Do you think the market and the changing legislation is the only threat? Portfolio management is getting easier for all.
Next time you’ve got a few minutes to spare, enter the following words into your favorite search engine –investment portfolio management software. You’re likely to get in excess of ten pages of site listings which could be relevant even after you narrow down your search to Australia websites. While there is a substantial variation in what such software can achieve, the vast majority are aimed at ordinary investors on a DIY kick.
So what? You might well ask! Spend a bit more time checking out what functions some of the myriad offerings can carry out for the user and you’ll see that for just a few hundred dollars a year, it’s possible to buy software that does everything a financial adviser’s administration service offers – everything except, of course, the advice component.
Admittedly such software won’t open the envelopes that contain the dividend statements and the like but some of the offerings are highly sophisticated. And for a lot of ‘bored out of their tree’ retirees, for example, opening envelopes or emailed statements is hardly a stretch of intellect.
One thing that is certain, as with all facets of software, especially that with a daily interface with internet sources, investment portfolio management software will only get better; become easier for a much wider range of users to operate.
Estimates of the number of financial planners practicing in Australia vary depending on who is quoting the numbers and on how financial planner/adviser is defined. That said, it could be as high as 15,000 or so and you can be sure, whether it be 10,000 or 15,000, they won’t all be able to outperform the market year in year out – no matter how well educated and experienced they are.
So, from that standpoint alone, GFC or no GFC, any financial planner basing a business service model on superior investment returns to the adviser ‘down the road’ is on the proverbial ‘hiding to nothing’. It’s a doomed model. The fact that retail investment portfolio management software is so widely available and with such high levels of functionality, suggests that more and more consumers – people who might otherwise be clients of financial planners – are across the fact that professional advisers have their investment return limitations. The bottom line is that it’s an expanding market.
There will always be people who want to manage everything for themselves; always has been and always will be the case. However, increasingly, people who might not have otherwise had a predilection for managing their money will have heard and read enough bad press about financial advisers/planners to have no qualms about doing it themselves.
With very cost effective, high level, software readily available; with public perception dented by the GFC, the outrageous ‘Storm’ debacle, crooked advisers and incompetent advisers, why won’t more and more consumers see managing their money themselves as a real option? It’s easy to retort that most retirees won’t know how to use the software and you would be right – for now. Looking ahead, the tail-end of the baby boomers is far more computer literate than their parents – and the Gen Xs and Gen Ys, generations raised on keyboards, will have no issue with using retail money managing software.
Let’s throw in another barrier to entry for people becoming clients of financial advisers – an emerging view that the role of equities in the global financial system will be reducing over the next ten years. As the McKinsey Global Institute (MGI) recently stated: As emerging-market households attain a level of income that enables them to purchase financial assets, they are becoming a powerful new investor class, whose choices will help determine global demand for different asset classes. The actions of these new investors will, in turn, shape how businesses obtain the capital they need to grow, how other investors around the world fare, and how stable and resilient economies will be.
So how do financial advisers stake out a claim to their share of an increasingly competitive environment; an environment seemingly making way for more and more with new entrants all chipping away at the market? They very neatly fit into the face to face, high level, personal service space, delivering so-called very ‘high touch’ service to clients is the one area where software cannot gain ground on financial advisers.
Some things we can be sure of…people:
- Can get tired/bored
- Can get sick or injured
- Can become widowed
- Die
- Can get scared of making financial decisions
- ….and so on.
And this is where advisers fill a breach that software will never be able to. It’s that one to one human communication; the capacity to show genuine concern, to have empathy, to personally sign letters, to telephone and strike up a conversation and the like that only an adviser can provide.
Financial planning in Australia is going through another major transition driven by the ongoing effects of the GFC and the Future of Financial Advice Reforms. These are forces are full-frontal in adviser’s face and easy to identify. But advisers cannot afford to ignore the threats lurking away at the edge of their ‘peripheral vision’ which have the potential to weaken their businesses over the longer term.
Nothing will forestall software development but advisers who get on the front foot with service delivery will better withstand a diminution of their market share as investment software becomes more widely available and more user friendly. However, don’t be lulled into thinking that service delivery is simply a regimented programme of when certain things are done for clients. While having service systems in place is vital, the overarching theme is about building, fostering and retaining relationships with your clients.
As the old song says: “People who need people – are the luckiest people in the world”.