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This piece was originally published in Money Management.
The financial planning profession is on the cusp of a major growth trajectory as planners and professional associations unite to secure its future, writes Financial Planning Association CEO Dante De Gori CFP®.
The demand for financial advice is strong. With 41 per cent of Australians intending to get advice in the future, it is now up to the industry, regulators and government to build a profession that can meet their needs.
The financial planning profession is currently at the crossroads of what could be the most defining moment in its history. Increased compliance requirements, higher education standards, rapid change in market dynamics as the major banks leave the sector and the increased cost of doing business are all challenges facing the sector.
But there are also significant opportunities; a chance for the profession to grow and unite towards a stronger foundation that the next generation of planners can build on. Financial planning attracts a diverse group of people. Most are highly experienced, educated and ethical professionals. Others are still on a path to meeting their career goals and professional development milestones. The FPA is committed to supporting all financial planners throughout their career to provide the best quality advice to their clients.
Each individual financial planner may offer different skills and services or target a certain niche market. But as a profession we all share a common purpose: the financial wellbeing of our clients and the availability of advice for more Australians.
From a long-term perspective, more stringent educational and ethical standards can only be a good thing for clients, who rely on quality financial planning to make some of the most important decisions of their lives.
Making advice more accessible
Those who argue that the rising cost of financial advice will cripple the industry, though not disputing this possibility also fail to recognise the work currently underway to ensure financial planning is a viable option for all Australians.
New innovations and technologies are rapidly being adopted at a practice level by financial planners across Australia to streamline efficiencies within their businesses and reduce compliance costs.
Meanwhile, many superannuation funds now offer advice to their members and are integrating digital-advice offerings along with intra-fund to help Australians who may not be able to afford full-scale financial planning.
It is important to recognise the depth and breadth of the advice profession, one where industry participants offer different levels of service depending on the needs of their clients. A full-scale financial plan may not be affordable for some, but there are other options available and lower cost is not synonymous with poorer quality – this has been widely misunderstood by many commentators, to the detriment of the unadvised majority of Australians.
Many FPA members are taking innovative approaches to tacking the affordability of advice including introducing subscription-based fees for service and helping younger generations with their savings and household budgets.
These efforts and the collective willingness to work towards a solution should be commended, not criticised, as it is having a positive impact on the lives of Australians as they navigate the complexities of managing work, life and their personal finances.
Engagement with government and regulators
While we recognise that financial planners are doing their best to cope with rising regulatory and compliance costs, the FPA is also doing its part through ongoing and extensive engagement with government and regulators.
The bottom line is that the goal of making financial planning more affordable and accessible, which was a promised objective of FOFA, for those in need has not been met.
In a 2019 survey by Australian Securities and Investment Commission (ASIC): Financial advice: what consumers really think, while 41 per cent of Australians intend to get financial advice in the near future, many will not proceed because of perceived barriers including cost (35 per cent) and the need for a relatively simple financial plan (29 per cent).
Our members are telling us that the cost of providing advice has never been as high as it is today. Costs could increase further as financial planners adjust to increased surveillance and enforcement activities ASIC is undertaking following the Financial Services Royal Commission.
Our most recent member survey shows the major challenge for planners over the next three years will be the cost of regulation, with almost half (48.3%) of FPA members agreeing on this, up from 33.5% in 2018.
In 2019, 41.4 per cent of our members said reducing the cost of providing advice would be a major challenge, up significantly from 25.3 per cent in 2018.
On average, FPA members charge $2671 to prepare a Statement of Advice (SOA) for new clients, up almost 10 per cent from $2435 in 2018.
We believe the current framework needs to be re-examined to ensure financial planners can continue to meet compliance requirements while also meeting the growing demand for financial advice from consumers. It would be a sad day if Australians were regulated out of their chance to receive quality advice.
Ongoing engagement with government and regulators is therefore critical and a key priority for the FPA in 2020.
Streamlining compliance processes
Given the increased compliance requirements financial planners are now facing, the FPA has also been examining how we can facilitate a more sustainable compliance regime for our members.
This won’t involve removing or reducing consumer protection, but it does mean looking for ways to make the system more efficient, effective and streamlined for the consumer and for the businesses that provide advice. We believe technology will play a central role here.
A key project we are currently focusing on is the Future of the Statement of Advice, which involves digitising statements of advice (SOAs) and the financial advice process. This will not only make the provision of financial advice more affordable but will also bring the profession into the 21st century. Today’s clients do not want to be handed a 100-page SOA to read and sign and put in their bottom drawer to never read again – they want financial advice to be integrated into their life.
We have already launched an interactive guide to the new digitised SOA and have been working with several fintech providers who are helping financial planners to transition from the old processes they were using and integrate the new SOAs into their businesses. Financial planners are at different stages in terms of their willingness to switch to the new model, but we are encouraging all our members to do this sooner rather than later.
Reviewing business models
Looking forward, I think it is fair to say that all financial planners have or will be reviewing their business models and adjust accordingly with respect to what it costs to run a business. Many financial planners are small business operators and need to ensure they have the clientele that is right for their business.
While some financial planners serve the high-net worth end of the market, there are still many who cater for the average Australian citizen. In addition, we are already seeing more financial planners specialise in certain areas, from financial coaching (budgeting and cashflow management) to superannuation and aged care. We are encouraging all financial planners to consider their point of difference in the market, so as a profession we can provide solutions to meet a broader range of client needs.
Encouraging new entrants to the profession
Overall, I am optimistic about the future of the financial planning profession. We know demand is increasing and, with financial planner numbers currently declining, we arguably do not have enough financial planners to meet that demand.
We will start to see more financial planners enter the profession via the university system and the opportunities for new entrants is huge. For anyone looking for a great career opportunity, I would highly recommend our profession as the job prospects are outstanding going forward. With the reforms that are still taking place and changes in technology, the profession is being set up for a very bright future.