Last man standing: "Bloody but unbowed"
It’s hard not to read recent media coverage of our industry without anticipating a fundamental shift in advice.
We’re already feeling the tremors.
While media focus on the institutional players, like AMP and their 2,700 employed and aligned advisers, it’s the less proximate players that may suffer the most.
We’ve previously, and frequently, observed that “consolidation and fragmentation are often inevitable consequences of regulatory reform” and we expect both these trends will become inevitable in the wake of the Royal Commission.
The appeal of institutional licensees, or institutionally aligned solutions like AMP Horizons, 360 Research and Jigsaw, may become less appealing as advisers and consumers grasp the real impact of conflicted models.
Institutional models, and vertically-integrated businesses, will endure, but their disadvantages (including the heightened levels of regulatory scrutiny) will, in our opinion, overwhelm the obvious benefits of their industrialised advice model.
Whether customers will still want to be part of the biggest advice brand in Australia is a question beyond our competence, Some businesses can weather storms that overcome their competitors. Others fail so slowly it looks like they’re succeeding. Still others disappear in a flash.
We don’t think vertically-integrated businesses are dead. In fact, we suspect that, like the Cyberdyne Systems T-800 Model 101, they’d emerge from the rubble after a nuclear strike with a compelling proposition for restructuring your loans, insurance and superannuation within a flexible platform that facilitates gearing and SMSF.
However, we do think some change is inevitable. We are already seeing advisers make tentative steps to a more independent profession. In our view, if you want to commence or maintain a career as a professional adviser, you should:
1. Invest in your education. It’s easy to dismiss FASEA as a PR vehicle for the FPA but the reality is that a profession is based on exclusivity, consistent education standards, a strict ethical code and a duty to society. Education standards must change and the fact that they will is “a great outcome for the emerging profession”.
2. Find a Practice not a Licensee. Sean (@4greatadvice) suggests that if an adviser believes that the industry will fragment and consolidate leading to an increase in self-licensed businesses, the best long-term strategy may be to align yourself with a forward-thinking practice rather than a conservative licensee. Join a practice that shares your values, is aligned with your philosophy and has the same priorities as you do. In Sean’s view, the best practices use institutional licensees as a stepping stone to independence, so strategically-minded advisers should think ahead and position themselves for the inevitable separation.
3. Follow the leaders. The US Marines don’t talk about ‘natural leaders’ because it tends to confuse charisma with capability. The Royal Commission has presented us with numerous examples of ‘leaders’ who lack the authenticity, competence and capability we’d expect of junior staff. Look beyond your immediate circle to follow those that seem to have a better vision for, or more insight into, our industry. I’d suggest following @MatthewRoweCFP, @4greatadvice, @SMSFCoach, @jusbrand, @viridianwealth and @eleanordartnall.
4. Rethink the obvious answers. With greater levels of scrutiny and tighter controls over processes and actions, there will almost certainly be a larger cost to run a business. PI, technology, reg-tech and legal support. There’ll also be more scrutiny on remuneration models so consider how your business could be structured to be sustainable without relying on asset-based fees or pre-paid services. If you join a licensee, make sure you’re comfortable with their approach to monitoring and supervision, remediation and consequence management – after all, these impact you (and your business) directly.
5. Look for partners (and choose carefully). Self-licensing may be the future but you’ll be spectacularly unsuccessful unless you have the assured support you need to operate your business. Accounting, marketing, compliance and IT support are, for example, better done by specialists than by you in your spare time. Research your options and choose as partners, those businesses that can provide the ongoing support you need. Test them and make sure their capability matches or exceeds their marketing. If you are looking for licensees, we’d recommend that you look to independent licensees and those corporate funds, credit unions and fund managers that recognise the value of providing objective and expert financial advice.
6. Question everything. Now is the time to take stock of where you are and what you truly want to achieve. Compliance may not be at the top of your list at present, but it is going to become all the more important in the coming months and years as our industry rights itself and sets a new course. Get on board now and start reviewing your processes. Don’t assume that your Licensee (or compliance people) have equipped you with the knowledge and insight you need. Trust them, but test and confirm everything they’ve said, particularly for business-critical issues.
7. Be optimistic (and self-regulate). Whatever you want to call it, one thing is certain. There are going to be more customers than there are advisers to support them. Digital advice may be a partial solution, but what they are going to need are empathetic advisers who offer affordable, quality advice and embrace change.
There are great opportunities ahead. Don’t miss them because you’re simply too focused on surviving.
If you want to discuss your options, or find out how we can assist you to obtain and maintain an AFSL, please email email@example.com.