The next 10 years: Disrupted in a decadeSeptember 21 2017
Bill Gates once famously said, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10.”
The next two years in Australia’s financial advice industry will probably be business as usual; the next 10 will change the landscape beyond recognition. Some highlights:
The curious incident of the disappearing asset management fee
One of the most significant developments in recent years is that client funds can now be managed with lower costs, greater proactivity and enhanced efficiency. Yes, discretionary managed accounts are going to revolutionise asset management. Robo-advice grabbed the media’s attention but version 1.0 proved a damp squib, much to the relief of many. However, robo 2.0 will be better and robo 5.0, to be launched in 2027, will use artificial intelligence (AI) not only to build model portfolios but also to design a portfolio tailored to the client’s spending and income needs. Fees to manage client funds will plummet.
Paraplanning’s grim future
A Statement of Advice consists of a whole heap of data, some goals and a bunch of strategies for how to go from A to B. The value-added part (the strategies) is a set of highly complex rules and regulations – essentially an algorithm. AI is tailor-made for the production of compliant SoAs, and future document production will be handled by low-cost offshore workers and machines. Data will be stored in cloud-based systems, such as Google cloud computing and Microsoft Office 365, removing the need for domestic paraplanners. Australian paraplanners will seek to move up the value chain but there will be far fewer of them.
Prospects will use Adviser Ratings
Today, clients find and research advisers by asking someone they trust for a referral, and checking the firm’s website and the adviser’s LinkedIn profile. In the future, clients will trust user reports on TripAdviser-like websites such as Adviser Ratings. Greater confidence in the industry and lower fees will raise the percentage
of Australians choosing to engage an adviser by up to a third, from 20 per cent today.
The convergence of accounting, mortgage broking and financial planning
Accountants, who face serious challenges to their profitability, will become planners and vice versa. It’s already happening. Regulatory pressure will be the catalyst but the synergies are simply too great to ignore. The only impediment today (Xero and XPLAN being unable and unwilling to talk) will be fixed by 2027.
Live balance sheets
Today’s torturous process of collecting client data will be a painful but distant memory. Firms like MyProsperity and Ignition Wealth will enable bank account and credit-card data to be managed and displayed in real time. This will transform cashflow management and budgeting.
RIP: the dealer group
We predict individual licensing of advisers will replace communal licensing. Dealer groups will morph into professional service groups, providing practices with a suite of adviser services, such as technology, marketing, document production, compliance and training. Just not licensing; the maths don’t stack up.
The barbarians will storm the gate
If you haven’t yet heard of Focus Financial, then look them up. Giant foreign private equity-backed aggregators will roam the Australian advice landscape, devouring every mom-and-pop shop in their path. The veterinary and dentistry industry models are the future.
Tyranny of distance no more
Face-to-face meetings will be the preserve of the rich and the retired. Younger and busier clients will engage with their advisers in virtual reality through their hologram phone. Virtual meetings will dominate advice, removing the need to be in expensive city-space.
Exit the GP, enter the consultant
In 2027, most personal insurance and mortgages will be purchased online. Basic financial advice will be almost free and AI-based machines will manage portfolios for less. Advisers will become specialists, life and career coaches and expert relationship managers. Life in the mass market, to paraphrase the English philosopher Thomas Hobbes, will be “poor, nasty, brutish and short”.
The future is youthful, Asian and feminine
Today’s advisers are (to use an appalling phrase) male, pale and stale. In 2027, women will account for 40 per cent of advisers, second-generation Chinese investors will be the red-hot sector, and legions of talented young graduates will choose financial advice over investment banking due to the professionalism of the advice industry, its greater flexibility and the sense of making a direct impact on others.
“May you live in interesting times” goes the apocryphal Chinese saying of yore. Some call it a curse, others say it’s a blessing. Whatever side of the fence you stand on, be prepared, for change is upon us.
Jonathan Hoyle is chief executive of Stanford Brown.