Viewpoint: Financial advice 2.0 – why it must evolve

By Darren Whereat

Darren Whereat

Darren Whereat is the General Manager, Advice at IOOF. He joined IOOF as part of the October 2018 acquisition of ANZ’s Wealth Management Advice licensees. Darren has over 20 years’ experience in the financial advice industry and is a Certified Financial Planner®.

Over the last few months, I have spent time talking with a large number of people from inside and outside of the financial planning industry about what constitutes good financial advice and how would the thousands of clients, that financial advisers help every single day, describe good financial advice.

One of the most rewarding parts of my role is meeting with clients around the country and hearing their personal stories about how their adviser has helped them. A consistent theme, that comes through strongly, is that for these clients and others, good financial advice starts by working together with their adviser, to gain the clarity and understanding as to what’s most important to them. It is the comfort that comes from knowing that there is direction, support and a shared commitment to working towards achieving these goals, whilst being able to adapt to life changes that come along.

I’d best describe these relationships with their adviser like that of a personal trainer or a coach, helping them get focused and stay on track, someone who can help them achieve the goals that they wouldn’t achieve alone. It’s important to realise, although not surprising to those providing financial advice, that clients rarely perceive good financial advice as being purely about helping them accrue x amount of assets in x amount of time.

So, what is good financial advice if it’s not a monetary target?

Understanding needs – sounds simple. It is however, easy to underestimate both the time and skill required to really uncover a client’s underlying goals and motivations. It often involves exploring areas that may not be front of mind and creating clarity from what may appear initially uncertain and ambiguous.

It is also about understanding priorities, knowing that these may change, determining what is most important and what might be acceptable trade-offs.

Shared understanding involves mutual trust and respect. It provides the foundation for good financial advice and paves the way for conversations on a range of topics, including those more difficult topics where you have to explain what is realistic or feasible – even if it isn’t what the client wants to hear.

Clients and their goals are diverse, making the role of a financial adviser broad and complex.  Good financial advice is enabling clients to do the best with what they have. This could be helping a financially affluent person to protect their wealth, or establish a benevolent fund.  It might be helping someone with modest means to have an overseas holiday or helping them fund their child’s education. It might be the speed at which a loved one can access money upon their death or being able to go into an aged care facility of their choosing.

Goals will include both financial and non-financial goals and are equally important.

Current financial advice monitoring systems don’t actually track the achievement of clients’ goals, instead they track financial returns, which is easier. The adviser has to then interpret those returns for the client, so they can understand their progress towards their goals. This takes the adviser time which could be more efficiently used elsewhere.

The financial advice business model needs to evolve

The current financial advice industry is firmly based on the traditional model of an annual asset-based fee, or a flat fee, in return for which advisers help clients formulate their objectives, create a plan for achieving them and provide ongoing coaching and reviews to ensure the client’s plan remains contemporary and ‘fit for purpose’. This model is a high commitment purchase as it takes time, is expensive to deliver and holistically addresses all the client’s needs. It doesn’t cater well for clients who need what is interchangeably referred to as advice that is ‘limited’, ‘scaled’ or ‘transactional’. This needs to change so those who will benefit from financial advice can access it in different ‘non-traditional’ ways until they are ready for holistic advice.

The way millennials will consume financial advice in the future will be very different to now and advisers will need to develop solutions that will appeal to the younger generations. They value insight, have access to information at their fingertips and want the answers delivered almost instantaneously. This doesn’t mean advisers need to embark on a race to the bottom in terms of pricing their services, instead they need to find different modes and channels for delivering that advice. The cost of providing financial advice is rising steadily as the industry raises its standards around professionalism and compliance requirements. In this environment, advisers have little choice but to find new and innovative methods to deliver financial advice efficiently.

Technology has a role to play in delivering financial advice more efficiently

Robo advice, or robo placement as it may be more accurately termed because it generally seeks to place people in pre-existing investment options, is not going to replace traditional financial advice, but it may provide some value to certain types of clients and advisers. In the future, financial advice will become more digitally enabled but it will still be human-led. This will lead to the best of both worlds for advisers, where they are freed from spending valuable time on low-value tasks, like fact-finding, and instead can devote more time to the human engagement and coaching elements of financial advice.

Increasing numbers of Australians need financial advice, but rising costs mean fewer will get it

Providing traditional ongoing financial advice will become more expensive for advisers to deliver because they must meet greater educational, legal and regulatory requirements than ever before. As the cost of advice to the client increases this means fewer Australians will be able to afford financial advice, which runs counter to my personal view that more Australians should be able to access financial advice. Not all clients require ‘traditional’ ongoing financial advice, instead, there are many potential clients who could benefit from ‘point in time’ advice, such as helping someone get their parent into aged care, or getting their aged pension arranged properly or dealing with an inheritance. These are real and genuine advice needs but are unlikely to be met because many advisers don’t have a commercially-viable way of delivering them.

What is IOOF doing to help advisers?

One important way IOOF supports advisers is to help them get better at engaging with clients and explaining how the goals-based advice process works - and why it’s worth paying for. This is mainly done through the IOOF Advice Academy. The Academy coaches advisers in both hard and soft skills so they can improve their performance, and by extension, better help their clients, in turn, maximising the value of their businesses.

With people living longer and the system becoming more complicated, the need for more Australians to get financial advice is growing quickly. At IOOF, we are excited to be at the forefront of the evolution of financial advice and has invested in systems and technology designed to digitise and streamline certain elements of the advice process, like the ‘Fact Find’. Helping advisers develop their client engagement skills, so they can better illustrate to clients the value and peace of mind good financial advice can create, is also another area of focus.

At a licensee level, I believe some of the costs of providing advice can be lowered without reducing the quality of that advice. Cost savings can be created through streamlining the provision of support services, for example, some back-office administrative processes, especially if the services are standardised across different licensees. These economies of scale provide an advantage for larger companies where the marginal cost of providing services such as research, marketing or technical support to an additional adviser is lower. Monitoring and supervision costs can also be provided more efficiently with scale.

Overall, good financial advice is about offering customisation and flexibility to your clients by really understanding their goals and expanding your services to include non-traditional forms of  advice, such as ‘point in time’ or transactional advice. How this is managed in an efficient way is a challenge that our industry needs to work through so that more Australians can seek advice that they value and act upon.