Innovation providing opportunities for the nimble and non-aligned
Market and advice models are changing and we believe that nimble advisers and managers, unencumbered by often inflexible legacy processes and infrastructures, are best placed.
"We spend a lot of time thinking about the ways that prestige and resources and belonging to elite institutions make us better off. We don’t spend enough time thinking about the ways in which those kinds of material advantages limit our options," wrote Malcolm Gladwell in David and Goliath: Underdogs, Misfits, and the Art of Battling Giants.
Large institutions have historically dominated the Australian financial services landscape. This has offered significant benefits of scale to financial advisers and fund managers that are aligned to those institutions. However, the market and advice models are changing and we believe that nimble advisers and managers, unencumbered by often inflexible legacy processes and infrastructures, are best placed to take advantage of these developments to the benefit of their clients. There are now real opportunities for non-aligned fund managers to collaborate with advisers and solution providers to build smarter products and services to meet clients’ rapidly changing needs.
Over the coming decade, we expect there to be an acceleration of the polarisation of advice models. At one end, salaried advisers tied to compliance-oriented, mass affluent holistic advice and at the other bespoke boutique firms eschewing traditional portals such as managed funds and investment platforms. And while there will always be quality advice firms all the way along the spectrum, the macro trends of diverging models are irrefutable. Some prominent banks have recently chosen to exit completely from self-employed aligned advice, which is one indicator of the way the wind is blowing. Another is Tria Investment Partners’ recent study, which found that advisers targeting affluent clients expect to reduce their FUA on platform by nearly 10 per cent over the next three years.
Rapid technological improvements are also driving fundamental market shifts, providing both challenges and opportunities. We are seeing disruption across industries and financial services is no exception. In this environment, innovative solutions and new methods of distribution will become increasingly prevalent, challenging the incumbent institutionally dominated model. And it is firms without tied distribution that have the freedom to explore the exciting opportunities that such innovation presents.
‘Fintech’ firms such as Fincast are starting to hit the market with portfolio management and advice applications. These can range from basic robo-advice, which guides clients via a series of simple questions to an appropriate strategy, to highly tailored, automated forecasting and portfolio management tools. Such automated tools are here to stay, with Greg Medcraft, chairman of ASIC ,confirming in a speech that ASIC is "…engaging with the industry on these new developments and how they fit within the regulatory framework. We see the potential of robo-advice to offer a convenient, low cost, trusted advice offering to consumers".
Sam Hallinan is the managing director of Nikko Asset Management
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