In my previous blog, I discussed why the financial advice industry is in trouble, how the consumer revolution is set to impact the industry and why financial advisers need to completely change their business models.
This generated a number of posts from readers who discussed the pros and cons of why the industry is in dire need of change. My point relates to fundamental change rather than incremental improvement. Paul Aspros is correct – we have all made improvements in efficiency and the way we deliver advice to clients over the last 10 to 20 years. The issue is, however, more fundamental than that.
If you look at the improvement in communication as a result of iPhones and their competitors compared to what a phone used to be able to do 10 years ago, we need a quantum improvement in the whole delivery system to our clients. The platforms on which we work are efficient at aggregating managed funds and now sometimes allow some share trading and term deposits on them, but they give us no line of sight at all over the client’s entire financial life (ie, a consolidated balance sheet incorporating all their assets and liabilities). Apart from that, the platforms are way too expensive and the whole notion of risk profiling and the asset allocation theories we have been using for years are clearly outdated and do not work. In the GFC, many moderately conservative investors still lost 30-40 per cent of their total assets.
Even more fundamentally, the biggest market in this country is the self-managed super fund market. Research shows that less than 20 per cent of the assets sitting inside self-managed super funds are advised on by our industry. Anecdotal evidence seems to show that there is more consumers leaving financial advisers than new clients coming to them for advice. Does this mean that there is something fundamentally wrong with our industry? I have no doubt that the negative comments by the industry funds and even our regulator – ASIC – have had significant impacts on that as well.
The future is not a replication of the past. Incremental improvements are not going to cut it. With significant change comes significant opportunity for those practices that are advice- and client-focused.
Ray Miles will be speaking along with 30 other industry experts at No More Practice Live on 9 August.
