The tug of war in financial services.

The attitudes and expectations of clients are leading the change for a new approach to advice and services provided by advisers and fund managers.

Clients are increasingly adopting a ‘Do-it-with-me’ rather than a ‘Do-it-for-me’ approach and want greater involvement and control of their finances and portfolio. This is best illustrated by the increasing dominance of the SMSF market.

Advisers are missing out on capturing these clients because the focus (perceived or real) on products rather than strategy has meant advisers have largely failed to satisfy the preferences and needs of SMSF clients. Clients have a shifting preference for direct and low cost assets that are transparent and accessible by the retail investor.

Managed funds may be considered expensive and in recent times, their average performance (relative to a benchmark) have not been sufficiently stellar to attract investors attention. Clients’ demand and appetite for advice is firmly grounded in strategic and tailored advice. The selection of product or platform is now three or four rungs down the ladder.

Clients at all levels along the wealth scale are increasingly looking for advice that deals with single issues that are currently at hand rather than holistic advice. Dealer groups that predominantly offer holistic advice risk bucking this trend and marginalising their business and client base.

Industry reforms
The Future of Financial Advice (FoFA) reforms are built on developing a greater level of professionalism and transparency in the advice provided. Advisers will have an obligation to provide appropriate advice and prioritise the interests of the client where there is a conflict with their own interests.

The regulators are stipulating very specifically what they expect from personal advice. ‘Quality advice’ is the new catch phrase and its components are clearly defined by the regulators.

The regulator’s view on what constitutes quality advice is summarised in the diagram below:

The ‘best interest ‘ guidelines place greater accountability on the individual adviser to ensure that the advice provided is tailored to the client’s specific circumstances and needs. This extends to requiring that the adviser research external suppliers like research houses for potential conflicts of interest and benchmark products considered for the client.

Dealer groups have a reduced ability to ‘centralise’ and control key compliance functions relating to recommendations made by their advisers, which can put their AFS License at greater risk. Furthermore, the legislation places greater onus on the dealer group and adviser to understand the limitations of the Approved Product List (APL) and the need to look at products that sit outside the APL to allow advisers to meet the best interests of the client.

Dealer groups need to equip their advisers with tools and processes to enable them to tailor strategy and product recommendations for clients as a means of protecting the dealer group’s license.

For the information pack, click here.