adoption cycle is protracted. It takes time for it to become mainstream.”
Digital advice
Last year, Finura predicted the take up of digital advice would accelerate, but apart from rare cases like Insignia’s acquisition of an Israeli-based digital advice firm, it didn’t come to fruition.
“For a lot of companies technology development slowed down due to lack of people capability and with the Quality of Advice Review underway a lot of people have been sitting on the fence,” Worn says.
“Rather than building their solutions from the ground up they’re more likely to see strategic partnerships and partner with existing companies that are in the space rather than build something from scratch.”
While digital advice didn’t catch on as expected last year, this year Worn says all the major super funds are assessing their advice strategies.
“They have the growing challenge of huge member numbers, more members transitioning into retirement in the next five to 10 years than ever before, and the obligations under the Retirement Income Covenant to have an advice strategy for retiring members.”
Worn adds the funds understand the reality of their not being enough human advisers in the market to mee that demand which means investing digital services.
“They’ve been toying with these things through tools and calculators and other ideas, but those converging factors are going to push those super funds and product manufacturers into this space,” he says.
“The retail providers are a little different because their challenge is shrinking adviser numbers; it’s a distribution challenge. They will see digital advice providers as potential new channels to supplement the losses they’ve experienced.”
