The advice profession needs to grow significantly and lift its productivity substantially to meet booming demand for financial advice as a wave of intergenerational wealth transfers begins to break.
CoreData Research founder Andrew Inwood told the 2024 Vanguard Adviser Roadshow in Sydney on Thursday morning that without productivity improvements Australia will likely need more than twice as many advisers as it currently has to service an estimated 1.7 million new clients.
Inwood said that as an unprecedented amount of wealth changes hands in coming years, without access to advice that transfer will be unplanned, chaotic, and most likely inefficient.
He said estimates of the true value of the wealth set to be transferred are necessarily rough, because much of it cannot be seen or measured. For example, wealth tied up in businesses, collectibles, art and home contents is almost impossible to accurately quantify; housing prices can be estimated at best.
Inwood said it is likely the total amount of wealth set to shift between generations is comfortably above the $3.5 trillion commonly suggested and the figure is probably closer to $4.9 trillion.
He said the size of the mass-affluent market for advice is about 11.2 million people. Right now, an estimated 12,150 fully active financial advisers each serve an average of 130 clients, collectively advising around 1.6 million clients. If only 30 per cent of the 11.2 million mass affluent individuals seek advice, that leaves 1.8 million potential clients for advice – implying the need for around 13,800 new advisers, which is more new advisers than there are current advisers.
Clearly, no adviser is going to enter the profession with 130 clients on day one, and Inwood said existing advisers need to increase productivity significantly to help address the advice gap.
Look to the UK for clues
He said the experience of advisers in the UK, where the market is about 10 years past its equivalent of the Hayne royal commission, suggests that significant increases in productivity are achievable.
Inwood said that even though the level of fee income per client is about the same in Australia and in the UK, advisers in the UK typically have a relationship with only one platform, whereas in Australia advisers use on average two or three.
UK firms tend to employ technology staff whereas in Australia tech relationships are typically outsourced; the digitisation of UK advice businesses is nearing its conclusion, whereas in Australia it is just starting; and in the UK the cost to serve client is falling whereas in Australia it continues to rise.
As a result, advisers in the UK serve an average of 228 clients each, and in Australia it’s only 144.
It is likely the clients of the future are the children of existing clients, Inwood said. Cultivating this group requires a different approach from how their parents have been served.
“Trust is layered, and it takes time,” he said.
“The trust you’ve built with the father and mother and the senior people isn’t naturally [transferred] to the younger people; in fact, there’s a judgement there and you have to get through that pretty quickly.
“The next generation is also much more likely to describe themselves through investment: what am I investing in? What’s it doing? How’s it going? You need to make sure that you can answer that question.”
Inwood said new advice models are also necessary and need to have a clear digital element. Younger clients are not interested in receiving letters, they want to see everything online and they want things turned around quickly.
He said an advice firm needs to build its value proposition, and to be very good at articulating it, before targeting these younger clients.
“Being able to answer the question really quickly [of] how much does it cost and what does it do is something you have to solve in that first meeting, because they’re seeking utility,” he said.
“Focusing on the tech stack is much more important than it has ever before been.”
Five things to improve business performance now
Inwood said there are five things that advisers can do now to improve the performance of their businesses to lift productivity and serve more clients.
“Number one is choosing the right partners,” Inwood said.
The second thing is a rigorous focus on process. “That’s what’s going to drive value inside your business,” Inwood said.
The third is that process and partnership removes the work.
“Every bit of research we’ve done on this drives up client satisfaction,” Inwood said.
“The more of you facing to the client, the higher client satisfaction goes. The less you’re doing busy work and operating the business, the more you can drive satisfaction your client and get good customers.”
The four point is good businesses have two income streams: one derived from the accumulators in their mid-stage and late-stage [life stages], and one which is derived from the high-net-worth individuals.
“You can add value at both those points, but it’s essentially different businesses,” Inwood said.
Finally, the fifth thing is to adopt systems and processes to improve business productivity.
“If you get a chance… open up Copilot, which is the Microsoft version of ChatGPT, which is really good and the easiest to use,” Inwood said.
“Get as many of the letters that you’ve ever written to your clients into one Word file, dump it into Copilot, and ask it to write you five engagement letters for clients. You’ll be shocked at the quality of work that comes out and be surprised at how good it is and what it can do for you.”