Time has certainly flown since I quit my corporate job and started TruWealth Advice. During the past ten years, I married my wonderful husband, gave birth to our two beautiful children and have worked with a significant number of clients to help them live a better life.
Reflecting on the last decade of running my own business, I have become aware of the many changes that have occurred in the financial advice industry. Here’s my take on six main areas of transformation:
1. The perception of Financial Advice and the way it is delivered
Advice is personal and tailored
The way financial advice services are provided today is starkly different to ten years ago.
With the advent of new regulations, the overall quality of financial advice, and advisers, is improving. Our complete focus is how can we add value to our clients’ lives.
In the past, advisers were primarily concerned about the best way to sell a product to our clients. Now, we concentrate on building strong relationships with every client and providing consistent high-quality service. Rather than having a ‘one size fits all’ approach, where clients are almost automatically put into the same product or offered the same service, today’s financial advice is directed by how we tailor our advice to the individual client and give them the best experience to suit their lifestyle needs and desires.
Simply put, a decade ago we would say ‘I will tell you what to do and how to do it.’ Today we say ‘What do you need? How can I help you?’
Less asymmetry of financial information
Clients now have more information and, as a result, are empowered to make informed decisions. They have the opportunity to achieve similar results by doing it themselves, without reliance on a big institution.
Advisers, businesses and individuals enjoy much more collaboration, increased knowledge and transparency, and the ability to share in success.
Robo / Digital Advice
‘Robo-advice’ is the evolution of programming and machine-learning to meet our clients’ financial advice needs. We are seeing increasing benefits across the board as both individuals and businesses embrace the opportunities offered by this technology. New ways of sharing and analysing information, improved speed of assessment and response, and the ability to quickly adapt to our clients’ changing needs are helping advisers to provide ‘real-time’ solutions to their problems or changing circumstances.
The Emergence of Financial Coaches
Due to the increased level of required compliance and the rising costs of financial advice, many advisers have moved to financial coaching.
According to SmartAsset Jul 9, 2019 What Is a Financial Coach? - SmartAsset Blog smartasset.com › financial-advisor › what-is-a-financial-coach, the difference between a Financial Coach and a Financial Adviser is that:
§ A Financial Coach works with clients who have few assets and need general financial help.
§ A Financial Advisor works with clients who need help managing and investing their assets.
If you’d like to look into this further, this Australian article also explores the divergence of coaching and advising in the financial sector:
https://www.superguide.com.au/retirement-planning/financial-coaching-what-why-need
Independence of Financial Advisers
Financial Advisers have become financially independent during the past ten years, due to changes in the market and industry. There is now no need to have ownership links or affiliations with product manufacturers, advisers don’t receive commissions or incentive-based payments from product manufacturers, and they no longer charge their clients asset-based fees.
What I like about it : More and more Australians get access to financial advice and coaching. Increased transparency and sharing of financial information empowers consumers to find and make informed financial decisions.
2. Technology – every financial services company has to embrace technology
Technology enables businesses to be highly efficient and profitable, and has ability to improve processes and help advisers be client focussed.
The ‘olden-days’ of physical manila folders are gone. With the move to cloud-based data storage, clients now have very high expectations driven by their experiences with other industries.
They look for better, faster and cheaper services, no friction, no paper forms and value for money.
Calculations that used to take hours are now complete in seconds. Ten years ago, we would manually examine clients’ bank and credit card statements, handwritten budgets and expense lists to work out how much clients spend. And, even then, the results would not be 100% accurate as most people underestimate their spending. Now, the use of cash flow management tools enable us to understand client expenses simply and easily. They automatically collect / link data from the clients’ online accounts, and view all their transactions and accounts across all providers, in real time and in one place.
In the past, only high net worth clients had access to individually tailored service. Today, technology enables us to offer the same service to a mass client base, and beyond.
What I like about it: Technology helps us to quickly and easily understand our clients’ needs and how we can serve them better. It reduces the time spent on manual tasks so we can focus on delivering what they really want.
3. Social Media presence
This year’s global pandemic of Covid-19 has caused a huge increase in the use of social media and alternate networking options. Meetings are held online through various platforms, Facebook group interaction is up significantly, even grandparents have had to embrace technology in order to see and spend time with their children and grandchildren.
Research by Global WebIndex shows that globally:
‘Social media users are now spending an average of 2 hours and 24 minutes per day multi-networking across an average of eight social networks and messaging apps.’
Consumers turn to social networks for content, product and service reviews, opinions and referrals. Almost everyone answers the question ‘Where do you go to find out about a particular financial topic?’ with ‘I search online.’
From a business perspective, social media has become an important way to communicate with clients, build long-term relationships, establish credibility and provide excellent customer service.
What I like about it: I love seeing our clients’ posts on social media. Their funny videos, family and holiday photos, and commentary on social events helps me to get to know them even better. It’s a fabulous way to keep in touch and know what they are up to in their day-to-day lives. And they get to know me better, too.
4. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
The Royal Commission (finalised on the 1st of February, 2019) was the catalyst for change in ASIC’s approach to regulation. It has now adopted a ‘why not litigate?’ philosophy that has resulted in an increase in the number of court cases, with more likely to follow.
The purpose of this is deterrence, public denunciation and punishment of wrongdoing by way of litigation.
The Royal Commission inquiry into the financial services industry has caused a lot of changes to be made within the financial advice sector. The core alterations were;
o the removal of commissions and other product provider payments to advisers
o advisers moving to a fee-for-service remuneration structure, where clients pay the advisers directly
Regulatory change has raised advice standards and documentation requirements with the best interests obligation.
One commonly held view is that the regulatory change is making financial advice unaffordable and placing the benefits of financial advice out of reach for most Australians. The other side of the argument states that advice standards needed to undergo significant improvement and that practices were not delivering sufficient value to justify a recurring monthly fee.
What I like about it: The Commission has resulted in better outcomes for consumers, more transparency from advisers, and an increasingly high standard of advice.
5. How money is invested – the rise of passive investing and Exchange Traded Funds (ETFs)
An ETF is a type of investment fund and exchange traded product that can be bought on stock exchanges such as Australian Securities Exchange (ASX). They usually track the value of an index or a specific commodity such as gold. The value of the ETF goes go up or down with the index or asset they are tracking.
ETFs, a low-cost way to earn a return similar to an index or a commodity, have become increasingly popular during the past decade. The ETF market has experienced exponential growth with record flows into the market. According to Vanguard, index investing now accounts for about 28% of Australian managed fund assets (Kaye 2019).
Investors’ rush into passive investments has been justified by lower costs and better returns than those provided by active fund managers, who traditionally charge high fees and underperform the index. Every day, there is increasing evidence that the majority of active funds underperform the market, and that the performance of a portfolio is mostly determined by the asset allocation, not fund manager choice or stock-picking.
What I like about it: The cost to invest has been significantly reduced. You can buy stocks on ASX at $9.50 per trade flat, younger investors can start investing with small balances, and there is a much greater diversification and ability to access specific sectors and markets.
6. Superannuation – the rise of industry super funds
Profit-to-member, or not-for-profit, superannuation funds are increasing their advice offerings to members at a time when other sections of the financial services industry are pulling back. There are now 28.6 million member accounts in Australia, and the number keeps on growing. The profit-to-member sector of the superannuation fund market currently has 15.2 million member accounts.
Financial advisers who work for industry super funds are salaried employees and do not receive commissions, bonuses, or incentives of any sort. Frank Ceravolo, Australian Super’s National Manager, Advice Delivery, explains:
‘Our financial planners do not have any product or revenue targets and are measured on advice production and member interactions.’
This is very different to the private sector where advisers were incentivised to increase their Funds Under Management (FUM) and charged their clients a percentage of those FUM.
That being said, there is little opportunity for private advisers to recommend industry super funds due to the lack of independent research of the product and lack of transparency in where industry super funds invest members funds.
Added to this, some industry funds partner with a selective number of private advice firms who offer financial advice to their members. This option is only available to a small number of businesses, which can leave others behind. Businesses like mine have to contact our clients’ industry funds call centres to obtain information on clients’ accounts. In the future, I would like to see more cooperation between industry superannuation funds and advisers in the private sector.
What I like about it: Increasingly competitive cost structures and suitable options for clients with smaller super balances.
During the past ten years, the Financial Advice industry has significantly changed and grown through increased regulation, technological advances and, most importantly, the needs and wants of our clients.
Navigating personal financial affairs can be a complex process and, as a result, increasing numbers of Australian people are looking for guidance, advice and education. As the market has adapted to the needs of consumers, advisers have become more able to empower their clients by finding solutions and products to suit their individual lifestyle choices. This ability to manage their financial lives, plus better financial education and literacy has led to an ongoing improvement in the overall financial wellbeing of Australians.
Thank you to all our past, present, and future TruWealth clients. I have grown as a person, and as a Financial Adviser, alongside you and I value each and every one of you for the diversity, challenges and sense of connection you have brought to my working life. Thank you for trusting me to help you achieve your dreams!