Building a modern advice practice

Understanding and positioning the value of advice has long been a point of tension for advisers – arguably even more so as the financial landscape changes. Whether those changes be related to a changing client demographic, more regulatory scrutiny, or dare we say it – a surprise pandemic. Morningstar’s Deborah Graham lead this discussion in Building the Modern Advice Practice of the Future, the final session of the recent Practice Optimisation Forum.

Graham was joined by Recep III Peker (Investment Trends), Grant Chapman (Fintech Financial Services) and Phil Anderson (Association of Financial Advisers). Attendees were welcomed to the digital session with a poll that would then dictate the topic of the day: a choice between ‘making advice affordable – is there a role for scaled advice?’ and ‘the value of the technology stack’. Scaled advice had the edge with 59% of the votes, sparking a thoughtful discussion among the panellists.

Aligning value to appetite: Finding opportunities in scaled advice

Recep III Peker cited a July 2020 survey finding that people actively seeking advice said, on average, they’d expect to pay $360 for financial advice. Taking rent, overheads and other costs of running a business in account, Peker gave a ballpark figure for what advice generally costs – closer to $3000-$4000, therefore revealing significant dissonance between the perception and actuality of pricing. He suggests that scaled advice is the gateway to building a broader, comprehensive advice relationship – providing the opportunity to educate clients on the value of both advice and the advice pricing models.

“If you get personal advice, it’s like jumping into marriage straight away. With scaled advice, it’s more like dating. There are three times as many people who want to start with scaled advice, but 93% of these people are happy to get comprehensive advice down the track. Essentially, scaled advice can serve as a strong hook when it comes to addressing the affordability of advice.”

Phil Anderson agreed, but noted industry challenges that advisers may face as they seek to incorporate scaled advice in their service offerings. “Scaled advice is going to be critical to keep advice affordable for everyday Australians. Research says the unadvised aren’t willing to pay, but existing clients are paying substantial amounts of money and are getting great value out of that… we’re in a difficult position because we see a lot of opportunity with scaled advice but we need more regulatory certainty. And we need to have the opportunity for advisers to improve their processes and push forward to really rationalise the process, to add value at every stage for the client so they’ll want to come back.”

In discussing value, having a clear picture of your customer or intended audience can shape your practice. “What is your target client segment?” Grant Chapman asked. “If you’re dealing with Generation X or a younger cohort, they might be used to doing things online and getting things quite cost-effectively, you’d need an offer that appeals to them. Providing a scaled advice solution, and particularly using technology – I can’t emphasise enough how much technology needs to be integrated for efficiencies and delivery. You may use scaled advice to get initial business with a younger group, and that becomes a journey as their life evolves.”

Positioning the cost of advice

“It’s a real tension for advisers,” said Chapman. “How do we actually deliver what the client needs, whether that’s scaled advice, or where every area of advice is comprehensively addressed with a lot of cost and time involved?… We have to re-educate our clients and deliver the information to them in a way that they understand the value that’s being provided to them. I think when clients actually do see that, and go through the process of understanding, they’re more willing to pay for that advice.”

Similarly, the efficiency theme doesn’t just apply to the scaled advice realm – nor is it just about creating day-to-day efficiencies in your practice. “Right now for financial planners, the true opportunity to make money, is from your ability to retain a larger client book. So anything that makes you more efficient is really powerful. If you’re sitting behind your computer picking stocks every day, that’s time you didn’t invest in doing the client update and showing them value to invest another year,” said Peker.

How do clients want to be engaged?

Tailored communication with clients may not be reinventing the wheel, but research shows that this foundational piece remains hugely important to clients across the board. “Satisfaction with financial planners is at the lowest level we’ve observed in ten years,” said Peker. “And this isn’t because financial planners aren’t managing their clients’ investments well. If you ask clients to rate their financial planner on investment expertise and investment selection, it’s actually at a near-time high, because for a lot of people their adviser told them to stay in the market. However, what’s dragging the satisfaction score down is the piece around how frequently I get contacted, ability to explain investment concepts and so on.” Delivering financial education, engaging content and therefore creating a two-way relationship with clients has become a cornerstone of the modern advice practice.

Social media, video and intuitive online portals have been everywhere in 2020, and the advice sector is not immune to these trends. With different mediums appealing to different audiences, the panellists also spoke to how these methods can best convey an adviser’s well-thought-out messaging.

Financial planning software and emerging fintechs also rated a mention in the client engagement space: “you can really personalise the experience and make the client feel in control of the process… However, we need regulatory certainty so advisers know how to incorporate this into their processes,” said Anderson.

It’s apparent that though the methods may change, proactive engagement remains a reliable tactic that endures through industry changes. And in doing so, advisers are better positioned to plant the seeds for long-running client relationships.

This document is issued by Morningstar Investment Management Australia Limited (ABN 54 071 808 501, AFS Licence No. 228986) (‘Morningstar’). Morningstar is the Responsible Entity and issuer of interests in the Morningstar investment funds referred to in this report. © Copyright of this document is owned by Morningstar and any related bodies corporate that are involved in the document’s creation. As such the document, or any part of it, should not be copied, reproduced, scanned or embodied in any other document or distributed to another party without the prior written consent of Morningstar. The information provided is for general use only. In compiling this document, Morningstar has relied on information and data supplied by third parties including information providers (such as Standard and Poor’s, MSCI, Barclays, FTSE). Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Morningstar nor its third parties accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included. Morningstar does not guarantee the performance of any investment or the return of capital. Morningstar warns that (a) Morningstar has not considered any individual person’s objectives, financial situation or particular needs, and (b) individuals should seek advice and consider whether the advice is appropriate in light of their goals, objectives and current situation. Refer to our Financial Services Guide (FSG) for more information at morningstarinvestments.com.au/fsg. Before making any decision about whether to invest in a financial product, individuals should obtain and consider the disclosure document. For a copy of the relevant disclosure document, please contact our Adviser Solutions Team on 1800 951 999.