Over the past year there has been an abundance of activity stirring up the financial planning sector. Managing director at Forte Asset Solutions Steve Prendeville paints a picture of the past and explores the forces set to shape the future of financial advice.

We really have to have a look at the last three years to gain an appreciation of where we are today. This year has been one of hypercompliance. Over the last three years we have seen Macquarie Bank receive an Enforceable Undertaking, NAB compensate 750 customers $10-15 million for bad advice and ANZ reimburse 8500 financial planning clients $30 million. More recently, the ANZ rate fixing scandal moved to include CBA, NAB and Westpac.

IOOF faced a senate enquiry and paid $2.8 million to 57 customers. Then early this year the disgraceful action of CommInsure denying genuine claims was brought to attention. ASIC also released details of its Wealth Management Project for the period 1 January to 20 June 2016 with the following results: Three individuals permanently banned; 14 banned for a period of time; two enforceable undertakings; four conditions or fines and one person charged for criminal proceedings. Of the actions taken, six involved NAB, six involved the CBA, Macquarie was linked to five, three were attached to AMP, two to Westpac and two to ANZ.

In a six-month period ASIC secured $13.4 million in compensation, down from $149 million in the previous period.

The state of the sector

The financial services sector is the largest contributor to the GDP. Even when the mining sector was at its peak, financial services was still the largest contributor to the economy of Australia. The sector saw super assets hit $2 trillion in March for 2015. While we’re seeing players like UBS Asset Management Australia withdraw from our markets, we have also seen the introduction of new players.

Italian asset manager Azimut and its Next Generation Advisory firm has acquired 10 financial planning businesses, while the multinational independent financial group De Vere Group came to our shores and said they were going to be the single largest independent advisory group in Australia within a year. South African company Professional Provident Society entered retail risk via PPS Mutual while New York based asset manager Focus Financial Partners put aside $1 billion for acquisitions globally, with Australia set to be one of their key focuses.

The Canadian group, Pavilion Financial Corp acquired Altius Asset Management and we’ve seen the selling out of assets with NAB, as it sold 80% of MLC Life $2.43 billion to Nippon Life. Forte has had multiple discussions with International “study groups” from the US, South Africa and Asia who are all looking at acquisition opportunities within the Australian market and across all sectors of the wealth management industry. Forte has never before seen the abundance of capital, both international and domestic, looking for investment opportunities.

The proliferation of robo- advice

Robo-advice continues to grow in use in the US and UK with US$50 billion funds under management as at June 2016. The list of those who are coming to the local market is increasing with Financial Index, Spring Financial, Yellow Brick Road, Ignition Wealth, Mercer, Infocus, Six Park, Omniwealth Direct, NAB Prosper, Macquarie and BetaSmartz all in or coming to market. Decimal announced the release of two robo-advice packages, Eqillize and Tentalon, which have been designed for use by institutions.

InvestSMART Group has 700,000 registered users and 62,161 investors using its portfolio manager and roboadvice services. Robo-adviser Stockspot announced the use of artificial intelligence to help investors optimise their portfolios. We saw the Link Group announce a partnership with Ignition Wealth, which will see Industry Superfund members get access to online advice tools.

Financial Planning The quality of practices has substantially increased over the last five years as compliance has dominated activities, especially in dealer surveillance and the investment of meaningful CRM information. Most principals are able to quickly produce data on client numbers segmented by service offer, age, location, FUM, platform, etc.

This transparency has also meant more meaningful management reports and a tighter focus on service delivery and corresponding revenue and profitability measurements. Compliance implementation has led to better businesses that can now turn their attention to growth rather than the internal orientation the industry has had to adopt over the last eight years.

The move to non-aligned in the dealer group space

Within the dealer space we’ve seen the migration of advisers towards non-institutionally aligned groups continue. One of the graphic examples of this trend is when Guardians closed in November of last year. Of the 87 advisers, 77 moved to non-institutionally aligned. In a recent survey we conducted in the form of The Momentum Intelligence Dealer Group of Choice survey, 16.3 per cent of the 622 surveyed advisers said they are dissatisfied with their current dealer group. Of those, 38 per cent said they will be leaving their licensee in the next six months. Switching to a non-aligned dealer group was the number one preference for those looking to leave.

The top reason why advisers are looking to leave their dealer group in 2016 is because of ‘poor culture and work environment’. The second motivator for leaving was dissatisfaction with the ‘ownership structure/model’ of the dealer group, while a ‘restrictive approved product list or model portfolio’ was third. The results of the survey show that we still have the highest level of dissatisfaction in the advisory market that we have ever seen.

The changing face of digital investment platforms is transforming the distribution of financial services across the globe. Henry Davis York’s Jon Ireland looks at examples of the ways that particular digital investment platforms are shaking up the delivery of financial services.

When we’re talking about digital investment platforms we’re fundamentally talking about channels that leverage technology beyond the traditional - beyond the consolidated investment approach and fundamentally enhancing the end-user experience. Some of the key features of today’s digital investment platforms include: digital direct-to-consumer interfaces, automated advice or digital advice functions and educational tools.

By looking at examples of key players in Australia, the US, the UK and Europe and their offerings in those spaces, we begin to see how interfaces and advice and education tools are being built differently in different places.

Mixing bricks with digital

In Australia, YBR has recently acquired Brightday, a web-based B2C investment business focusing on superannuation and advice. This is a very clearly articulated acquisition strategy whereby YBR has complemented its branch network with a direct digital solution. The complementary nature of digital and the traditional consumer-facing, bricks-and-mortar approach, as well as the importance of digital for driving member engagement in super, is interesting. This is becoming a very critical part of the business fabric for a lot of superannuation funds - particularly industry super.

Crowd funding and micro finance

Looking outside Australia, Investment Account Platform is a business founded in March 2016 by a group of six Malaysian Islamic banks looking to launch a shariacompliant investment platform. The Investment Account Platform will serve as a central marketplace for small- and medium-sized businesses. This represents the broadening of the investment platform parameter into areas like crowd funding and micro finance.

Diversification and segmentation

 The US is a huge market and one of the key things we’re seeing there is leveraged through diversification and segmentation. A terrific example of this is Ellevest - a digital investment platform aimed at women that encourages goal-oriented investing as opposed to strategies built on risk-based decision making. This is a prime example of market segmentation in the context of targeting a specific niche market; in this case Ellevest is looking to ‘address the gender investing gap’. The marketing on this is very specific, looking at the uniqueness of the salary curb for women, so it’s deliberately saying that advice and support on a whole investment approach should not be unisex. This is an example of a specific target market being explored in a new and different way.

Robo-advice and human investment

BlackRock’s Future Adviser is a digital investment platform that uses a combination of robo-advice and a ‘human investment team’ to manage investments. It’s interesting that the reason ASIC released its consultation and recent regulatory guide on digital advice is a lot of the robo conversation is really about aligning digital with human advice. Importantly, this is a target exercise by BlackRock in addressing and serving the mass affluent segment. Bringing forward initiatives like automated advice, but also digital investment tools and educational tools, takes the service to the local market and addresses issues of financial illiteracy.

 A consumerist approach

Goldbean is a platform that provides personalised portfolios based on wellknown brands and companies. Trading access is provided through a broker partner (Trade King) to execute trades on the investor’s behalf. When we’re talking about the power of segmentation in delivering a service, this addresses the consumerist approach to investing. It literally uses spending habits in order to inform portfolio construction. Goldbean’s platform is data-driven; they’re using robo analytics, they’re using educational tools, and they invite a download of a customer’s credit card details in order to construct a portfolio.

Scalability and vertical integration

Moving more into the mainstream market and looking at one of the bigger players, Betterment is a platform that provides personalised investment advice designed to help the investor meet goals by accounting for factors like cost of living, net worth, spousal assets, income and external accounts. What is compelling about these kinds of solutions is the scalability. An interesting aspect of Betterment’s marketing is that it describes itself as ‘vertically integrated’. That vertical integration, it says, it critical to creating a seamless customer experience.

So what does this all mean?

There is something very fundamental going on with distribution. Technology is creating a new perception of vertical integration – that it is not necessarily a dirty concept but something that can enhance the user experience. We’ve seen market penetration by global asset managers and we’ve seen the importance of customer centricity with market segmentation. These different players are not necessarily start-ups, but they’re certainly seeing market differentiation and segmentation playing out in different and effective ways.