When you think of the impact of COVID-19, it has become clearer than ever that quality financial advice is an essential component of surviving now, and financially thriving post COVID19.
A recent conversation with the FPA’s Dante De Gori reminded us that advisers are frontline workers - as essential as the medical professional to see Australians through the pandemic in the best possible shape.
It is, however, a double edged sword for advisers when looking at potential growth of your client base over the coming 12 months. Many people will now realise they need advice. Some will go to their super fund, and engage with their resources, and others will seek out an independent financial adviser to help navigate their financial future.
It is commonly known that for an adviser, to open a new client file can cost them anywhere between $3,000 to $11,000 - depending on the level of advice needed. This cost is one that must be absorbed into the profitability numbers for the firm, for the financial year. Which means that in many cases, advisers taking on new clients may mean never fully recouping the cost of taking on the new client - or at least not catch up numbers wise for a couple of years.
This is a tough situation for an adviser to be in. While a super fund may well absorb the cost of opening the file on a client, an independent adviser will find it much harder from a profit perspective. Taking on too many new clients costs which are not going to be recouped for a number of years can hurt the viability of the practice. It means, of course, that only clients that can pay larger fees will be able to be advised, in order for an adviser’s business to survive.
What a dilemma to be in. Most advisers I know are genuinely there to help people. And the last thing advisers want to do is turn people away, because they are not going to be profitable. So how does this system become fairer so that more people can access quality advice,and advisers can run profitable and successful practices?
In an earlier 2020 survey, advisers told us that the rising cost of business was the number one thing they were worried about for the year - and that was before the pandemic hit. Taking on a fresh new set of costs for new business may be the last thing an adviser wants to do in this environment.
I would be interested to hear from advisers about how you are faring. Are you taking on many new clients? Are the opening costs as high as it has been suggested?
Let us know by telling us your feedback here.
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