The proposed move to an annual requirement to opt-in clients and obtain their consent prior to charging fees are business transformational.
Even if your advice business is already doing these things, ensuring the right processes and structures are in place to meet these obligations in a scalable way, but tailored to the life stages of different clients, requires significant consideration.
How you deliver value each year to retain that client may also need consideration. One of the risks of this future operating environment is that annual reviews may become investment centric again. For example, reviews with retiree clients who primarily want to discuss the adequacy of income levels, the perceived value of the advice could become investment focused, a step back in time from where holistic advice has landed.
So, although these requirements will need to be met, to do so will have an impact on both your service proposition and the cost structure of your advice business.
Without overstating it, consideration potentially triggers a complete review of the design of an advice practice – who it chooses to partner with to help it with these changes and how it can work most efficiently to be sustainable and profitable.
In this context, advisers are going to need to revisit or at least, reconfirm their service proposition. For some it will require a complete overhaul.
This is a constant theme in our ongoing discussions with advisers – the desire to undergo a reassessment of what they really do for clients. To feel they have a defensible decision-making process around how they select investments and how best to adopt managed portfolios.
Given this backdrop, I believe there are four main steps to consider in getting your business ready for the market opportunity that will emerge post the current disruption:
- Revisit your service offer and pricing
Start this with a rich (and quantified) understanding of client need and the value they get from the service, rather than the cost to serve. This requires a renewed focus on building a business around a type of customer and then servicing their needs in a targeted way.
- Leverage managed portfolios
If you are going to review your operational structure and your service delivery, managed portfolios can be a useful part of this assessment. Assuming the best interests of your clients has been evaluated, managed portfolios can help remove portfolio drag, increase efficiencies and help adviser’s access better researched investment decisions.
- Leverage technology
While the current crop of software and fintech services may not have led to efficiencies, there are gains available now. Client portal digital opportunities to aggregate client information to deliver seamless service are a great service that is ready to go.
- Find a community of like-minded professionals
If you want to grow your business, surrounding yourself with trusted peers and business partners is critical. A good licensee is priced responsibly but does not impose restraints around product. It is a sustainable business with an unconflicted fee model which understands advice and its challenges. It charges appropriately for services rather than subsidies and should offer consulting services, are strategic partners and can help execute.
If your business can make these changes in the next 18 months, it is well positioned as a profitable and corporatised business that you can grow, use to acquire or sell on with more confidence that value will be realised.
Finding a partner that can help your business execute this transition quickly is paramount.
Nathan Jacobsen, managing director, Paragem