Developments in the financial planning industry are occurring at a very fast pace and have significant potential to impact the take up on Investment products offered by Fund Managers. This Insight has been written to summarise some recent key developments and why they are important for fund managers to be aware of.
- Rigour– the Financial Planning Association of Australia has stipulated that planners must have University qualifications by 2021. This is leading to a more diverse, higher quality and younger advisor workforce.
- Advisers becoming fund managers – the continued pressure on fees is meaning financial planning businesses are constantly looking at ways in which they can deliver the best product for the client at the most efficient cost. In some practises this means running their own equity portfolios which can then earn a management fee, additional to the advice fee.
- Regulation has lead to product innovation– increased regulation means that to recommend an investment to clients Funds must be on an Approved list. Generally listed products are Approved, unlisted products need an independent Research Report – hence the rise of LIC’s, managed accounts and other listed managed fund offerings.
- Technology – the development of technology is impacting all facets of a financial planning business.
- New clients can expect to be introduced to a personal financial concierge and a goals coach before digitally determining financial behaviours and risk appetite and then sitting down with a financial advisor to discuss financial plans.
- Investments are typically managed on a platform. Clients can review investments often at the push of a App button on their phone. Investments are now monitored intra day – month end reporting seems an age ago.
- Complementary technologies are being developed to partner with platforms, such as mortgage capabilities
- Robo Advice is growing amongst clients with fewer assets to invest but the assumptions behind the advice are not subject to regulatory scrutiny, and with a focus on costs this is leading to investors moving into low cost ETF’s and passive investments
- Client retention – there is a growing mismatch between the demand for financial advice and the industry’s ability to retain clients. According to a recent Investment Trends survey of 9552 respondents, the number of advised clients has dropped by 25% over the last decade since 2007. Advisors are typically losing 3 clients for every 2 they gain (Financial Standard, Vol15, 22). This reflects the growing ease of doing it yourself. The SelfWealth platform recently released is capitalising on this interest whereby investors “advise” each other.
- Internalisation – Industry Funds are increasingly internalising the investment management function and where they outsource putting considerable pressure on fees, there is just not the institutional industry support that there once was.
- Increased independence – many tied advisors (those licensed through the Big 4, AMP and Macquarie) are becoming independent and setting up boutique firms that give them more flexibility to invest the way they want to. Often hidden regulatory and insurance costs impact the early profitability of these businesses limiting their ability to invest in higher fee products that offer higher alpha.
This is just a selection of the challenges facing the industry and doesn’t include further regulatory changes such as MiFID II (not in Australia yet) and the changes being brought about by RG 97 which necessitate additional validating of the data received from fund managers, to ensure consistent accuracy of fee data which is reported. Both of these changes are focussed on greater transparency.
What should fund managers be doing in this environment? Gateway Financial Marketing some points for fund managers to consider.
- Good consistent performance is at the heart of every successful funds management business
- Brand and visibility are more important than ever, make sure there is a strategy for developing both on an ongoing basis. The more you invest in distribution the more successful you are likely to be.
- Often more successful businesses will have more pathways to access – from differentiated product offerings to also different vehicles such as Unit Trusts (PDS), SMA’s, mFunds and an LIC etc all provide different clients with access routes that suit them. Don’t put all your eggs in one basket!
- Think about ways in which you can engage with technology – advertising via social media, podcasts, webcasts, accessing a robo-advice platform
- Be accessible, in this data driven world it is expected that clients will be able to have look through into their investments – be open and transparent.
- Work on developing deep relationships with supporters and see if these can be extended. Word of mouth is a great way to build your reputation and business.
- It is a buyers’ market, fee expectations should be low, a base fee and performance fee above a reasonable hurdle, with a high water mark are the way to go.
- Ask for help! Gateway have the experience to assist.