One of the biggest threats facing Australian financial planning businesses is simple complacency, according to a co-founder and director of risk profiling business FinaMetrica, Paul Resnik.
FinaMetrica’s business operates in 23 countries and its risk profiling software has been translated into eight languages.
Resnik says the differences between financial planning businesses in the UK, the UK and Australia are stark.
In the US and UK, financial planning businesses whose value proposition is focused on investments are coming under increasing threat from the emergence of robo-advice. Resnik points to two websites, Betterment and Wealthfront, that he says show clearly that this ground is under threat.
“They’re very simple,” he says.
“What they do is deliver a personalised portfolio for single goals. And they do it at a fraction of the cost – one of them is 25 basis points for a professionally constructed portfolio, rebalanced, and with lots of academic rigour behind it.”
Reinvent
Resnik says investment-focused financial planning businesses have to reinvent what they do and embrace a more collaborative approach to dealing with clients, in which they can demonstrate the value that they add, and charge for it accordingly.
“Collaboration is the opposite of paternalism, which is ‘I am the expert, I give you my opinion, and I give you a solution’,” he says.
“But here’s the fundamental problem for most advisers: the clients they get are the ones that like that. They get reinforced in their own worlds that they walk on water. It’s very hard to break that self-awareness.
“Collaborative planning is when you get to more than one goal: say, retirement planning, and maybe a shorter-term goal, where there are trade-offs and you have to prioritise.”
Resnik says that in the US the rise of robo-advice is driven by competition, whereas in the UK it’s driven by regulation.
“In the UK, regulation comes along and says if you don’t show you love your client, we will [do] you over,” Resnik says.
“In the US, if I don’t do anything, the market will [do] me over.”
Suitability
In the UK the concept of financial product “suitability” means advisers have to spend far more time in discovery mode and working collaboratively with clients,” Resnik says. Either way, the impact on the traditional advice firm is basically the same.
But with neither a strong regulatory impulse nor a compelling competitive impetus, when robo-advice emerges in Australia in the near future investment-focused advice businesses will be ill-equipped to cope.
Resnik says there’s simply no appetite for mature advice businesses in Australia to re-engineer what they do.
“In Australia I can say, ‘I will be out [of the industry] before I get [done] over’,” he says.
“So there’s a high level of complacency.
“At its most vulgar, change hurts – and [advisers] don’t want to do it.”
