American inspiration

American inspiration

In this special ifa Think Tank, contributing editor Aleks Vickovich moderates a reflective discussion, drawing out key intelligence from the recent Implemented Portfolios US Study Tour 2015 and its applicability to the Australian advice landscape

MODERATOR: Aleks Vickovich, contributing editor, ifa

Dascia Bennett, executive manager - customer, NGS Super

Mark Nagle, executive director, Treysta Financial Life Management

Anthony Rodwell-Ball, chief executive, NGS Super

Jonathan Elliot, principal wealth adviser, Collins SBA

Anthony Isaac, director, AIP Wealth Management

Simon Micallef, general manager, Netwealth Advice Group

James Fraser, managing director, Jade Wealth

Cameron Cogle, general manager, Bridgeport Financial Services

Neil Rogan, general manager, investment bond division, Centuria Capital

Jamie-Lee Fraser, director, Jade Wealth

David Woolford, wealth adviser, Collins SBA

Ray Jaramis, financial life manager, Treysta Financial Life Management

Adam Seccombe, chief executive, product, distribution and marketing, Implemented Portfolios

 

IN SEPTEMBER, with Donald Trump high in the presidential election polls and fears surrounding the outlook for US equity markets rising, a motley crew of forward-thinking Australian financial professionals descended on the American east coast to investigate best practice and current trends in the US wealth management space.

Over four days of intensive seminars and workshops in Boston and New York, covering a wide range of cutting-edge practice management topics, this diverse group picked the brains of some of the US's most innovative and successful wealth management executives and entrepreneurs.

ALEKS VICKOVICH: One of the key developments we have heard about this week is the emergence of 'financial life management' as opposed to wealth or 'investment management'. Mark Nagle, your business has been an early Australian adopter of this approach. What led you to this philosophy of advice provision?

MARK NAGLE: We began to naturally, intellectually drift away from traditional financial advice, partly from observations we had made in the practice and partly inspired by these study tours here which we have taken in the past.

I became convinced that the 'assets under management' model was going to come under threat as the democratisation of financial services gathers pace. We had a demographic challenge in our business: most were in their 60s, like most practices, and we wanted to bring in a younger generation.

The other thing was that I simply realised that the best moments in your advice career with a client are almost never about investments; it's about their lives. Financial life management is about how you have the conversation. It is not a lecture, it's not instructional. It's about listening and allowing your clients to have a conversation among themselves and then apply the behavioural aspects.

ALEKS VICKOVICH: You mentioned earlier this week that you faced obstacles in the 'FinLife' philosophy. What were they?

MARK NAGLE: Well, in many ways the obstacles have been taken away. The main obstacle was our licensee, whom we are no longer with. They insisted on scoring and traditional risk profiling and all these irrelevant things, but not a lot of it makes sense. Our risk profiling now has a psychological testing aspect and now we record the discussion that we have and the client signs off on it.

ALEKS VICKOVICH: To others on the client-facing side, do you feel there are obstacles to implementing a goals-focused or behavioural finance-focused advice business?

JONATHAN ELLIOT: I'm not sure we are being held back from guiding our clients into making smart decisions, but the systems and processes are not set up to support this approach that Mark outlined. The regime we operateunder is designed to ultimately deliver a product, but often in our business – like Mark's – we are offering pure advice, or trying to. That's where the conflict occurs with licensees, because they don't get it – especially bigger licensees with salaried people whose goals are to deliver outcomes to that organisation.

ALEKS VICKOVICH: And a response from the licensees?

SIMON MICALLEF: I'm glad, because this is a good opportunity. It all depends on the leadership of the dealer group and the culture of the specific licensee. In reality, individuals in the IFA space will drive this and they need to change the tide and let their licensee know. If your dealer group is transactional, this can't happen, but if they are open then it could.

ALEKS VICKOVICH: Cameron, I imagine it's difficult at times in that, as a licensee, you want to allow your advisers to provide advice that is in the best interests of clients, but there are also a lot of hoops that you need to jump through, compliance burdens...

CAMERON COGLE: Yeah, I agree with Simon. But also we just need to find the appropriate tools to do it all. Technology will help advisers do what they need to do, so us licensees need to look seriously at all the new technology.

ALEKS VICKOVICH: We will come back to tech, but just sticking with the behavioural finance issue for a moment: Jaime-Lee, you undertook additional studies in neuro-linguistic programming – how has this influenced your advice provision?

JAIME-LEE FRASER: By understanding psychological drivers and human behaviours we can improve lives on many levels. The financial advice landscape is shifting – it is time to evolve and get in touch with emotional and gender intelligence.

ALEKS VICKOVICH: What about you, Ray. How are your psychology studies affecting your practice?

RAY JARAMIS: I was trained at an institution to come in, sit down and tell the client why a particular model portfolio was best for them. Now I have meetings where we don't even discuss investment at all. I feel financial life management is revolutionary because I hear of horrible cases of the product-focused advice some of my clients have previously received. We are definitely at a pivotal moment.

ALEKS VICKOVICH: Any other thoughts about behavioural finance?

DASCIA BENNETT: Empathy. Empathy was the big one for me. It is so important because when you empathise with a customer across the table, as soon as you have that relationship there is a confidence in what they say. Focusing on getting the client to know themselves and have a stronger sense of self is another big take-out. We talk about focusing on the clients' goals but often they might not know what these are.

ALEKS VICKOVICH: Anthony [Rodwell-Ball], I'd like to bring you in because yours is a rather unique perspective here. Has this week changed the way you feel about financial advice and how it will look in your fund?

ANTHONY RODWELL-BALL: Without question. If you start from the premise that you have a real obligation to engage in financial literacy, and advice is part of the whole financial literacy equation, then everything flows from there. As an industry, we push information out to members constantly, but we don't provide them with the appropriate tools for them to pull information pertinent to them when they need it. At the end of the day, advice is about financial literacy. These conversations over recent days have led me to the conclusion that the only way we are going to get our members to have the glorious retirement they deserve is to be able to get advice to them in an appropriate way, but have it cost-effectively delivered, in a sensitive, respectful and intelligent way.

ALEKS VICKOVICH: Are there any structural impediments in an organisation like yours that would preclude this behavioural approach?

ANTHONY RODWELL-BALL: Our problem is that we are not entirely masters of our own universe, because we outsource a lot of the risk management and compliance and so on. Our third-party providers, given our size, tend to have a strong say.

ALEKS VICKOVICH: Anthony Isaac, you are perhaps the polar opposite in that of all the attendees you are perhaps the most in control of your business – 'master of your domain'. What are the key take-outs for you in terms of what you will take back to your practice?

ANTHONY ISAAC: Previous to this week I thought I was doing a lot of what we are talking about in terms of focusing on client goals instead of investment returns, but now I've realised there is more work to do. I've been doing it for so long that you get into a habit of risk profiling and picking and flicking. For example, I want to focus more on getting deeper into client goals and what drives them, rather than just listing the goals and objectives they tell me and then tracking progress.

ALEKS VICKOVICH: I don't want to get into a big barney about pricing models, but we have met many RIAs here who say they are 100 per cent committed to goals-based guidance and advice, and yet are still remunerated via a percentage-based fee. Are these consistent? Is it possible to be remunerated via assets under management and provide financial life management?

DASCIA BENNETT: For us, I have learned that advisers need to not be afraid to have a discussion with their clients about the cost and value of wealth management. In industry funds we always instinctively think they won't pay, but that's nonsense – we just haven't learned how to talk to them about it. It's about discussing value, not fees.

JAMES FRASER: It's very apparent that the models over here are old school. I can't speak for the rest of you but for me, asset-based fees are just not consistent with the type of advice we are talking about. For us, we are going to talk about raising our fees for service after this week, not reverting to [investment] management fees.

SIMON MICALLEF: Advisers need to stamp their feet harder. Sure, the practices here have more wealth at their disposal which means the technology is here to cater to them. But back home, IFAs could speak with a more singular voice and put pressure on technology providers and the institutions.

SANTI BURRIDGE: I have been specifically told that until there is a thriving independence movement in Australia then the US providers are simply not interested in the Australian market. The view is that 'if Australian advisers are not going to wake up and take control of their businesses then why would we come in and support them?' There are so many innovative and cost-efficient technologies that exist, especially here in the US, and we could bring them to Australia, but first we need to cut the institutions out of the picture and ensure that advisers are in control of their businesses.

ANTHONY RODWELL-BALL: We are all really challenged by the big institutions. You are and we are. But we should use it as an opportunity to improve, not be intimidated.

JAIME-LEE FRASER: And they've got product so they can charge zero for the 'advice', which we real advice providers can't compete with.

SANTI BURRIDGE: You're right, Jaime-Lee, we can't compete on product – that's why we need to shift the focus. They can't compete with us on client engagement. It's the cost of the investment management that needs to come down, not the advice.

ALEKS VICKOVICH: Part of that, we have heard, is about embracing digital advice. But the complaints have been that the technology is not quite there in Australia yet. So what's the solution? Do we need to wait for it to arrive? What can be done in the meantime?

DASCIA BENNETT: We've got to get on with it. If we just wait for our existing service providers it will be too late and all our competitors will have it at the same time. We need to be bold and take risks with the people that we strategically partner with.

SIMON MICALLEF: In terms of roboadvice, we shouldn't wait for it and we shouldn't build it necessarily. The technology exists; we can whitelabel it. I have learned this week that really the opportunity for advisers in digital advice is in long-term client acquisition. It needs to be embraced.

ALEKS VICKOVICH: More broadly, what are some of your key takeaways from this experience?

ADAM SECCOMBE: One main thread from this week is that there are very strong winds of change blowing through the way advice is provided – and for the right reasons. There is much more humanity coming into the thinking in terms of the tools we use, the style of conduct, the terms of trade. We are facing an increasingly educated and discerning customer who wants 24-hour access across a range of media and devices and we have to adapt to that. That is how we will meet our obligations in terms of stewardship of money.

NEIL ROGAN: As the main supporter of the tour, it's great to be at the forefront of that change in the industry. We want to support innovation. For us, this week it has been apparent that in terms of back office there has been a commoditisation of back-office services and we need to be able to take advantage of that. Plug and play-type partnerships are a significant opportunity for the future; that's how we will be able to compete with the bigger players who have greater scale. As a service provider, our focus needs to be delivering products that support goals-focused outcomes. This week has just reinforced that. We need to help with the front office too and help our clients deliver the type of advice they want to provide.

DAVID WOOLFORD: In terms of delivering goals-based advice, we are quite a long way down that track. We have been quite progressive, but now we are struggling with efficiencies. We need to get 100 per cent better at delivering on the feelings and emotions [clients] have, drawing out the goals, not just writing them down.

SANTI BURRIDGE: Open architecture is the key. Unless you have open API pipes you won't be able to access the innovations. Then you can escape a lowest common denominator business model. But you're probably going to have to do it in the independent environment. The move from the wire-houses to the independent space here is largely what has driven the boom in innovation. The vendors, the tech providers have all followed that movement. In Australia, the innovative vendors won't come until the industry is no longer 'gate-keepered'.

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