Australia

2 months

How can self-directed investing future-proof your advice firm?

Ravi Verma

Ravi Verma

Head of Distribution

OpenInvest

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Yet again, the financial services industry in Australia is going through change. As a business owner, you could easily become distracted by the impending Quality of Advice Review outcomes and let another year pass you without focussing on the growth of your business.

But what if there’s an even bigger issue looming, that could have more of an impact on your business?

In the US alone, it’s expected by the year 2042, approximately $70 trillion in investments will move from parents to their children and charities¹. It will be one of the greatest transfers of wealth we will see this century.

In Australia, this transfer of wealth is expected to be $3.5 trillion by 2050, as it moves from parents and grandparents to the next generation of beneficiaries.²

What’s the problem with that you might be asking? Sounds like a normal transfer of wealth to the next generation.

According to a US study, the problem becomes clearer when only 13% of beneficiaries are expected to stay with the adviser that supported the wealth accumulation of their parents.³

Further to that, some of the remaining 87% of beneficiaries had never even considered using their parent’s adviser (88%). It was even more telling why, when many of the advice practices surveyed admitted they don’t currently have relationships with their clients’ children (48%) or grandchildren (57%).⁴

It’s likely that Australian advice firms would not be vastly different.

We could even say that the reduced number of advisers in Australia has created a buoyant market for advice firms and the need to look to the future is being outweighed by the current excess of clients, as well as the demands around managing the delivery of advice within our current requirements.

So, what does that mean for your advice practice?

“When you need a relationship, it’s too late to build one.” – Dr Lois Frankel

The issue of retaining wealth when it transfers from your clients to their children has been an issue of discussion for quite a while now. Many advice firms don’t have ways to service clients that don’t fit their model cost-effectively, nor have they implemented ways to connect with the children of their clients.

This represents an opportune time for advice firms to reconsider their existing business models and services by asking questions like:

  • How do you deal with a client that doesn’t quite fit your ‘ideal client’ avatar?
  • How can you service clients that will earn more in their careers in future years?
  • How can you connect with clients that may receive a lump sum at some stage, like an inheritance?

The most common options until now have been to refer these leads to someone else, discount your fees or take on work you don’t really want. With compliance requirements placing significant cost restraints on advice firms, offering full advice at a discount can be prohibitive. It can also be hard to refer them to another adviser, especially when there might be a family connection.

So, what is the answer?

Have you separated out your advice service yet?

Ambitious firms want to make a difference in their clients’ lives and ensure they’re meeting consumers’ changing expectations. Innovation and technological advancement are now influencing client expectations due to how we consume everyday goods and services.

These firms want to offer solutions to clients that meet their life stage, whilst also maintaining profitability. The answer might be to provide investment expertise and full strategic advice as two separate solutions.

Research shows that Australians need and want help with their investment portfolios, but 40% aren’t in a position to afford full strategic advice. This is pushing more people to lean on their super fund for guidance.⁵

Not only can some clients not afford full strategic advice, they also may not see the value of it. But what is present is the opportunity to provide education to these clients. Your ability to provide expert commentary and information around investment themes will enable your firm to be in a better position when they’re ready for full advice.

Like when they inherit mum and dad’s wealth.

By offering a digital investment solution, you’re meeting clients where their needs are right now. Some clients will always want some level of financial self-direction and working with advice firms that offer such a solution will be attractive to them. Providing an innovative solution that is technology-based is another win for practice owners, as it gives clients immediacy with their investment decisions – giving them control no matter where they are in the world.

Are you also looking for ways to increase the value of your practice?

The value of advice practices is decreasing, mainly if you’re still relying on a multiple of revenue. However, if you’re working hard on all the factors used to value an advice business, separating investment from advice might be a value-enhancer.

One way to increase value is to improve your referral partner relationships and lead generation. Many advice firms don’t have the referral relationship process nailed down.

Using accountants as an example, an advice practice might only get referrals here and there because many accounting clients don’t want or need full strategic advice. Or possibly, the accountants aren’t comfortable with an adviser recommending a full advice scenario.

However, if your accountant referral partners can send clients to you on a portfolio management basis only, it could be a more straightforward discussion for them.

This would allow you to communicate with the client, show authority, and develop trust over time, which may also develop into a full strategic advice client in the future.

What can your firm do?

What is apparent is the need for advice firms to deliver cost-effective digital investment solutions to serve a large and growing segment of unadvised Australians. These investors need guidance but can’t afford the rising cost of traditional personal advice or think they don’t need it just yet.

Partnering with a provider to create your own digital solution will enable you to better segment your client base and attract a new generation of clients, including the children of your existing clients, who are looking for more self-directed investing. Not only will you better meet the client’s current needs and wants, you’ll be able to do so in a very cost-effective manner.

We speak with advice firms who have taken the leap to a complimentary digital solution

Over the coming months, we will be highlighting some of our partner firms who have taken the leap to include a digital solution as part of their service offering. They’ll talk about how they made the decision, the steps they took to implement and what the outcomes have been.

In the meantime, here are some of their comments on how our partnership has supported their growth initiatives:

“OpenInvest technology is our key weapon in scaling the delivery of our intellectual property and reaching clients we just couldn’t economically serve via personal advice.” – Dominic Alafaci, Managing Director, Collins House Online Investment Services

“Having a customised investor app has been a game-changer for us. Our investors literally have our brand and portfolio at their fingertips, and they love the simplicity and transparency.” – Ben Morrissey, Lead Investment Manager, Morrissey Group – Shaw and Partners

OpenInvest allows us to communicate important lessons to the next generation now, helping them to understand the right way to think about long-term, sensible investing. And that means properly diversified investment portfolios, not trading.” – Will Hamilton, Managing Partner, Hamilton Wealth Partners

We hope their stories will give you some guidance on how to take your first steps with a solution like ours, as well as certainty around how it can support your advice firm to retain next-generation wealth more successfully.

¹ ³ ⁴Cerulli Associates, The $70 Trillion Dollar Opportunity, 2020
²AFR, Baby Boomers to pass on $224b a year by 2050, 7 Dec 2021
⁵Investment Trends, 2021 Financial Advice Report, 2021

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