Articles For Clients

After a year of challenge, advisers might be hesitant to acknowledge that 2021 might prove to be more of a mirage rather than the promised land of calm that many had hoped for.

In 2020, advisers were asked to bear perhaps more than their fair share of challenges. Extreme market movements, ongoing regulatory pressure and uncertainty, and the need to quickly adapt to distanced client servicing as anxieties mounted over the market’s volatility, placed advisers in an almost impossible position.

Yet despite all of 2020’s trials and tribulations, the financial planning community triumphed. Advisers continue to do their many varied jobs, and now find themselves on the cusp of a year which they hope will provide some much-needed relief.

However, 2021 looms as a time in which advisers will again find themselves challenged by circumstances beyond their control, but not their capabilities. As ever, with great challenges come great opportunities.

Challenges

For advisers, the next 12 months will in large part be typified by a handful of ongoing challenges, particularly the difficulties associated with meeting the sector’s educational requirements and the provision of life insurance advice.

As advisers attempt to guide their clients through the economic recovery from COVID-19, the additional effort necessary to meet the education requirements is likely to push many dedicated practitioners out of the industry.

A lot of advisers are taking it personally. I don’t blame them. Having decades of experience and still needing to prove your worth with additional study – which may not be relevant to your specialisation – would be frustrating. As a result, we’re seeing an enormous amount of knowledge and capability exit the industry, robbing us of a generation of mentors to those just entering the profession.

Some of our industry’s most experienced hands are finding the hurdle just too high to jump, forcing years of nuanced understanding of portfolio construction out of the pool of advisers serving Australians.

For advisers who have made the decision to stick it out, 2021 will see them spend a large portion of their personal time on additional education, rather than with their families.

In the wake of the Royal Commission, the other major challenge for advisers in 2021 will be the provision of life insurance advice as commissions dry up. Younger clients with families and mortgages can’t afford to pay for life insurance premiums out of their own pockets, and many are turning to their superannuation balance as a funding mechanism. As we know, this has a profoundly negative impact on clients’ long-term balances, which means that it isn’t a sustainable exercise. But with clients not willing to pay out of their own pocket, it begs the question: how do we avoid a mass underinsurance problem?

My fear is that we are exacerbating an already sizeable issue. According to Rice Warner, Australia’s underinsurance gap is growing[1], and by cutting commissions in half – and close to zero – the only people who will be able to attain insurance advice will be those with the will and capacity to be able to pay for it. The reality of life is, people aren’t naturally interested in insurance, the case has to be made for its benefits.

Advisers can restructure their business to ensure that they only service clients who can afford to pay a fee, but the real loser at the end of the day is the Australian consumer and their dependents.

Opportunities

On the flip side, challenges often present opportunities. In 2020, advisers took the challenges before them and found ways to streamline their businesses and service clients more effectively, using adversity as an opportunity to re-orient their business around more efficient investment products such as managed discretionary accounts.

In much the same way, the challenges facing advisers in 2021 may yet prove to be significant opportunities for growth.

For instance, while it is true that overall the educational requirements are pushing many experienced advisers out of the profession, those who remain are the first in line to add orphaned clients to their book.

As a result, advisers will soon have a choice of clients to take on, which will ensure they serve those who are suitable for the advice they offer.

Recently released research[2] shows about four out of 10 Australians will seek financial advice over the next 12 months. While some of these opportunities may be small – and related to COVID-19 – some may be engagements with clients who hold a significant superannuation balance and are new to financial planning.

Currently, around 20 percent of Australians are advised in some fashion. By tapping into the 40 percent of the population who plan to seek advice, the breadth of opportunity to service clients widens by a significant margin, particularly in light of the industry’s shrinking pool of advisers.

As the industry professionalises, the new entrants to its ranks will come highly qualified, and hopefully with a greater skillset from the beginning of their careers. As a result, the public perception of advisers should improve to that of a professional consultant engaged to assist people in their financial affairs, in much the same way that a doctor is respected for the positive influence they can have on a person’s health.

With the market for advice shifting, 2021 may prove to be another strong opportunity for advisers to take some time to reshape their business model, examining their cost and time spent per client. Many advisers don’t spend time putting their business under the microscope in this way because of the mixed income stream model many have grown accustomed to.

In a user pays, fee-for-service world, it is crucial for advisers to understand how they can maximise the efficiency of their practice, including finding the right technological solutions to both suit and highlight the advice they give their clients.

While 2021 will bring its own unique set of challenges to advisers, the year ahead is also a valuable opportunity for those remaining in the industry to set themselves up for future success. Far from being concerned by the challenges in the year ahead, advisers should be energised by the opportunities for the sector – and their practice – to grow. Perhaps, after years of struggle, the coming year might finally bring some relief.

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[1] Underinsurance in Australia 2020 – https://www.ricewarner.com/new-research-shows-a-larger-underinsurance-gap/

[2] CoreData Q4 2020 Trust in Financial Services survey

For more than 25 years Lifespan Financial Planning has helped advisers and their clients build a better future for themselves. This is the story of Lifespan’s first quarter of a century, and its plan to grow into the future.

When John Ardino started Lifespan Financial Planning in 1994, he wanted to be independent of the big institutions which dominated the wealth management industry.

“The catalyst was the desire to have my own advice firm and to service advisers and accountants who wanted to enter the field. I wanted to control my own destiny,” he says.

At the time, financial advisers would provide their clients with financial plans governed by what the Lifespan Chairman says were “fairly rudimentary” disclosure rules, instead of the robust and heavily regulated statements of advice handed to clients today.

For Lifespan Chief Executive Eugene Ardino, John’s son, the firm’s birth meant everybody in the family needed to do their part as the business got off the ground.

“I remember the family conversation, being told that we all needed to tighten our belts because we were starting a business, and I was probably old enough to understand it,” he says.

“Perhaps it was a few years later but I also remember helping out with some photocopying as Dad wrote Lifespan’s first compliance manual.”

As the firm grew and its initial band of a handful of advisers quickly became hundreds, the support team also needed to expand.

“There was a need for us suddenly to do marketing, which I’ve never been great at. I actually remember the kids helping me with emails and databases and stuffing letters into envelopes,” he says.

“But we needed help with other things like software and brokerage management. So, we brought people in. One of the first people we recruited was a brokerage manager who in fact only left us just recently.”

Eugene says that even now the firm is still experiencing growing pains, pointing to the planning industry’s constant change and the increasing influence of technology-based solutions.

But as the industry has changed, so too has Lifespan, John explains.

“We have far more servicing staff now. For many years we had about 20 staff, but the team is now substantially larger in order to deal with the many additional compliance requirements and the need to monitor compliance and advice documentation,” he says.

“For many years we might have only checked 1000 to 1500 plans a year, now we’re doing between 7000 and 8000 plans in a 12-month period. Some days we have 30 to 40 new Statements of Advice to check, so the number of in-house compliance and technical staff that are monitoring and checking plans and files has escalated dramatically in the last few years.”

For John, that increased compliance staffing is one of the major differences between Lifespan and other licensee groups.

“Some people don’t like compliance, and that’s a reason why some advisers don’t join us. But the way I look at it is that most advisers would rather be with a dealer group that ensures every adviser in the group maintains the best standards and quality,” he says.

“Our number of clients now reaches into the tens of thousands and our ability to attract these wonderfully substantial, highly committed practices that employ quality staff and look for the best available technology is very pleasing.”

For Eugene, rolling out the firm’s constantly growing Managed Discretionary Account (MDA) service in 2011 has proved key to the business’ success and serves as a key milestone.

“That helped the business transform,” he says.

The MDA service now manages more than $500 million in client funds and recently joined the Australian retail platform with the largest annual net flow[1], BT Panorama.

In a year that for many advisers was in part typified by market volatility, Eugene says Lifespan has received extremely positive feedback for its MDA service, which helped advisers by ensuring their investment decisions were more quickly implemented across the entirety of their client base to protect portfolios or take advantage of buying opportunities.

He adds that he was “quite proud” of the firm’s 20^th annual conference in Darwin in 2018 and has revelled in seeing some of Lifespan’s adviser businesses grow into very successful, award-winning firms, such as Finnacle, CBD Risk Management and Endorphin Wealth Management, who all took out IFA Excellence Awards in 2020.

“It’s nice to have been able to share in that journey with some of our advisers,” he adds.

John says it’s Lifespan’s strong reputation as a trustworthy and straightforward dealer group that should take much of the credit for its continued growth despite the financial planning industry’s ongoing contraction.

“At the end of the day, we’ve still got advisers that have been with us for 25 years. I believe that our growth is explained by the quality and experience of our people, our realistic approach and the respect we have for our advisers and their professionalism and independence,” John says.

Eugene adds that Lifespan’s team has strong connections with its adviser group, which has helped ensure advisers stay with the firm for the long haul.

“Having the right governance and compliance frameworks in place and attracting the right advisers who fit our culture has been key for us. There’s a clear expectation when people join, so they know what they’re going to get from us and our client-centric, pro-compliance culture. There aren’t too many surprises and we treat our advisers like family,” Eugene says.

He adds that maintaining those core values of integrity and a human touch will be key to the firm’s success over the next 25 years.

“But also, we need to continue to evolve and be aware of all the things that need to be done to adapt with the industry and our clients as their lives change,” he says.

Eugene adds that the ability to have scale and the firm’s privately-owned structure – which he says is important to advisers – will figure heavily.

“With the cost of advice continuing to go up and the level of compliance continuing to increase, having scale and good technology to be able to offset some of those increases is really important,” he adds.

John points out that Lifespan has successfully managed to avoid the issues which have derailed larger advice organisations, such as numerous complaints and professional indemnity claims which cause PI excess and total costs to skyrocket. The firm has already announced that its recently renewed PI insurance agreement didn’t cause it to increase its PI levy for advisers, unlike others in the market.

In an industry of constant change, Eugene says technology will be key for Lifespan’s ongoing success.

“Technology is going to be a very important part of the puzzle that all businesses need to get right, so enhancing our information technology systems is key. But so too is the ongoing improvement of our managed discretionary account solution, because that is a great way that advisers can add efficiencies to their business, and continue to achieve great outcomes for their clients and themselves,” he says.

“We want to continue to grow but maintain our soul and ability to really be a caring organisation that listens to its staff, advisers and service providers, and fosters an environment for great outcomes.”

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[1] Plan For Life, Platform Wrap Report March 2020 data (net flow comparison performed excluding corporate super and on an individual platform basis) for the 12 months to March 2020. BT Panorama had the largest rolling annual net flow.