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Is there a future for financial advisers?

There were 2 major reports released for the future of financial advisers this week (June 5, 2021) – Australian Financial Advisers Well Being Report produced by e-Lab with Dr Adam Fraser and Dr John Molineux, the 2020 Australian Financial Advice Landscape by Angus Woods at Adviser Ratings.

These reports absolutely confirmed what every financial adviser in Australia already knows. Our industry is in the middle of one almighty shake-up which many won’t survive. There was plenty of gloomy news -

  • 67% of financial advisers in Australia are experience some level of depression.

  • 77% experience high levels of frustration in their role.

  • According to Adviser Ratings there were near 28,000 advisers in Australia in 2018. These numbers have been in steady decline. They predict that by 2023 the number will be just over 13,000. Less than half in 5 years.

  • Many practices in Australia remain challenged by rising costs (average 10%), regulatory red tape and administration, complexity and process inefficiencies.

HOWEVER, as Angus Woods explains in the 2020 Australian Financial Advice Landscape report

“The good news is that we are seeing plenty of examples of practices that are thriving, having redesigned their business and value proposition. This will serve to meet the needs of the new clients that will be looking for financial help – demand for advice is as strong as it’s ever been and across every age group.”

In our own businesses across The Wealth Network some of the massive changes bought about over recent years which have substantially increased our profitability are:

  • A change in rental circumstances. Covid almost did away with the need for fancy offices and meeting rooms. We are managing really well with client meetings via zoom and have downsized our office spaces leading to massive savings.

  • Successfully off-shoring our support team. Our staff expenses have lessened, our productivity has increased. Our staff are now more specialised and efficient.

  • Lower marketing costs. Although our marketing budgets have not changed, use of social media and amplified content strategies have enabled us to reach a far wider, yet a more targeted market than in years gone by. Basically our marketing dollar is being driver further and getting better results.

  • Our management process, run by a system of measurement, has introduced efficiency and discipline in getting problems solved and projects over the line.

  • A focus on creating an exceptional client experience has led to a steady stream of referrals.

Notwithstanding the current headwinds, I am an eternal optimist and a staunch believer that financial advisers can absolutely thrive in today’s market. I also think there are unique opportunities, particularly for start up businesses who have the chance to get their offering, their technology and their procedures right from the outset. So, I went looking for the silver linings in these reports. And here’s the good news.

Market Opportunities

(Research by Adviser Ratings – 2020 Australian Financial Advice Landscape )

  • Trust in advisers has doubled, emphasising the impact good advice can have on all Australians

  • There are more clients and fewer advisers. Whilst demand picked up in 2020, the supply of advisers to meet this demand is falling. Which means more business opportunities.

  • With greater exposure to the benefits of superannuation than previous generations, the younger demographic is displaying a willingness to seek financial advice, which is a good indicator for the longevity of the advice profession.

  • The impact the pandemic has had on the psyche of Australians and their money management bodes well for the wealth management and financial planning industry. It has led to a noticeable increase in demand for advice. Many Australians have realised that job security is not guaranteed, whilst others have had the opportunity to re-evaluate their financial positions.

  • 40% of Australians can afford advice but only 11.2% receive it. 30% of unadvised Australians have indicated they think they will require the services.

  • The median ongoing client fee increased by 16% from $2,800 to $3,256.

  • Funds under advice (FUA) per client rose 13% in the last 12 months.

  • A survey of more than 3,000 Australians (Jan 2021) found that advised consumers rate themselves as comparatively far more financially literate than unadvised Australians, across all age groups and demographic types. This reflects the psychological value that advisers bring to their clients in the form of confidence and literacy.

  • We have entered the greatest transfer of wealth in the history of our country. Over $3.9 trillion will be transferred over the next 20 years, primarily from baby boomers to Generation X & Y family members. That estimate is rising by 7% p.a.

How are the best businesses staying on top and thriving?

  • Research by Virtual Business Partners confirms that advisers who spend more time on new client meetings and business development are more likely make higher incomes. Advisers are still spending too much of their time on general administration and plan preparation (39%), compared with only 10% on new client meetings and 13% on business development. Solving this problem with the help of outsourcing administration and plan preparation to others can free an adviser’s time for revenue-generating activities, leading to uplift in revenue and client experience.

  • Businesses that have 30-40% EBIT/revenue margins control their fixed costs and leverage business partners well. They usually have tight discipline on their ideal client and capacity limits.

  • The 2020 Netwealth AdviceTech Report identifies that star firms representing 12% of the advice industry are leading the way in adopting technology to improve their businesses, improve client engagement, and deliver better advice.

  • According to the Australian Financial Advisers Well Being Report (May 2021), advisers who are on top in terms of mental health, psychological capital, innovation and work-life balance shared these characteristics.

1. They have Psychological Flexibility

Thrivers are able to separate themselves from those stories and emotions and focus on the constructive behaviour needed to achieve their goals and be aligned to their meaning and purpose. The advisers that are really struggling, get completely lost in that story and emotion. Because of that, it overwhelms them and controls their behaviour. The result is a high level of inaction or dysfunctional behaviours.

2. They Possess Psychological Capital

Thrivers have a greater skill set when it comes to dealing with challenge and setbacks.

3. Adaptive Performance

Thrivers can rapidly alter their behaviour to suit a rapidly changing environment. This also allowed them to score higher on innovation and acceptance of change.

4. They Prioritise Wellbeing.

The following are a list of the most common wellbeing behaviours they engaged in:

  • Physical activity.

  • Mindfulness and relaxation.

  • Turning off at the end of the day to be present and relaxed in family/personal time.

  • Debriefing and seeking support from others following stressful events.

  • Practicing relaxation regularly through engaging in some sort of hobby or passion.

  • In their workday they would take time to decompress and get over stressful situations.

5. They Leverage their time

Thrivers’ spend less time in administration (43% less) and far less on compliance activities (97% less) and thus were able to devote more time to client meetings (34% more), new business (83% more) and developing themselves and others.

6. They engage in industry support

Thrivers see the value in being an active in the adviser community. The benefits ranged from having someone to vent to, getting fresh insights into challenges they were facing and discussing ideas and different perspectives that drove innovation.

My aim, in the financial practices I own and work with is two-fold. Deliver a 35-40% profit margin and a lifestyle that is both enjoyable and sustainable for the owners.

We need to stay agile, be innovative, systematic and most importantly, we need to stay in touch with what the Australian public needs from us an industry.

If you are interested in our model of transforming and partnering with financial planning businesses to achieve these goals, you can start the journey by signing up for a free webinar or applying for our partnership program.

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