Financial Planning Industry winners and losers: a new era

What is the path to survival for the Financial Planning Industry with Australia’s active 25,000 planners in a post Royal Commission world?

There has never been a better time to be a Financial Planner. Winston Churchill famously said “Never let a good crisis go to waste” and so it is today for financial planners as the Bank Royal Commission (BRC) has completed a week of eviscerating our industry.

Now is the time for financial planners to reflect on the messages from the BRC and position themselves for the inevitable changes ahead. Those acting early can take advantage of what will surely be a huge shake-up of the financial planning industry. Here are some of the issues that planners need to consider.

Fees for no service

One of the big issues raised by the BRC was the lack of review services being offered by the banks and AMP. Most mature financial planning businesses have a number of clients paying ongoing fees that have not had a proper review in years despite the obligatory offer of a review and fee for service statement sent to them each year.

This will surely be addressed in the recommendations that the BRC hands down in due course and the result may well be the end of grandfathered commissions and a regime where no ongoing fees can be charged without proof that a client review has been conducted.

For many financial planners this loss of revenue will be devastating and so preparation for such an outcome should begin immediately. Developing a review process that is valued by clients and can be implemented efficiently is critical and then contacting those disengaged clients to convince them to re-engage will be the challenge for many planners.

The end of vertical integration

Inherent conflicts of interest in the vertical integration model of the banks and AMP were investigated in an ASIC report released in January 2018. The findings indicated financial planners had a clear bias towards in-house products and as a result, clients were often worse off after being switched to in-house products with inferior insurance arrangements and/or a significant increase in fees.

The opportunity for financial planners is to position themselves as truly independent by adopting a fee for service model and structuring their service offering to be product agnostic. Advisers that are members of dealer groups may need their help with access to expanded approved product lists.

Banks exiting financial planning

ANZ and NAB are selling their wealth businesses while Westpac and CBA must be considering their options given that the existing vertically integrated and sales-oriented wealth prototype will not be acceptable models of the future.

The opportunity for aligned financial planning practices will be to move to non-conflicted dealer groups or else band together with like-minded colleagues to apply for their own AFSL. Employed planners may have to choose between finding new employment, striking out in their own business or leaving the industry.

Education standards

1st Jan 2024 is the date that all financial planners will need to have their qualifications completed to the minimum standards. For many, this date represents the final day to implement their exit strategy either bringing forward their retirement or choosing an alternate career with less onerous education requirements.

The remaining planners will find themselves in an industry that has fewer planners and potentially a plethora of inexpensive client bases on the market to choose from.

Forward thinking older planners will begin aligning themselves with younger, qualified planners to make this transition a smooth one for their clients and to maximise the value of the sale of their business.

Financial Planning Industry Opportunities

The financial planning industry has taken a battering at the hands of the BRC and another round of recommendations and legislation is almost certain to occur.

Of the 25,000 financial planners active today we can expect a significant proportion to leave the industry in the next few years, the remaining planners will need to quickly begin the process of restructuring their businesses to provide a more valuable service offering and position themselves as being truly independent of conflict.

The financial planners that successfully evolve through this next period of change will find themselves in a recognised profession, with fewer competitors and more potential clients.

To be successful in this new world of advice financial planners will need to take advantage of technology that helps them better engage, gather information, educate and provide greater value to clients. They will need to be able to produce in-depth review documents in a way that is both fully compliant and very efficient.

To find out more about how financial planning software can help your business go to the next level…