Around 85 per cent of advice firms plan to invest more on advice and financial planning AdviceTech this financial year, according to a new report. (more…)
Despite the spread of managed accounts for firms looking to build transparent and compliant businesses, advisers themselves are still “ultimate advice solution”, says Colonial First State.
Speaking exclusively on the ifa webcast last week on ‘The ultimate advice solution’, CFS head of retail sales Bryce Quirk said managed accounts enable advisers to have the time to have conversations with the client that they may not otherwise have that save them from making poor decisions.
However, he also said managed accounts by themselves will not solve client issues and that the adviser is still “the ultimate advice solution”.
“You can’t put a price on the value of that. It’s very difficult to but to me that is what is an ultimate advice solution,” Mr Quirk said.
“If something provides [an adviser] with more time to do that, then that’s going to get way more performance than picking the right manager, the right platform or the right whatever.
“It’s actually sitting with the client and taking them through a 30 or 40-year journey and not make that decision to which is most poor performance comes from an emotional decision from the investor.”
Findex senior partner Garry Loffhagen said having a managed discretionary account means advisers can have a spiel that doesn’t change from client to client because they’re all doing the same thing.
“We’ve all either increased equities or reduced property or increased international, and so you’ve got the banter down,” Mr Loffhagen said.
“It gives me time to strengthen that relationship. More recently, of course, the compliance that you’ve alluded to, the burden on statement of advice content, checking it, preparation, meeting notes, anti-money laundering, FASEA, you name it. It’s all been lumped on as it takes time.”
A new artificial intelligence-driven adviser risk management tool is being built in response to greater APRA and ASIC regulations, with the developer hoping to extend it to dealer groups in the near future.
Speaking exclusively to ifa on the Netwealth UK Study Tour, general manager of risk and compliance, Rachel Axton, revealed details about its new AI-driven risk tool SONAR that aims to improve the oversight of adviser behaviour on its platform.
Standing for ‘Security of Netwealth-Authorised Representatives’, Ms Axton said the idea came about around six to 12 months ago, and was developed in response to an internal ‘hack-a-thon’ aiming to work out how to improve oversight of adviser activity using its own data.
She said most of Netwealth’s data scientists saw it as a really good opportunity for artificial intelligence learning long-term to address the issue.
“SONAR was a concept that came about when the regulators, in particular APRA and ASIC, started talking to Netwealth more about our role as a trustee and IDPS operator and really actually asking us what do you do to oversee the conduct of the advisers that use our platform,” Ms Axton said.
“It’s something that we’ve always been giving some consideration to but we hadn’t really built specific tools to identify things. So we were working more on our intelligence and the things that the administration team would find.”
One factor SONAR is able to oversee is the breadth of fees that the platform charges, which Ms Axton estimates there are around 20.
While that gives the adviser flexibility to charge the fee that’s right for their client, what Ms Axton doesn’t expect to see is those fees being charged across all of those clients.
“What we found was that there were some very small number of use cases where advisers were using multiple types of fees on the one client,” Ms Axton said.
“We were able to talk to them and to actually let the dealer group know and quite often the dealer groups didn’t know about this activity either.
“We built it out. We’ve got factors such as fees, activity on the account and logins and how often the adviser is actually going in to service the client. “
Ms Axton said there are 20 different factors that are in the process of being built out. Over time, she hopes the tool will give each adviser a risk score based on the number of multiple risk factors that they’ve got.
“If you haven’t logged in for six months and haven’t done any transactions on the account for 24 months and has high fees across the account,” she said.
“The problem is we’ve got hundreds of advisers to look at and this allows us to identify those most important cases first, and as we add a new factor, the whole risk framework will change and the risk ratings will change, so what we’ll be able to do is identify which one of those is the most risky and be able to go straight in and talk to them about that activity.”
While SONAR is currently an internal tool, Ms Axton said Netwealth has been writing to dealer groups, and has found the feedback from the dealer groups has been really good.
Depending on demand the adviser dealer groups, she said SONAR could be released externally within the next six to 12 months.
“So when they get us contacting them saying, ‘We’re you aware of this?’, it gives them the power to go off and do an investigation,” Ms Axton said.
“What we need to do is build out the factors and build out the use of the tool and then what we’ll do is we’ll expose it to dealer groups so that they can go on and start doing their own reviews and we’ll probably need to help them through with that and how to interpret that and how to change the dial.
“While not on the Netwealth ‘roadmap’ for an external release, it depends on demand from advisers and dealer groups if we’ll do it sooner.”
The dramatic drop in the number of advisers in the late 80s in the UK shows that the future of advice in Australia is bright, according to a UK academic.
In a speech to delegates at the Netwealth UK Study Tour, associate lecturer of the University of Northampton, Gillian Cardy, said that while Australia was 20 years behind the UK, this was good in showing that independent advice has a future despite the added regulations.
She noted that the number of financial advisers in the late 80s dropped from over 100,000 to swiftly “something in the order of 30,0000 and now it’s 25,000”.
Because what happened when the UK first started having meaningful retail regulation, Ms Cardy said pretty much all of the big direct sales companies stopped selling, with a couple of exceptions, and even then they had small residual sales forces.
“And that huge drop off was, if you look at the numbers now, almost entirely from the big, old-fashioned, direct sales product providers that used to have really big distribution networks in the UK. That’s the drop off,” Ms Cardy said.
“And that’s why I think you can be extremely confident whenever we talk about self-licensed advisers have a future … yes you do because we’ve spent [over] 20 years proving it. You do not need to be a part of these big sales forces, the banks and the insurance companies.”
“And from their point of view, the costs of doing it, the higher levels of compliance, monitoring, training, support and so on, may not be cost-effective for them to maintain these huge networks of advisers.”
To add further context, Ms Cardy said the 80s was when the UK first introduced school-leaver, minimum levels of qualification, whereby anyone could have one job one week and, in a fortnight’s time, they could be out doing financial advising..
“The system had no credibility whatsoever and they’re selling stuff at the same time so I think there was a bit of a perfect storm,” she said.
“The companies stopped providing it, people left, they didn’t want to get qualifications and so on. So those people were, if you like, lost to financial services.”
The rise of machine learning and artificial intelligence will impact every aspect of advice over the next five years, according to Netwealth.
In his welcoming address to delegates in its UK Study Tour 2019, Netwealth joint managing director Matt Heine revealed some finding from its most recent AdviceTech Report, which he said would be released in two weeks.
On the technology front, 36 per cent of those surveyed said AI and machine learning will have the greatest impact on financial advice practices in the next five years.
Regtech was also cited as a major impact with 36 per cent of respondents, and was closely followed by robo advice at 34.8 per cent and scaled advice at 34.2 per cent.
Managed accounts (28.6 per cent) and big data (27.7 per cent) were also cited as likely to have a major impact on financial advice in the futures.
“Technology is going to improve every single part of your business. I don’t think anyone can argue with that,” Mr Heine said.
“What was interesting for us though was the type of technologies that advisers are now thinking about. When we first did this report three years ago, AI was so far down the bottom of the list it wasn’t funny. It wasn’t in anyone’s thinking.
“Whereas I think there’s a very good recognition now that AI is going to be leading the charge in pretty much everything we do. Whether you know it or not, it will be sitting in the background and delivering value.”
Mr Heine noted the rising impact of regtech on advice, and remarked that robo-advice in the post royal commission world has a place in the market, calling on delegates to provide feedback on what it should be doing for advisers in the robo-advice space.
Further, Mr Heine said it was also interesting that managed accounts are getting closer to reaching maturity.
“All the early adopters are well and now truly on the path to managed account implementation and hopefully are seeing the benefits,” he said.