By Vic Ruth

The Australian government released its Future of Financial Advice (FoFA) information pack on April 28, 2011. Designed to ensure that “more Australians have access to high quality and affordable advice” this has received a mixed response within the industry.

Most of the peak industry bodies have offered ‘in principle’ support to the reforms subject to implementation considerations and researching the practical impact for their members.

However amongst advisers the jury is still out over the benefit of the reforms and the likely impact on their individual practices.  Is this a reluctance to change, supported by a healthy dose of resistance and backed by the fear of the unknown? Perhaps, but add to this the harsher business and economic climate and the risk is that you will have a lot of advisers looking to exit and lower practice valuations due to unnecessary fear.

The last 3 decades have been interesting times for the industry.  I view FoFA as an unmistakable opportunity for business growth.  The polarization that has already started to occur amongst transactional versus relational advisers is gaining momentum. Quite simply then relational advisers by their very approach will have a competitive advantage. Conversely transactional advisers will find it difficult to command fees and further deal with squeezed  margins.  

Whilst grappling with the impact of FOFA on their operations, industry superannuation funds have already moved into the market that is focused on the transactional aspects of financial services. Many of the larger institutions have reacted swiftly and have already lowered fees to match the industry superannuation fund marketing.

The trick then is to not compete in this segment of the market – small to medium players do not have the economies of scale and the staying power to survive. It is much better to adopt a proven strategy and reposition yourself as a relational adviser. The implication is that you offer a more complex and comprehensive service and hence can substantiate the higher fee that you charge.

I have conducted an informal assessment of the situation. The market research suggests that a surefire way for a planner to experience significant growth in the future is to move into the private wealth management market. This recommendation is based on proven business principles – the  client base has a need for a differentiated service and is willing and able to pay for it.

You could argue that this is only 10 % of the total market. I agree, however, this 10 % of the market controls about 50 % of wealth, with average assets of $ 1,750,000– all owned by about 500,000 families in total.

This calls for a shift in your target market, you choose to service A and top end B clients instead of focusing ( as has been primary focus in the past) on bottom end B’s and Cs. So instead of working harder and aiming to chase and acquire a large number of clients, you start to develop your skill and selectively choose your clients.

In my experience, many advisers have the skill and competency to adopt and reposition them using a relational approach to advising. However, the fear of the unknown , a lack of commercial acumen and a defined strategy to move into the more lucrative end of the market acts as a major hindrance to implement this approach.

I understand the reluctance to change and have seen firsthand the effects of inaction on many practices. My business, Estplan, has itself evolved from providing estate planning education and implementation to helping advisers develop a niche within private wealth management. This changed focus has required increased education and global and local research. The change process, as in every business called for a change in culture and understanding the market.  But we are now able to offer a robust solution which is based on sound business principles, supported by a qualification pathway and expert assistance to reposition advisers, develop a family wealth management business model and an enhanced service offer supported by value pricing .

View FOFA as the opportunity that you have been waiting for, to reassess the future direction of your practice.

I leave you with the following quote from Marsha Sinetar

"Change can either challenge or threaten us...Your beliefs pave your way to success or block you."

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