Fortnum Private Wealth CEO and managing director Neil Younger claims that advice businesses, including licensees, are only getting larger and all within the sector will need to adapt to the regulatory and structural changes “in order to remain relevant”.
In a new white paper by the privately owned licensee, The inevitable advice journey: Where professional advisory firms are set to land, Mr Younger says the majority of advice businesses have not yet achieved their full potential and that advisers must “bulk up, reduce vulnerability to external shocks and significantly enhance their capital value”.
“Many advisers want to run their own business and many have done an incredible job to date, but the industry is going through a transformational phase and advice businesses, which have traditionally struggled to grow beyond a certain point, let’s say, $2 million to $3 million in revenue, will need to get much bigger,” he said.
“While some advisers are happy to run a smaller business and simply take home a decent salary, as the industry advances towards a bona fide profession, we’re starting to see more ambitious, visionary entrepreneurs. They are not content to run a good business.
“They understand the macro themes driving long-term demand for professional advice, they want to be leaders in the emerging advice profession and, when they ultimately retire, they want to have a material asset to sell.”
Mr Younger further claimed that the “integrated one-stop shop model”, which received much attention in the early 2000s, generally failed because businesses were not big enough.
“They didn’t have the resources to invest in the systems, processes and skills required to expand their value proposition and efficiently execute,” he said.
“To develop and execute a strategy that will drive efficiencies, scale and capital value, advisers don’t need to do everything themselves. More than likely, they will need to leverage the expertise of experienced business partners.”
Interesting that creating additional complexity, in order to charge more fees, could breach FASEA code but a licensee promoting the very same thing so they can charge more, provide more value is called a good business plan. I guess if we achieved those economy of scales and “bulked up” and joined 3 businesses together with all those people, business leaders, and staff we’d need a jolly good yet expensive business coach/ licensee wouldn’t we?
Agree – the “wise guys” have gamed the Industry to within an inch of its life. After the RC – nothing much has changed at that end of town – however the Advisers are collapsing with fatigue, burnout, stress and depression.
The vertically integrated, product owning, dealer group models are apparently still the way to go. Not sure how the BID is satisfied all the way through when in-house products are pre-eminent on the various APL’?
Pushing his own barrow without looking out the window. Financial Planning is broken and the only real solution for the situation to become better is a race to the bottom (ie) at some point the remaining advisers can charge what they like and 20% of clients who need advice will pay for it. The remaining 80% will be turned away.
They obviously have a belief that larger practices are better practices but once there are 8k to 10k advisers left in Australia you really have to wonder why a larger practice would need a licensee because most licensees offer nothing of value.
Your crystal ball is broken.
The industry is in a budding phase… well it has been pruned to the ground!
Those left will need to be “Professional farmers” to pick all the blooms, no generational farmers allowed.
[quote=Commercial]My advice to any client is to ask the adviser whether his continuing employment is dependent on achieving quantitative targets. If so – avoid. The aspirational entrepreneurs pursuing growth at all cost will find they are in conflict with their clients interests.
My advice to any client is to avoid large growth-orientated, listed or private groups. Rather deal with purpose driven professionals who will absolutely place their clients interests ahead of their own [/quote]
Well said. Most issues that caused the regulation overhaul, where because of the exact issues this white paper claims are the solution. Best interest hey…..
We are all driven by quantitative targets. Running a profitable business is a quantitative target.
Just another heads up too Neil…not only is this industry NOW broken (probably deliberately), but you might want to take a look at what’s happening around the world before making these types of predictions.
Businesses, the lower and middle class are being forced by Governments everywhere into financial ruin. There won’t even be an industry for advisers in 3-5 years with the way this is all heading.
How many single adviser practices are turning over $2-$3 million in their businesses, and can physically grow their business with the current compliance regime and look after more clients – this is really aimed at multi adviser practices. But common sense says the businesses that are left, will grow under supply of actual advisers to meet the demand that hasn’t waned at all. Removing some of the red tape we have however will allow everyone to grow further.
If a single adviser practice is turning over less $2 – $3 million they seriously have to consider amalgamating with a bigger practice or selling out. To provide the best advice and service to clients and to meet a practice’s financial, compliance and administration requirements PLUS grow ( and if your business plan is not go grow you need to question why you are ain business ) it needs critical mass and a single adviser practice can’t do that. And it’s not the “red tape” that his holding businesses back.
The more advisers you have in your dealer group the more you need to grow your compliance component…exponentially!
My advice to any client is to ask the adviser whether his continuing employment is dependent on achieving quantitative targets. If so – avoid. The aspirational entrepreneurs pursuing growth at all cost will find they are in conflict with their clients interests.
My advice to any client is to avoid large growth-orientated, listed or private groups. Rather deal with purpose driven professionals who will absolutely place their clients interests ahead of their own
The two are not mutually exclusive. Once can grow steadily at a meaningful rate while managing said growth, all while remaining entirely focused on the client. A smart practice will separate those roles of those in charge or clients versus those in charge of the business anyway, or at least pro-rata client relationships based on responsibilities that dont pertain to clients.
Just a heads up Neil. The industry is broken.
The industry is not broken. Its approaching a point where it will flourish
Agree, we are already flourishing
Yep and dodgy Ex bank advice managers did a great job breaking the industry didnt they.
And not a single one of them has been banned, punished or had their career destroyed.
Where’s the justice in that
Advisers broke it. Stop blaming others or the system. Client best interest sits with the AR. Fees for no service sit with the AR. Charging % based fees and therefore having differently hourly rates for different clients sit with the AR. Your name is on the SoA. Your name is on the ongoing service. You are individually responsible for upholding ethical and professional standards as a person who has put their hand up in Australia to be authorised as an adviser. If you aligned with a bank whose governance and ethics didn’t align with yours why did you stay? Learn by listening to others opinions (agree or disagree) and move forward wiser, more respected and more professional. Calling others “dodgy” while absolving advisers of responsibility for a large part of this mess is nothing more than a cheap shot.