The pace of change in Australia’s financial advice industry shows no signs of abating. New legislation enforcing the Hayne Royal Commission recommendations will be introduced in the first half of next year – just one of a number of challenges facing financial advisers.
Preparing for change
Adviser Ratings forecasts the number of active financial advisers will fall dramatically from 21,500 in 2018 to 15,000 in 2024. Some of the many catalysts include the new education standards, post-Royal Commission changes and the abolishion of grandfathered commissions, which is expected to reduce adviser revenue. Changing client expectations and competition from new technologies are also major challenges.
Against this backdrop, the structure of the industry is also changing, with the wealth management arms of a number of major banks being separated out from their parent companies and consolidation amongst the major dealer groups. At the same time, the superannuation industry and the way financial advice is offered and administrated is undertaking its own transformation.
With so much change afoot, the advice industry in five years’ time will look significantly different, so it’s timely for funds to consider the best way forward.
From UniSuper’s perspective, we believe the current environment is ripe for funds to expand and invest in their advice models. And given the increasingly stringent training and compliance requirements for financial advisers, we believe superannuation funds will favour hiring their own in-house financial advisers over the potential risks of engaging third parties who may not be culturally aligned.
This is certainly a trend we are seeing play out within UniSuper and we have continued to increase adviser numbers, creating much-needed opportunities for both experienced professionals and new graduates to the industry.
Cost a perception to overcome
The adviser exodus in the industry will create a dilemma for those seeking advice. With Australia’s ageing population, Rice Warner predicts demand for advice will increase substantially in the coming years, to the point where one in seven people are likely to require regulated financial advice each year – as long as the price is right.
Cost has always been a major concern for both the advice industry and the clients it serves. As the regulatory and structural changes flow through the industry, the costs of operating a financial advice business continues to rise, which is pricing out lower-income clients and leading to a decline in the number of advisers in the market.
Rice Warner’s research shows many people are becoming increasingly unwilling, or unable, to pay for advice. This means the financial advice model will need to continue to evolve to respond to cost pressures and offer best-of-breed services.
Within this, superannuation funds have a major role to play, particularly in relation to member education and advice within super. While the industry knows the costs of intra-fund advice can be covered from within, the majority of members and those Australians who need accessible advice aren’t always aware of this benefit.
Changing approaches to service
Clearly, technology offers a cost-effective avenue for the delivery of financial advice. However, while much has been made of the ‘threat’ from digital or robo-advice services, a recent survey by ASIC found only 1 per cent of participants had used digital advice, although 19 per cent said they were open to it.
What we are seeing at UniSuper is a higher proportion of members who are open to mobile and remote adviser services such as video chat, which can be useful for clients seeking a superannuation projection, a quick conversation or a general catch-up.
Overwhelmingly though, the majority of our members are still seeking quality, face-to-face interactions, supported by technology. This is the case for both members with more complex needs and younger members, many of whom are seeking to build a deeper relationship which can grow and evolve over time as their situation changes.
At UniSuper, more than half of our initial advice discussions are occurring in person – a key reason for our investment in on-campus member centres. We now have a presence in over 80 locations across Australia. There is growing demand from time-poor members for accessibility to all their service providers, as and when they want/need. This approach has been well-received, with 20 per cent growth in on-campus centre interactions with members in the past two financial years.
With a significant portion of the population currently having unmet financial advice needs, we as an industry need to work to make advice more accessible.
As the broader industry undergoes transformation, it’s timely for funds to consider doing the same. Those that offer superior in-house, cost-effective and client-centric advice will be best placed; ultimately positioned to become the licensee of the future and best service their clients.