Financial planning opportunities amid the challenges

Industry experts suggest that the financial planning industry is experiencing an era of change no less significant than the 2001 financial services reform. While this presents significant challenges, some argue that the timing is right for advisers to enter rewarding areas of holistic advice like estate planning, writes Caroline Munro.

All the pieces seem to be in place for advisers to take advantage of the lucrative opportunities inherent in estate planning: the baby boomers are entering retirement; arguably fee-for-service is paving the way for more in-depth relationship-based advice; regulatory change is demanding a shift in focus from product to individual needs; and improving technology is providing more flexible investment and advice solutions.

Despite these drivers, some argue the financial planning industry is not ready.

Ready or not, the interest is definitely there and it is not just specialist or independently-owned advisers. The opportunities around estate planning are obvious to all sectors of the industry.

As super balances grow, clients and advisers will be dealing with heftier sums and more complex personal situations. More money will also cross the generations — in fact, ‘intergenerational wealth transfer’ is already a popular catch phrase.

“Baby boomers have about $2.5 trillion worth of assets in their hands that will transfer between generations over the next 15 years,” says chief executive of OneVue Private Clients, Matthew Lock.

There is great opportunity in the intergenerational wealth transfer space for planners that establish their position as lead advisers among all the professionals that deal in this area, he says.

Equity Trustees has been in the estate planning field for over 100 years. Its head of wealth management, Philip Galagher, says it is understandable that financial planners are interested in the field. Their baby boomer clients are starting to enter retirement — and commissions on investment products are beginning to dry up.

“Baby boomers are entering a period that will be more lucrative again for financial advisers if organisations are properly structured for them,” says Galagher, referring to the considerable wealth represented by clients’ homes and insurance.

But they are not only thinking of themselves and may have parents with their own estate planning needs, like aged care, he adds. Incidentally, Equity Trustees’ most recent acquisition was an advisory business specialising in the aged care sector.

Galagher also notes that the desire to transfer wealth on to the next generation is ever-present and an easy sell for advisers. “Estate planning represents an absolute need in the market that planners are now starting to recognise.”

Estate planning advice is also likely to require a shift to business models that are not market sensitive – an issue that perhaps more advisers are thinking about as volatility continues. Galagher says that dealer groups are concerned about regulatory change and the viability of their business models, and estate planning is one way they can adapt to change.

Having a deeper relationship with their clients and the subsequent generations in the family is where the real opportunity lies, says Michael Perkins, head of private client practice at Andreyev Doman and technical services manager of EstPlan. He has 25 years experience in the area and says market conditions, regulatory change and advancing technology are enhancing opportunities for advisers.

“We are seeing a year of change coming that is no less significant than the start of the Australian Financial Services Licences regime in 2001, and there are advisers out there that will embrace it.”

He believes the estimated 20 per cent of advisers not aligned to retail product will see estate planning as an opportunity to boost their relationship-based offerings as the foundation for their value proposition. He says, however, that institutions are also keen as they jockey for A and B clients, meaning larger groups are focused on lifting their advisers’ skills in the more relational-based aspects of financial advice.

Galagher says Equity Trustees has noted an increase in enquiries from dealer groups looking to ‘white label’ their estate planning services. He asserts that many dealer groups are years away from having the capacity and skill to deal with their clients’ estate planning needs in-house and, considering the immediate need, are looking to trustee companies.

Bendigo Financial Planning head of financial planning strategy, Greg Everett, says that in the last year the group has sought to focus more on estate planning as part of its advice offering, leveraging off Sandhurst Trustees and providing greater training and support for its advisers. He adds that this is being driven by a changing market environment and fee-for-service. 

“We really want to educate our advisers on moving beyond being transaction arrangers, which I think has been a criticism specifically of bank and institutional type advisers,” he says.

Everett agrees that traditionally the group’s focus has been on funds under management (FUM), another criticism that has been aimed at dealer groups in general. Bendigo wants to push its advisers to look beyond product to consider more of their clients’ advice needs, including intergenerational advice, he says.

“Estate planning is key to doing that effectively,” he adds.

Perkins agrees that dealer groups shifting their focus away from FUM has been fuelled by the best interests test and changes to corporations law, as well as the shift from commissions to fees. He says estate planning advice can be considered “a working definition of the best interests test”.

AMP head of financial planning Steve Helmich says it is unfair to state that a focus on FUM has led to dealer groups neglecting estate planning, noting that AMP has provided those services for some time.

He also disagrees that a renewed focus is being driven by fee-for-service, but is rather the result of growth in superannuation assets and clients acknowledging that relationships and finances are becoming more complex. AMP is nonetheless increasing support services and education for its advisers, he says.

Count Financial is another big fish – one set to be swallowed by the Commonwealth Bank of Australia – that claims to have had an estate planning focus for a long time. Count Financial executive of advice, Dean Borner, agrees that there is growth potential in that space, leading the group to expand adviser training. Count aims to provide more estate planning support services for its advisers, he adds.

The key driver is the need to ensure that advisers are providing a “complete level of advice”, says Borner.

National technical director of the Self-Managed Super Fund Professionals’ Association of Australia (SPAA), Peter Burgess, says estate planning is becoming an increasingly important part of self-managed super fund (SMSF) advice as family structures become more complex and as super balances grow. He claims estate planning is one of the reasons more people are turning to SMSFs.

“Having an SMSF is not just about investment control. It’s also about the control you can have in the event of death. It can be very important for people who have very substantial balances in super as well as complicated family arrangements.”

Financial Planning Association (FPA) general manager for professionalism, Deen Sanders, says a renewed interest in estate planning is due to the evolution of the financial planning profession.

“The natural dialogue between advisers and their clients is to start to think about intergenerational wealth transfer.”

He adds that the changes in the industry are leading advisers to look for deeper relationships with clients — and talking about the family is a good starting point.

But do financial planners enough?

The interest may be there but estate planning is a complex area, which industry experts argue requires significant skill and experience. Galagher says even with training an adviser needs experience. He would rather see dealer groups work in partnership with experienced professionals, and then build up their own in-house capabilities over time.

Lock agrees that with the considerable sums set to change hands in intergenerational wealth transfer, “just a normal financial planning knowledge of estate planning and the management and transfer of wealth will not really suffice”.

SMSFs can add even further complexity to estate planning that require specialist competencies, says Burgess. 

Count Financial adviser Colin Bishop of Crosby Dalwood provides estate planning advice. He says his acquisition of knowledge has been self-motivated and supported by the dealer group through the provision of courses.

“There used to be a standard approach of ensuring clients had a will and sorted out power of attorney,” he says. “I think we are just beyond that nowadays and the level of advice needs to be far greater.”

Borner says the availability of good estate planning courses has improved over the last two years. Everett agrees that the standard of education may be getting better, but there is still a way to go.

“There is a large amount of education required across our internal advisers, and I’m sure that extends to other dealer groups as well,” he says.

The number of courses has grown, but Galagher is concerned that advisers may think that introductory courses will be enough. 

“The problem with those introductory courses is that that is all they are, whereas we deal with clients at the highly sophisticated end.”

EstPlan is partnered with the University of Technology Sydney and has also partnered with the FPA to develop its Accredited Estate Planning Strategist Program. Perkins says EstPlan has seen an uptick in interest in its programs, although it is still lower than they would like.

“I think this year has been a year of uncertainty where people have been investing in training and change, but with the Future Of Financial Advice (FOFA) changes we are set to take another step up.”

Perkins says there has been an increase in interest from dealer groups and institutions, as well as from law and accounting firms.

“Estate practice is becoming the discipline that underlies private wealth management across the traditional professional domains of accounting, tax, finance and law. That’s probably been the most interesting evolution this year.”

SPAA’s accreditation program for SMSF specialists also has an estate planning component, says Burgess.

Yet advisers may also have to think beyond the straightforward estate planning courses, says Lock, as simply asking the hard questions can open a Pandora’s box. He joined The Institute of Arbitrators and Mediators Australia.

“It’s a set of skills I certainly want to acquire in that mediation area to ensure that if I am going to ask those questions, I am able to respond with some skill,” he says, noting that he was recently asked to chair a family meeting.

“People live very complex lives and it’s not a money thing. There can be deep-seated feelings against individuals in the family - and as a planner you need to have the listening and questioning techniques, and develop those skills that enable you to navigate through all of that.”

Perkins remains concerned at the relatively small number of professionals dealing in this area of advice, although he is pleased with the growing presence in Australia of the Society of Trust and Estate Practitioners (STEP).

The FPA’s estate planning program was developed in line with other professional communities, including STEP, Sanders notes. He says that while there is a lot of dialogue about the professionalisation of estate planning, many advisers do not have the skills and experience to deal with it adequately. The FPA has seen an increase in enquiry about its accredited program too, Sanders adds.

Lock has also worked with EstPlan and has developed what he called the Client Service Delivery Model, which proposes a whole new way of thinking about advice and the value proposition of the adviser in the estate planning process. Understanding how advisers will fit in the process between other professionals is something that the industry is grappling with, says Lock.

Fitting in

For many, this complex area of advice will require partnerships or relationships with professionals in other fields, presenting a wealth of referral sources.

Lock’s Client Service Delivery Model advocates the concept of advisers filling the lead adviser role, whereby they coordinate all the bits and pieces, working with referral partners or in-house specialists to do all the running around for the client. It is a significant change to traditional business models where it was left to clients to manage all the professional relationships between tax accountants, lawyers, financial planners, insurance brokers, sharebrokers and super funds, says Lock.

“No-one had the role of the client’s agent or fiduciary, and yet financial planners are well placed to take on that responsibility.”

He concedes it is still early days. “No-one, planners included and certainly not the solicitors and insurance brokers, will be used to having someone else perch themselves in between them and their client.”

But he argues that this concept will suit all those advisers who always thought there was something wrong with the financial planning process - himself included.

Bishop agrees that estate planning is an area of advice very much in its infancy, and is still being driven by advisers simply asking their clients if they have a will and then referring them on. However, he envisions that the three disciplines of law, financial planning and accountancy will be wrapped in one package.

“But not every financial planner, solicitor or accountant is licensed to do that, and may not have the resources and infrastructure,” he says.

Referral relationships could work well, yet there may be fear among advisers that it would be difficult to maintain their lead adviser status. There is always concern that they will lose their clients to other professionals altogether, Bishop says.

“That’s a fact of life. The whole idea for any business is to retain your clients, but only with the services you can offer and do well. There’s no point in trying to retain a client for the services that you do half-well,” he says, adding that will only lead to trouble.

Sanders says the concept of a professional relational practice will evolve in time, where a professional community of lawyers, accountants, auditors and financial planners comes together and from which networks grow.

For now there are a number of places advisers can look for specialists. Sanders suggested the Law Council of Australia website identify estate and trust specialists, with advisers also tapping into the STEP community. Perkins suggests law societies as a source of professionals that may have Wills and Estate Specialist Accreditation. Tax Institute members and Certified Practising Accountants are also a good port of call, he adds.

Galagher maintains that unless advisers have an aptitude for the law, then estate planning is an area they should perhaps not delve in.

“It is clearly an attractive area of business, which fits nicely with their broader service offering. But it’s not as simple as hanging up a plaque outside your door – it needs a lot more than that,” he says.

“People may feel that they can reduce liability with their professional indemnity insurance, but their professional indemnity (PI) insurer may to date not have contemplated estate planning advice.”

Perkins says that when PI insurers review business models, the view has always been expressed that dealing with estate planning actually reduces advice risk. He does not believe that taking on estate planning will create greater liability. Rather he asserts that by simply referring clients elsewhere, advisers may not only go against the reasonable basis for advice requirement, but may face greater reputational, relationship and business risk.

“The reality is that financial planners are well placed to take a lead adviser role. Estate planning is complementary to their financial planning knowledge and advisers take to the learning quite easily. The value they add to the client well exceeds any additional risk, provided that they are trained correctly in the first place.

“Telling clients to go to a lawyer and sort out their will is a far more dangerous statement,” Perkins adds.

Borner says advisers need to be careful with any advice they give.

“Because of the nature of this type of advice and the family disputes that arise, it is an area that advisers have tended to stay away from purely because they are worried about the consequences of getting it wrong,” he says. “But we would rather be active in this area and have our advisers at a higher educational level than simply ignore it.”

The missing piece

Technology and software seem to be missing in estate planning discussions, although some of the bigger software providers have included an estate planning component in their offerings.

XPLAN, for example, promotes its customer relationship manager system as easily adaptable to collecting the level of information needed for estate planning, while Midwinter’s AdviserTech also has an estate planning component. However, it seems that there are few if any solutions specific to estate planning within the financial planning arena.

Estate planning capabilities are looked at as part of Investment Trends’ annual Planner Technology Report. 

“Planning software generally has limited support for estate planning as it mainly deals with clients’ investible assets, though they do cover some parts of the broader legal and tax related issues of estate planning,” says lead analyst Recep Peker.

“Clients with substantial assets typically use the services of tax specialists or accountants alongside their planner to manage their assets.”

Perkins says a barrier for advisers is the absence of reliable tools for profiling the situation of the client.

“For dealer groups especially, the main put-off is how do they scale the personalisation of advice – where are the tools and where is the knowledge? It’s still a work in progress.”

However, he notes the development of product-less wrap accounts are a huge advantage in estate planning. 

OneVue has developed a unified managed account, which enables advisers to view their clients’ total net financial position, with all assets and liabilities managed in one place.

Lock acknowledges this won’t be a competitive advantage forever, but the real focus is not necessarily technology, he says. For him, the key difference has been changing his questioning technique, enabling him to delve deeper into his clients’ particular circumstances.

Borner believes that there will be innovation in niche areas like superannuation and insurance, but he agrees that asking the right questions is paramount.