Adviser business models need shake-up
Financial advisers need to make some big changes to the way they operate if they want their businesses to survive and thrive in the next few years, a financial services veteran says.
Thursday, August 9th 2012, 7:17AM 4 Comments
by Niko Kloeten
Speaking at yesterday's Auckland IFA branch meeting, Heathcote Investment Partners director Clayton Coplestone warned that many advisers risk their businesses becoming worthless unless they adapt to the changing economic and regulatory environment.
He said many advisers are currently operating "proprietorships" and asked: "How would your business go if all the trails and everything you receive from third parties was turned off? Would it survive? If the answer is no then you don't have a business you have a proprietorship."
In Australia, where a client "opt-in" aspect has been added as part of the new FOFA (Future of Financial Advice) regulations, "all the clients the advice industry had have turned out to be transactional relationships."
Pricing pressure is coming on all parts of the financial services chain but advisers can continue to add value in the relationship aspect, according to Coplestone who put the "relationship premium" at about 100 basis points.
However, he warned that "very few people are willing to part with their hard-earned cash to buy relationships" and therefore advisers need to switch from proprietorships to businesses, which he said takes at least five years.
"If you are still of the belief you have a business I dare you not to go to work for six months from now on and if you have something left you have a business. If you don't have a business you'll get nothing."
Coplestone also said advisers could no longer get away with charging a premium for "mediocre" investment performance, particularly given the proliferation of cheap ETFs.
"If you're paying any more than 22 basis points for passive then you are doing your clients and yourself a disservice," he said.
"There's no magic bullet; consumers are getting more savvy and demanding more than just mediocrity. You can't go to a client and say, I'm going to take 3% a year to give you a single-digit return."
Niko Kloeten can be contacted at firstname.lastname@example.org
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