Why financial advice models have to change

The past 12 months have proved immensely challenging for traditional financial planning providers.

The previous several years of market-driven revenue and profitability growth have meant that maximising productivity and efficiency hasn’t necessarily been top of mind for financial planners.

How things can change. Now we are experiencing an increasingly tight advice market, coupled with ongoing resistance to the traditional financial planning approach.

So it is quite clear a paradigm shift is needed. The bottom line is traditional advice models that service higher-net-worth clients are simply not working for most Australians.

People are reluctant to accept they need financial advice and find it difficult to assess the value of investing in traditional financial planning services.

As an added concern for the broader advice industry, successive generations are less and less turned on by the financial planning offerings that may have appealed to their parents or grandparents.

This suggests there’s a very real risk that, unless there is a significant shift in the way advice is delivered, the industry may struggle with the generational transfer of wealth.

As working Australians are essentially conscripted into superannuation, this provides an obvious starting point for engaging with them on financial matters.

But finding a way to make money servicing the so-called ‘mass affluent’ has become one of the holy grails of the advice industry. There has been a lot of talk around this issue over the years, but not a lot of traction gained.

Perhaps the industry as a whole has failed to understand the strong psychological barrier to seeking and paying for financial advice.

By breaking down the advice process into ‘scratching specific itches’, rather than being bombarded with a full-blown plan, there is a much better chance of developing a productive relationship with mass affluent clients over time.

Part of the answer to developing a successful mass affluent advice model lies in a combination of four cornerstones — strong long-term commitment by the organisation to the concept, human-friendly technology (to assist in advice delivery), a high degree of systemisation (to manage costs and efficiency) and a natural context to focus on (such as a single money issue or limited advice opportunity (eg, corporate super)).

Without the first of the cornerstones — strong commitment to the concept by the organisation — the mass affluent advice model will fail. This is not a little experiment that can be played with ‘on the side’ while concentrating on the ‘main game’ of traditional advice.

While it can work well hand-in-hand with traditional financial planning, it requires a different mindset, a willingness to embrace new ideas and invest significant resources into getting the processes and systems right.

Human-friendly technology underpins the effectiveness of an event-driven advice model.

Single issue advice can often be delivered, with relatively low cost, over the phone, enabling customers to dictate the timing of the contact and avoid the potential ‘across the desk’ psychological barrier often associated with face-to-face financial planning meetings.

In particular, the web is still the sleeping giant when it comes to getting Australians more involved and active in the management of their financial affairs.

Once armed with sufficient background information so they are comfortable with seeking specific advice about their own issues, clients will be able to book in for phone or face-to-face consultations. This is where event-driven advice can work well with traditional planning.

The third cornerstone is effective systemisation. Without robust systems and ‘industrial strength’ infrastructure designed specifically to support the scale of advice requirements for large numbers of employees, providing this level of service at reasonable cost is virtually impossible.

The fourth cornerstone is having a context for the advice provision. An appropriate context creates a clear focus and meaningful catalyst, and calls the member to action.

Our view is that the workplace, and by extension corporate super, is the logical context to foster financial awareness, knowledge and skills, since it is the likely source of most income for the majority of a company’s staff.

In summary, these four cornerstones allow a financial services organisation to concentrate on event-driven advice, providing a non-threatening opportunity for people to engage with an advice provider on their terms, in their time and at their convenience.

So, on the basis this level of engagement can lead to a solid long-term relationship between client and adviser, it makes sense for industry participants to consider the model carefully, even though it requires a different approach compared to traditional advice and is not for the faint-hearted.

Perhaps at this time of increasing pressure on the financial services industry the question becomes this: if we’re unable to embrace the mass affluent advice model, how will we be able to sustain our traditional business over the long term?

Nick Collett is group executive, sales, at Outlook Financial Solutions.