The ‘seven deadly sins’ holding back best practice

There are “seven deadly sins” financial advice practices are at risk of committing and the impact could see them fail to reach their growth potential.

Marshan Consulting director Ben Marshan, a former policy and advocacy manager at the Financial Planning Association, told the SMSF National Conference that although there are plenty of high-quality practices, there are still businesses struggling to adapt to change.

He highlighted these seven sins these firms are committing are lack of succession planning, reactive growth, technology resistance, poor process management, data management deficiencies, client communication breakdown, and platform and provider relationship management.

“There’s a lot of bad advice businesses out there and what they do is react to change,” Marshan said.

“They have no succession planning, or they have a vacuum within their business about who’s doing what. They’re resistant to changing technology, have poor process management, everything is manual and over the shop that it’s hard to find information for the client.”

Resisting technology is another “deadly sin” as more and more businesses turn to tech platforms to automate administrative tasks and integrate software to save time and costs.

Technology is a huge opportunity for advice businesses when it comes to being able to serve more clients. AI and other technological tools have forced businesses to change areas of their practice to introduce things like automation.

However, practices need to ensure they keep a close eye on the tech products they use to prevent falling into the trap of “system fragmentation” – where businesses stack up technological platforms leading to overcomplexity and inefficiencies.

Marshan said the best practices are contemplating about how they can use technology, including AI, to be more efficient.

The “sin” of data management deficiencies is intertwined with technology and how much the business has progressed in its usage of technology.

For many advice practices, there is a countless amount of low quality client data that does not get sorted by the practice which is frustrating for both the client and the adviser. If advice practices took the time to organise the data they have, the practice would improve upon its efficiency.

Beating regulatory upheaval

While the industry awaits guidance from the government on the future of the Statement of Advice, Marshan told advisers in the room there is already a justification based on the current legislation to streamline the content of SOAs.

The requirement to give an SOA – and what needs to be included in one – is governed by Section 947a, 947b, 947c and 947d of the Corporations Act.

“You have to have a statement setting out the advice, the information about the basis of the advice you’re providing, details on who provided the advice – that actually goes on the back cover – information about your remuneration, about any interests you have, and any warnings if required,” Marshan said, noting this wouldn’t require over 100 pages to articulate.

Instead, this can only create a breakdown in communication – another “sin” – which can lead to dissatisfaction and a strained relationship between client and adviser.

“What proportion of your clients have thanked you for providing them with a 120-page SOA that they get to sit down and read with passion and excitement, and they just go back to it day on day on day,” Marshan said.

Streamlining SOAs as much as possible is beneficial to both advisers and clients – advice practices are already looking at how to decrease the time it takes to produce an SOAs.

But outside of SOAs, Marshan mentioned poor process management – particularly poor compliance – as another “deadly sin”.

The last few years have seen the profession hit with a lot of regulatory changes and many practices have struggled to keep up with new rules and processes.

While advisers often feel aggrieved by the level of high-touch compliance required by their licensee, Marshan said those rules and processes are in place “for the worst planner that’s sitting in your license”.

“They try and put some protection around that so that worst planner in your license doesn’t do the wrong thing and ruin that for everybody else,” Marshan said.

The end justifies the means

Marshan said the firms that have improved their processes and incorporated growth plans are in a much better position and aren’t waiting for regulatory change to improve growth.

“They don’t want to sit where they are today. They don’t want to keep doing things the way they are today.”

Marshan said businesses are focused on what their future looks like and therefore how they can achieve the growth they want.

“They want to build businesses for the future, they want to grow their businesses. They want to increase profit. They want to increase shareholder value. They want to just improve.”

Noting the difference in the valuation between Entireti picking up the AMP licensee businesses for $10 million and AZ NGA picking up the equity in 16 practices for $80 million, Marshan noted the importance of the firms at the coal face of the advice process.

“There’s a reason that financial advice practices are now the most valuable part in the financial value chain at the moment,” Marshan said.

“It’s because that’s where the real relationship with the client happens. That’s where the most trust, most stickiness is with the relationship.”