The increased level of knowledge of our clients has changed the way financial planners operate in today’s environment.
Information is now so freely available that we have seen the evolution of a new class of investor. Retirees, who for whatever reason be it boredom or a genuine interest, have decided that their new hobby is to become an investment/fund manager and take control of their own wealth management programs.
But it’s not just the retirees! Young people today are taking far more interest in their wealth creation and as such are exploring investment opportunities to a far greater level than generations before them.
Fortunately many of these ‘self-directed investors’ still seek advice and in most cases are self-directed with the guidance of their trusted adviser. However they have forced financial planners to rethink the way they do business. No longer is it acceptable to offer up a platter of managed funds diversified by fund manager and/or asset class.
Today, planners and advisers working in the high net worth (HNW) end of the business have Separately or Individually Managed Accounts (SMA/IMA) and Managed Discretionary Accounts (MDA). We use wrap accounts or administration firms, custodians and specialist software for management and reporting.
We deal with direct property, follow the Aussie dollar, have become SMSF specialists and advise on lending including Limited Recourse Borrowing Arrangements (LRBA) within SMSFs.
Our sophisticated and self directed investors demand bespoke advice. In fact even our non-sophisticated investors, being far more knowledgeable themselves are also requiring more informed strategy and investments.
With the change to fee-based remuneration, financial planners have been able to realign their practices to focus on strategy and holistic advice rather than product-based outcomes. The combination of this plus better informed clients has allowed and driven financial planning to evolve to a much higher level, which has proven positive for both clients and the industry.
Unfortunately what has been good for the clients and advisers has created a bit of a concern for some dealer groups. Where once dealer groups were remunerated via a percentage split of a planners investment fees and/or commissions, many planners have channeled their earnings away from these areas.
A highly personalised, holistic strategy that might include setting up a SMSF, investing in direct property, maybe some borrowings and setting up a direct share portfolio, might be pushing the boundaries of what some dealer groups allow. Typically the larger the dealer group, the more restrictive compliance needs to be and rightly so.
Certainly some of the larger dealer groups have categorised their advisers into different levels and allow the higher-level advisers to have more freedoms, however there are often still restrictions and this does not help the advisers who in the past might not have been the top performers. Alternatively they have acquired or set up smaller dealer groups under their banner.
Interestingly, what has been a concern for the larger dealer groups has seen a rise in the boutique dealer groups who have a specific mandate to operate in the HNW and bespoke advice space. These dealer groups are structured to give flexibility to advisers who find the larger groups too restrictive.
Certainly compliance is still very much an issue, however as a small boutique the dealer can have control over compliance without restricting the advice or product offerings (within reasonable boundaries).
The downside is that smaller boutique dealers don’t have the resources of the large dealer groups and if you’re looking for high-level support mechanisms and marketing assistance then maybe a boutique is not for you. Certainly don’t expect offshore conferences in exotic locations.
The key is to be aware that there are options and one of those options may be a better fit for your business.
No doubt the large dealer groups provide the service that is needed by the majority of the financial planning industry, including many HNW advisers giving personalised, holistic advice. However for a small group of advisers, looking for something that is as close as you can get to having your own license, without actually having it, a boutique may be your answer.
David is the founder and principal at SIRA Group. He has twenty five years’ experience in the financial services industry, and is an expert in tax and superannuation strategies.
