Peter Worn (left) and Danni Le Grande

After years of discounts and alternative arrangements in a fragmented advice market, wealth management consultancy Finura Group predicts a “significant pricing reset” from advice tech providers over the next 24 months.

Releasing its annual wealth tech predictions, the group expects a shift in product distribution strategy.

“A fragmented advice market has given rise to substantial discounting and reseller arrangements between software companies, licensees and IFA [independent financial adviser] ‘communities’,” the 2024 ‘Australian Wealth Tech Predictions’ report said.

“These make little commercial sense. Discounts are now expected rather than earned. Due to the reduced market for advice tech, software development costs have significantly increased. Therefore, to meet the expectations of improved product experience, such as utilising AI, companies will have to allocate more resources towards R&D [research and development] spending.”

In a webcast hosted by the firm on Monday, Finura joint managing director Peter Worn said it’s taken time for software companies to learn how to sell to a changing market that is dominated by a few large-scale players.

“Particularly for businesses that have a lot of history and heritage and potentially used to sell a lot to the banks, they’re finding themselves selling to independent financial advisers which is a very different proposition,” Worn said.

Worn said there’s a perception that software is linked to high profit margins – which he adds is true to an extent – but the current reality in the advice space is the opposite.

“When you’re selling software into a complex market and with users that require a lot of support… those margins simply aren’t there and we can see that reflected in a lot of earnings calls from companies like Iress and others,” Worn said.

“We think it’s going to be difficult for licensees of medium size and smaller to negotiate an aggressive discount in the market because those margins just aren’t there. No one wins in the sector if the software companies aren’t making much money because there’s no money there for research and development.”

A new wash