FINANCIAL PRODUCT ADVICE – HIGH COST, HIGH RISK & DIMINISHING REWARDS
The provision of financial product advice is becoming a high risk, high cost, diminishing rewards business model, particularly for sole practitioners and small practices.
Although there are one or two exceptional value for money ‘boutique licensees’ in the AFSL market, licensee fees among the larger providers are becoming an increasingly prohibitive fixed cost to cover each year.
Added to that are the additional, rising costs of PI cover, ASIC fees, ongoing CPD, and software fees.
That’s just the costs. What about the risks?
The need for many licensees to micro-manage adviser compliance has resulted in the advice process being slowed down to varying degrees by vetting all or some SoAs before presentation to clients.
Any process that slows down advice delivery also limits adviser revenue.
Then there’s the ever-present ASIC enforcement tightrope to walk. One slip here can rob an adviser of their lifetime of work by means of a huge fine or banning.
Add to that the ever-present risk of a litigious client or one with self-serving bias seeking to shift blame, having a free swing. The risk here is a very long and expensive slide into the AFCA complaint pit where the playing field is anything but level, for advisers.
Of course, the biggest risk of all is the Australian government, driven by political agenda, making it worse by doing more of the same, in the name of fixing it.
As a result of all of this, the price of advice has risen to unaffordable levels for most low net worth and disadvantaged Australians; those who need it the most.
So it begs the question, “Why would anyone actually choose the provision of financial product advice as their preferred career or indeed, as the centrepiece of a thriving business?”
It’s a definite yes for those prepared to build a business for the times. The advice business models of last decade simply do not suit the fast changing environment of this decade. That is evidenced by the number of adviser business owners who have exited the industry in recent years. And the reasons go well beyond the exam.
Just take a look at the modern financial planning practices run by gen-X advisers and emerging gen-Y advisers. They look nothing like the product-driven, commission-funded businesses of the past. They are completely client-focused, client-funded and innovative in the way they deliver knowledge-based advice to clients.
The only way that high practice (fixed) costs and adverse ASIC & AFCA outcomes can hurt advisers is if they sit and wait and do nothing different. The antidote is a combination of energy, expert knowledge, ethical practice and practice management skills, in particular financial management.
Therefore, key among the desired goals of change have to be (a) to convert high costs to manageable costs (b) to reduce high risk to low risk and (c) to turn around diminishing rewards into high rewards, in terms of both money and lifestyle.
And one last point to ponder!
If you are an adviser and not providing ‘financial product advice’, a concept narrowly defined in the Corporations Act, then perhaps it’s time to reconsider whether you should be playing in ASICs backyard at all.