Advice firms have also been warned that technology and software costs will rise considerably in the coming financial year, likely to be well above inflation.
Speaking in a webinar, Finura Group joint managing director Peter Worn said firms should plan for relatively high wage increases too.
“If your software providers haven’t put up their fees yet, they will soon,” Worn said.
“Absolutely budget for price increases… 10 per cent across the board is probably the best ballpark of what I think you’ll spend this financial year ahead.”
Worn also lamented the push to offshore processes in a bid to fill capability gaps over the last five years, which he said could have been better dealt with by finding a technology solution.
“Technology is a growing expense for advice firms,” Worn said. “This is the first time I can remember Australia being in such a serious inflationary environment.”
The webinar, which set out to help financial advisers and licensees prepare for the next financial year, comes after Worn predicted earlier this year there would be a “pricing reset” for advice tech after more generous offers given out in the last few years.
Tangelo Advice Consulting director and principal consultant Conrad Travers urged advisers to have a single source of data for any client advice, and a single source of truth for internal policies and procedures.
“There’s no silver bullet,” Travers said.
“The days of buying tech from one guy are over, and firms have got to be smarter about how they integrate technology into existing technology and processes.”
The trio urged advice firms to ensure that company data and business processes are documented and stored in a central place. Rather than throwing money at tech, stepping back and looking at where a firm will achieve the greatest return on investment is critical.
Selin Ertac, another director and principal consultant at Tangelo, has seen lots of examples of advice firms underestimating the importance of centralising documentation, particularly in the event of questions arising from the regulator.
“A lot of firms we consult to at the moment don’t even have documented processes so that when regulatory change comes into play, it’s really hard to work backwards if you don’t know what you’re actually doing today,” Ertac said.
Worn added: “All too often, we see firms with some data on a laptop, other data in a Dropbox and some data saved in Teams. It’s really important to centralise this data from a governance and business continuity perspective.”
QAR fatigue
With the government having tabled Delivering Better Financial Outcomes legislation in March, advice firms are being warned to look for ways to stay ahead of the curve as the regulatory roadmap continues to be revealed.
The DBFO legislation is the by-product of the government’s Quality of Advice Review response, which has drawn criticism from the industry.
The trio said that while QAR fatigue is a real concern among advice firms, remaining vigilant by implementing changes incrementally as relevant legislative changes are rolled out remains critical.
Advice firms were also encouraged to start contemplating the impact of regulatory change and ensure process improvements aren’t being implemented in isolation. For example, advisers should start the process of simplifying their Statements of Advice now, Travers said.
“We’re seeing these 80-page monstrosities where we can’t even find the advice,” Travers said.
“Make the advice the hero, then explain why and what you’ve recommended. There’s no client out there that doesn’t’ want a simple summary that explains the advice, whether that’s via a video, a document the client can hold or Powerpoint; there’s a lot of flexibility in how you deliver that.”
AI washing
Australian financial advice firms were also warned to be on the lookout for ‘AI washing’, which has become more prevalent in the software space in the US in recent months, and also tipped by Worn at the start of the year to be a trend in 2024.
“This is a practice where technology companies are effectively claiming that their solutions use AI when US regulators have in fact found that they don’t,” Worn said.
“Companies are doing this to try and bump up their valuations, rather than providing a useful tool to users, which is one to watch.”
While AI implementations being rolled out by major software companies into the Australian market have been clunky, but hopefully there’s a more thoughtful approach ahead, he said.
