With the recent release of the Consultation Papers on FoFA amendments, it’s tempting to assume that normal service has been resumed for financial planners.  Timely indeed that Goldman Sachs contemporaneously came out with survey results showing “alarming adviser stats” that pointed to a material diminution in the number of retail investors relying on “independent financial advice”.  The pundits were quick to point out that the surveyed sample was potentially skewed towards those who have an inherent under-reliance on financial planners being their sole investment advisers, but nevertheless it sent a signal that normal service has not been resumed and that financial planners are faced with fundamental changes to the industry that no amount of FoFA “softening” will alleviate.

Sure business cycles are alive and well and not disappearing anytime soon, but at the same time there are profound changes that go to the heart of financial planning business models and these changes are resonating with the new consumer of wealth management services.  Despite all the best will in the world and notwithstanding a genuine desire to act in clients’ best interests, traditional advice business models are under the microscope.

T&C has consistently taken the stance that ex-FoFA winds of changes are sweeping through the industry and that clear, decisive responses are required that meet the fundamental changes afoot.  On a positive note, there are already a large number of professional planners well down the track on re-engineering wealth management businesses to meet these ex-FoFA changes and challenges.  Ours is a dynamic industry and there is real dynamism at work in many places.

We touched on some of these fundamental changes in our first blog titled “Forget the F-word” (ie FoFA) which highlighted the forces behind the:

•   Democratisation of content

•   Digitalisation of delivery

•   Disintermediation of the value chain, and

•   Disaggregation among some enterprises (more early stage compared to the other “D” words).

We figure that the next generation of clients is quite different to previous generations in many respects and have a wider array of choices than in the past.  Changing socio-demographics are having profound effects across all industries

Regarding some of the required responses to these changes, our thoughts on the need to respond strategically, and not just tactically, to the SMSF phenomenon were reported recently in Professional Planner, Want to target SMSFs?  Forget FUM”.

We may be more or less on the mark in some of our thoughts, but our consistent message continues to be a clarion call for strategic initiatives to deal with the changing face of advice-seeking clients and the wave of multi-faceted and trans-industry shifts in client behaviour.  Re-engineering of value propositions, infrastructure, operations and even the prevailing culture of the organisation are all on the table.

The choices are stark.  Tinker around the edges in the hope that the rhythm of the cycles and a more accommodating regulatory environment will eventually lead back to the halcyon days of natural organic growth and rich multiples of recurring revenue.  Alternatively, strategically review the real client drivers and create a sustainable comparative advantage that leads to supportable growth and earnings based valuations.

A “taster” cluster of broad strategic responses to the changes affecting all industries can be described this way:

•   “Mean-machine” established business models relying on vertical integration largely based on the traditional industry offers to clients with scale and efficiency gains driving earnings growth.  This category has received a lot of attention as the regulator grapples with the pros and cons of vertical integration in the context of professional advice and consumer protection

•   “Lean, mean niche operators” that refine and re-shape the offer to the client and who single-mindedly target particular client segments with tailored solutions, and clever alignments to tap into scale benefits

•   “Innovative transformers” from either the stock of existing players or from new entrants carving out new markets, new segments, or new, or substantially re-engineered offers, to existing segments that excite a new breed of client to embrace all that the industry has to offer.

One thing’s for sure.  Flicking through the existing channels looking for normal service to resume will be frustrating in the extreme, and largely disappointing.  Focussing on the fundamental changes and developing strategies around the choices illustrated above will be a lot more fun and potentially far more lucrative for both the client and for the professional adviser.