Certain planning firms will thrive, and others will fail, as the profession heads into the next stage of its evolution.

Do you lie awake at night worrying about your business? Are you concerned about what the future will look like in a post Royal Commission world?

With a tidal wave of change reshaping the financial services industry, the demands on planners have never been greater.

But despite all the gloom, there is a big opportunity for a new breed of firms to thrive in this changing world. Will your firm be one of them?

Doomed for failure

I consult with firms across the country – both in regional areas and in capital cities – and the sentiment across the industry is overwhelmingly negative.

What do planners say are their biggest areas of concern? The Royal Commission, and the relentless media coverage it received, hasn’t exactly helped.

But it’s the change to education standards that is perhaps causing the most grief. At best, some existing planners will only be required to complete a bridging course, but others will be required to complete an entire FASEA approved degree. And of course, all existing planners will need to pass the FASEA Financial Adviser examination before 1 January 2022.

The result of this disruptive change is not just theoretical. It is very real. According to the FPA’s own research, up to 6,000 planners could leave the industry, an exodus of almost a third of the entire profession. Already, there is evidence that planner numbers are falling.

And it would be foolish to think that the exodus will only be confined to ‘veteran’ planners who might otherwise be looking to retire anyway. Indeed, many ‘younger’ planners might also be reconsidering their future in the profession. 

The imminent ban on grandfathered commissions is also a matter causing significant headaches for some firms. They will now be challenged to completely rethink their service model, or possibly face extinction.

The case for optimism

However, it is my view that firms that are prepared to see out the current turbulence will profit greatly in the future. It will not necessarily be easy, but firms with a long-term outlook and the willingness to adapt and embrace change now, will be better placed than ever.

Allow me to share just a few reasons why.

First, the demand for high quality financial advice will not disappear. If anything, it is likely to increase. Yet the supply of planners available to service this demand is falling. In other words, it is a market ripe for opportunity.

Our superannuation savings pool, worth an estimated $2.8 trillion (at the end of the March 2019 quarter), is now the fourth highest in the world. According to the Australian Bureau of Statistics, the total wealth of the average Australian has surged past $1 million.

The point is that Australia is a wealthy country, with an affluent middle class. And as their financial affairs become more complicated, so too will they have need for financial advice. 

Individuals will rely on the help of a trusted financial planner more, not less. The stakes are just too great to leave it to chance. 

There is already a seismic shift taking place in which the exodus of larger institutions is leaving a vacuum. Institutional conflicts are rapidly being eroded – restoring trust and confidence in the sector. 

High quality financial planning boutiques, untainted by any conflicts, and a greater focus on strategy, not product, will help to fill this void.   

The key to success

But what will it take to succeed in this brave new world?

Steve Jobs once said that the best place to start is with the client experience and to work backwards from there. Ask yourself what your clients want from their financial planner.

Market research shows that generating superior investment returns is not the area that clients value most. Sure, sound portfolio management is a given. But clients are increasingly placing importance on their bigger picture goals and objectives, and whether they are on track to achieving them.

It is somewhat ironic that in an age of information, with endless data at their fingertips, clients value their human interactions the most. Am I on track? Will I be okay? Can I afford to fund a private education for my children or grandchildren?

These are questions that cut to the heart of the planner/client relationship. And no algorithm is going to adequately address these challenges.

All systems go

But it’s easier said than done. With a growing compliance burden, soaring PI premiums and tighter regulatory scrutiny, the challenge will indeed be great. Simply passing these costs onto clients will not be sustainable.

Unfortunately, many firms are so buried in compliance and administration that they are unable to adequately focus on the areas that matter most to their clients.

With a typical holistic SOA comprising up to 50pages or more, it’s easy to see how much time gets lost on tasks that don’t seem to add much value.

On the other hand, firms with great software, systems and processes, will successfully automate these non-value adding tasks, freeing up time to spend more of it in front of their clients.

Ask a practice valuer what increases a firm’s valuation the most. They will tell you that a firm with great systems, a clearly segmented service offering, and the means to deliver it efficiently and cost-effectively will attract a premium valuation.

All things being equal, their profit will be greater, their client retention better and their referral rate far higher. Among the firms we work with, this is certainly consistent with the results the higher performing firms are able to achieve. 

Where to from here?

There are certainly challenges that lie ahead. It will not be for the faint-hearted. Now is not the time to rest on your laurels. But firms that are prepared to implement the necessary technological and process change now (and hit the study books again), will be well prepared to reap the rewards in the future. 

Vincent Holland is a Principal of Forty-Seven and a co-founder of Plutosoft, a comprehensive financial planning software and practice management program for financial planners. Forty-Seven is part of the FPA Professional Practice program, which recognises the highest calibre financial planning practices within the profession. Vincent can be contacted by clicking here.