In our first blog, “Forget the F-word”, we touched on the D-words that are having profound effects on all industries, especially financial services and wealth management.  We itemised the D-words as:

  • Democratisation of content
  • Digitalisation of delivery
  • Disintermediation of the value chain.

At T&C, we also identified a fourth, emerging dynamic – Disaggregation.  This was picked up by Simon Hoyle in his article, “Marketing Positioning to Dictate Rewards”, Professional Planner 15 August 2013” (http://www.professionalplanner.com.au/practice-management/market-positioning-to-dictate-rewards/).

Make no mistake.  The advice industry is at the crossroads.  While there may be signs of a thaw from the worst wintry conditions in some time (see the latest Investment Trends Planner Business Model Report), organic growth is weak and adviser sentiment is fragile according to the recent Marketing Pulse survey of both UK and Australian advisers.  And if you think that the F-word – FoFa – was disruptive, then wait until the D-words work their way through the industry.  Making those extra sales or servicing calls and merely tightening up operational efficiencies will not get you there.  It will take much more to re-ignite both non-market related growth and material value accretion.

In “Digital Disruption: Short Fuse, Big Bang” Deloitte, the authors of that study, singled out finance and professional services as two industry sectors most likely to be affected by the sorts of changes embodied in the D-words.  Finance and professional services landed squarely in the “short fuse, big bang” quadrant, where immediate action is required to deal with the consequences.

The solace though is that people need advice.  A recent academic study at Griffith University illustrated the value of advice but highlighted that many potential clients will not embrace advice unless and until there is a mind shift in the way advice is positioned and sold.  In short, the overarching advice and wealth management strategy needs to be re-visited.

Already, the seeds of change have been sown by FoFA and much of the recent effort in the industry has been focussed on operational changes to fit a post-FoFA world.  T&C suspects that a lot of this effort has been more operational than strategic, which is understandable given the piecemeal approach to the roll-out of FoFA “regs, legs and guidance” and the political uncertainty.  But when coupled with the D-words, a more strategic approach is not only required but mandatory in order to survive and prosper.  A tweak here and a tweak there won’t cut it.  A more fulsome strategic response is required that covers not only changes to cost structures, the replacement of revenue streams, margin protection and the like, but also a re-think of the entire business strategy including markets, target customers, market positioning, product and price offerings, channel and sales management, delivery mechanisms, service packages, infrastructure support and the back-office.

In response, many wealth management businesses will become more streamlined versions of their current business model, particularly the larger, wholly vertically integrated models.  Others will dominate particular niches, while new or existing players will emerge as transformers or disruptors that re-define market segments and product offerings.  We have already seen some emerge and examples will be raised in future blogs dealing specifically with each D-word, but for now, a little should be said on the importance of a cohesive and integrated strategic framework.

A coherent strategy, properly executed, is the centre piece of both value creation and value realisation.  Valuations of financial planning firms will increasingly come under pressure unless there is demonstrable evidence of sustainable and growing cash flows, i.e. that the historical asset based product fees and recurring revenues are replaced by something similar in terms of both quality of earnings and longevity.  In many cases this requires a re-write of the business plan and a fundamental re-structuring of the business model.  At T&C, we call this value amplification – it’s time to turn up the volume with new music to the ears of the potential client – or simply fade into obscurity as an old and tired rocker!

If you can relate to any of these issues, contact us today.