Financial Planning

Practice models of the future

04 December 2019

Jason Andriessen CFP®

Jason Andriessen CFP® is the managing director of CoreData.

CoreData has undertaken research to identify the characteristics of future-proof practice models. Here are three of them.

The financial planning industry is experiencing unprecedented upheaval as planners try to make meaning of chaos. Unfortunately, not every planner will survive and CoreData estimates that around 40 per cent of planners are currently in flux.

That said, the long-term outlook for those advice practices that survive is positive, as the wealthiest generation in history retires, grows old, and then passes on their money to the next generation.

And there’s more good news. CoreData has undertaken a research program to help identify the characteristics of future-proof practice models. This article introduces three of them: Specialists, Corporatised Firms and Platform-up Businesses.

A tale of two ship disasters

 Everyone knows what happened to the RMS Titanic. On a calm springtime evening in 1912, it steamed into the side of an iceberg in the North Atlantic and sank. It carried just 20 lifeboats, enough for 1,178 passengers, about half the number on board, and more than 1,500 people tragically died.

It’s a famous story, still well-known more than a century later, partly because of a romantic James Cameron film that fictionalised it, but mostly because the ship carried rich, powerful New York celebrities of the day.

Less well-known is the SS Eastland disaster which killed 844 people. It’s not as famous because it wasn’t carrying celebrities. On a rainy day in Chicago in the summer of 1915, it was booked for the annual picnic day for the employees of the Western Electric Company. The people on board were mostly unknown Czechoslovakian immigrants and their families. Before it even departed the dock, it started listing, tipped sideways, and sank in just five metres of muddy Chicago River water.

The two events are directly linked. You see, there was worldwide shock at the regulatory and operational failures that led to the Titanic disaster. So, over-zealous and excitable policymakers created new laws. With so much community outrage, they had to be seen to be doing something.

One new law was the Seamen’s Act of 1915. One of its provisions was that every passenger ship was required to carry enough lifeboats for everyone on board. On the surface, that sounds sensible. But existing passenger ships weren’t designed to be retrofitted with lifeboats on the upper decks. The law makers were ignorant, and the new law was flawed. And the forgotten Eastland disaster was just one unintended consequence.

A lesson from the U.K.

The analogy can be applied to our challenges today in financial advice. According to CoreData research, just as the community was outraged by the Titanic disaster, today they’re outraged by what was uncovered during the Hayne Royal Commission. And they want to see action.

Many Australians believe the Royal Commission’s recommendations don’t go far enough and three in four want to see changes implemented immediately. And unfortunately for every planner in the country, two-thirds of the community hold ASIC and APRA responsible for the failings. That’s why the regulators are jostling to appear fierce, action-oriented and willing to go to battle in the courtroom.

In their rush to litigate, perhaps the regulators should take some time to learn from the U.K. experience. In December 2012 the Retail Distribution Review (RDR) regime was implemented. The RDR regime can be simplistically likened to a blend of Australia’s Future of Financial Advice (FoFA) obligations and the upcoming FASEA requirements.

In the U.K., we saw planner numbers fall by around 20 per cent, and now almost seven years later, they still haven’t returned to their pre-RDR levels. U.K. planners spend more time than ever on non-client facing compliance tasks (around 40 per cent of their day), which means that each planner serves a lower number of clients than they used to.

An advice gap has emerged.

The size of the prize

 Australia can’t afford to create a similar advice gap.

Over the coming 25 years, the consumer demand for trusted financial advice will be higher than ever. During that time the super system will reach maturity, the remainder of the Baby Boomers will transition to retirement and the older Baby Boomers will require help with aged care as they reach old age. There will be the greatest generational wealth transition Australia has ever seen. An amount CoreData estimates at $3.9 trillion shifting between generations.

Most of these people will want and need advice. But what can planners start doing today to position themselves to make the most of the opportunities of tomorrow? And how can they release capacity and safely scale their practices to serve more clients?

One practice model of the past and three of the future

 We all know the economics of advice are changing. On the revenue side, we’re seeing pressure from grandfathered investment commissions disappearing. While most practices don’t receive any grandfathered commissions, a significant minority are heavily reliant on them for revenue and cashflow. Most financial planners earn their revenue from fees for service, but these are also under pressure. On the expenses side, for the first time ever, the true costs of advice provision will be borne by planners. It means that the costs of licensee and other support services will continue to increase.

What’s clear is that successful business models of the past will need to change or they’ll disappear. Innovation has been slow in the advice space, and businesses that we call ‘old schoolers’ have been primarily focused on product recommendations and implementation services. These planners still have paper-based files, use paraplanners to produce advice documents and they don’t use technology in their client appointments.

In order to position for the future, these ‘old schoolers’ will need to reposition themselves for higher value services. If they haven’t already, they should make the shift from product execution services to focus on professional diagnoses. This is where the planner works with the client to get below the surface and understand the real, unstated issues for the client. They help the client understand what success looks like, identify the barriers, make trade-offs and then set a course and prioritise actions.

These planners can choose to continue to work in a highly customised, bespoke manner as ‘specialists’, or they can choose to embrace technology, and work in a highly structured, well-controlled manner within ‘corporatised firms’ (see Chart 1).


Chart 1


Specialists have emerged as a successful practice model in the U.K. following the implementation of RDR. They’re characterised by high-touch, intimate client relationships, typically with just 50 active client relationships.

Specialists may work with wealthy families, or just have a specific area of expertise, like divorce advice or providing for the care of vulnerable clients. Because the advice is provided on a case-by-case basis and highly customised for the engagement, there is little benefit to building structure. Specialist practices don’t scale.

Corporatised Firms

Corporatised firms will successfully serve the middle market. They are communities made up of professionals who may organise inside or outside of an employment relationship. It doesn’t really matter. What does matter is that they are clear on their target market and their unique value proposition.

They are well-controlled, compliant businesses that work within frameworks to solve the unique needs of their clients. The investment in technology reduces costs to serve and means that advice processes are repeatable and the practices scalable.

Platform-up Businesses

Another successful business model of the future is the ‘platform-up business’. Typically dismissed as ‘robo-advice’, these technology-led businesses focus on portfolio construction and implementation services. Despite gaining plenty of media attention, and carrying the torch of hope of regulators, these models have failed to get any real traction to date, either domestically or internationally.

But they shouldn’t be underestimated. So far, robo-advice businesses have failed to engage new clients in any meaningful way. But what if they already have clients? The super funds are the obvious platform-up businesses.

Already a force to be reckoned with, CoreData research shows that the industry funds will overtake SMSFs as the biggest sector in super next year. They are already investing in data science capabilities to predictively ‘nudge’ their members into an engaged state. In this way, they’re able to retain the funds into the retirement phase with a simple member journey.

Change is hard

 Human beings are complex creatures. We can fool ourselves into thinking that our current predicament is safer than alternatives. It’s called the status quo bias, and it can get you into trouble.

If you’re working within an ‘old schooler’ practice, and you haven’t started transforming, it’s time to get moving. Everyday Australians are counting on it. And I can think of almost four trillion reasons why you should start now.

Jason Andriessen CFP® is managing director of CoreData.