A thriving financial advice business looks very different today than it did only a few years ago. Increasingly stringent regulations and higher client expectations have left traditional advice firms struggling to make headway - with thousands exiting the industry. Interestingly, advisers prepared to adopt a modern financial planner business model are quickly filling the void and boosting their profitability at the same time.
The modern model for advice businesses:- Has a value proposition that is firmly focused on clients' individual goals and circumstances
- Provides strategic financial advice rather than investment management value proposition
- Outsources non-value-adding parts of the business to maximise client-facing time and lower costs
- Utilises a managed account solution to take advantage of specialist portfolio management
- Manages risk effectively to mitigate market volatility and the changing dynamics of traditional asset classes
- Meets compliance obligations by design
The recommendations stemming from the Hayne Royal Commission in 2018 instigated substantial structural changes within the financial advice industry. A critical adjustment is a transition from the sale of financial products to a focus on providing advice with the client's best interest placed squarely in the centre of the business. Mounting compliance requirements are also leading to skyrocketing costs and complexity, eating into time and business profit. At the same time, better public access to financial information and investment options have raised client expectations.
To demonstrate value to such clients, advisers must truly understand their client's individual financial needs and offer transparent and reliable investment solutions capable of delivering favourable outcomes to meet their goals. This is especially challenging amid today's uncertain investment environment of low yields and lofty stock and property market valuations. Clients seek reassurance that their financial objectives will be met, irrespective of how the market performs.
This ongoing industry disruption presents an opportunity for innovative advisers to future-proof their business, ensuring that they not only meet the higher industry standards but can build scale while keeping a lid on compliance costs. At the same time, advisers can present their clients with a credible business value proposition that clearly explains how they will help them attain their financial goals.
Such an organisational transformation is made possible by plugging into a whole-of-business goals based investment managed account solution, such as Dynamic Asset. Managed accounts generate a range of benefits for advice firms - from boosting efficiency to making it possible to provide high-quality personal advice to each client, not just those of high net worth.
Under a professionally managed account solution, financial adviser firms outsource the non-core functions of their business, such as time-consuming investment research and portfolio management functions, while improving compliance through better-aligned portfolios. Most importantly, advisers retain the aspects of their business that add the most value; mainly, meaningful client engagement that maximises value and results in satisfied and loyal clients who generate further referrals. These benefits have led more than 70% of advisers to report that managed accounts have lifted their practice's profitability, according to the May 2021 SPDR ETFs / Investment Trends Managed Accounts Report.
Dynamic Asset's whole-of-business managed account solution allows advisers to construct unique client portfolios across super and non-super investments. Advisers mix and match their clients' investments between five professionally managed portfolios, each aiming to deliver a specific risk-adjusted return that is not reliant on market conditions.
Risk-adjusted returns can be achieved by adopting active investment management and engaging alternative assets and strategies to decouple returns from traditional asset classes, such as bonds and stocks. Active management begins with asset allocation based on forward-looking performance expectations rather than historical asset class benchmarks, as commonly used with SAA portfolios. By doing so, advisers are better able to provide clients with greater certainty that their return targets will be met and, at the same time, lower the possibility of large drawdowns, the foundation of an appealing client-centric business value proposition.
Concurrently, by matching each client's investments with their personal needs, advisers can better demonstrate their compliance with the client's best interest and upcoming Design and Distribution (DDO) obligations, ensuring that their business is primed to meet the challenges stemming from the industry transition.
