CPD: Independence Day – how advisers are recapturing the advice industry

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These “ultra-independent” IFAs are eliminating all ties with product providers – “recapturing” and reshaping their section of the industry.

Consolidation may well be the current watchword in the advice industry, but that doesn’t mean ‘independent’ advisers aren’t making their mark. Supported by expert licensing and related guidance, new admin and advice technology and a desire to realign their businesses more closely with client needs, many advisers are looking at the choices and freedom offered by the IFA path. Richard Liverpool, Head of Sales and Marketing at Ignition Wealth explores this evolving trend.

The major shift of more advisers into vertical models owned by the big institutional players and largest dealer and licensee groups over recent years is not the only trend in the advice sector. In a sense, this move has been matched by a “deconsolidation” which, although smaller, has been just as pronounced, with the “I” in the acronym IFA taking on a new and more significant meaning.

These “ultra-independent” IFAs are eliminating all ties with product providers, in a very real sense “recapturing” and reshaping their section of the industry. What they are creating is something different from the traditional advice model, which has in many regards evolved to suit the product creators and large licensees.

The traditional advice business models are still strong and perform a fantastic role with training and support in growing advice practices and with succession planning. But even their role in advice in the future is changing.

For the industry, advisers and clients, any move that offers greater choice is, in our view, healthy. While for many the quality, options, service and support offered by the big players are exactly what’s needed, these new wave IFAs are carving out an alternative for those who are looking for something else.

These IFAs tell us that their practices, being smaller and product agnostic, are more easily aligned with their client needs, rather than having to conform to the service requirements and product range of an overarching licensee or institution.

Whist both groups still need to comply with the rigorous framework applying to all AFSLs and their advisers, the smaller groups can be more nimble in addressing change processes.

My Dealer Services, is one organisation that has seen evidence of these trends first hand. Specialising in supporting advisers to obtain their own AFSL, it also provides ongoing services to help in both maintenance from a regulatory point of view and management from a business growth perspective.

According to managing director, Alex Euvrard, the company has seen a very significant rise in demand in the past year alone, with more coming onstream every day. And it’s not just smaller value practices that are choosing to tread this path. Some of the top echelon HNW-space advisers are choosing to cut ties with their institutional parent and set up as IFAs.

What are the drivers of this change?

“In our view, a number of factors have combined to enable IFAs to do what, only a few years ago, seemed impossible: to be free to control their own destiny and offer a viable alternative (and some real competition) to the big institutionals and licensee groups,” says Euvrard.

New dynamism and flexibility

According Alex Euvrard, the whole industry is still managing a level of brand damage.

“Some of these scandals have been associated with some of the bigger players. While it is human advisers making these mistakes, cultural factors that may have influenced this behaviour are still a matter of investigation,” he says.

Clearly, new models which seek to address the mistakes of the past and focus more overtly on client outcomes will appeal. Indeed, ASIC, other regulators and the big players themselves have been working hard to effect positive change which has an enormous impact on consumer confidence.

The fact is that these very large organisations tend to change very slowly. The sheer logistics of changing systems, practices, training, products, remuneration models and all the rest of it can make for a very slow moving vehicle.

The same cannot be said of IFAs, which are typically more flexible and nimble. They are able to leap on opportunities, change models, adopt new products and services, try new technology that boosts efficiency and service at a much faster rate than their larger, non-aligned counterparts.

Technology levelling the playing field

One of the biggest impediments to smaller IFA outfits in the past has been the inability to implement scale. For many, the absence of the giant – albeit sometimes clumsy – engines driving the big institutional players called into question their ability to grow their business and build its value. Too often, the value of a practice is tied directly to the individuals who run it rather than the business itself. Once those individuals step away, its sale value is adversely affected. For succession planning, retirement security and wealth building for advisers themselves, these limitations have been serious.

The advent of new technology has changed all that. Independents can now access top research; expertly designed algorithms; financial planning software that super-charges admin efficiency; rock solid compliance support; multi-channel, automated client communication and, most recently, the arrival of quality robo or digital financial advice options.

The combination of “all of the above” is undeniably powerful and, properly researched and implemented, can literally level the playing field, putting the small but tech-savvy IFA “Davids” on equal footing with the Goliaths of the industry.

This is particularly the case with some of the most forward thinking options, which can deliver supercharged “hybrid” advice capability, maximising the value and benefit of popular tech such as XPLAN with clever customisation, configuration, plug in advice and other solutions. Ignition Wealth’s Ignition NEXT suite of services, which help advisers optimise XPLAN, support strong compliance and enable scalable delivery of advice is a case in point.

Further, in a world where tech-loving, online-dwelling, research-focused Millennials are the next big generational wave of advice clients, the ability to service with them with fast, smart, user-friendly tech is crucial for sustainable success. And currently, the leading IFAs have the edge. Many believe it’s time to press this advantage, and it’s hard to argue with this view.

Steps to IFA success: exploring your options

We stress that the advice world is one in which there is room for many players. The IFA path is not for everyone. At My Dealer Services, for example, potential clients are taken through a rigorous process to ensure they’re fully informed, equipped and prepared to tread the path successfully. They are advised that the first step should be to have conversations – plenty of them, and in detail – with others who’ve made the move.

There are certainly risks to consider. Resources are usually fewer for IFAs than aligned groups. The big players do have the big cheque books, and that brings advantages. One of those is the resources to monitor and ensure compliance, an ever-growing requirement of our environment.

Unless you have some kind of top-flight automated or specialist compliance service on tap, as an IFA you often simply “don’t know what you don’t know”. Ignorance is, as we know, no defence. Ensuring you implement a system that will support compliance is a crucial factor for success.

On the plus side, however, is autonomy, the ability to successfully build unprecedented value in your business and the ability to gain the satisfaction of supporting the financial futures of your clients, first and foremost.

That includes the freedom to step away from some of the advice myths, many of which have risen up through conventions built in the service of the larger players. This includes factors such as the length and complexity of SoAs and requirements for ongoing education. While it has been somewhat difficult to determine whether years of on-the-job experience are more credible than a current university degree, ASIC is moving to make it very clear what expectations it has to reduce such uncertainty.

That’s not to say the new IFA path is a certain one. There are no doubt more changes to come. Many advisers are still in the midst of recalibrating after the massive upheavals of the last five or ten years. The good news is that the IFA space, supported by new tech and specialised services purpose built to for this sector, adds an exciting new option for both advisers and clients.

Bottom line on IFAs: do you have what it takes?

Being an IFA is not for everyone. There are qualifications, costs, advantages and risks to consider before you decide to set up shop. Here’s a high level view according to My Dealer Services, including some key likely costs. Note these are ballpark estimates only and will vary depending on individual circumstances.

Qualifications. To work under your own licence you must meet ASIC’s responsible manager criteria: minimum educational qualifications are either a university degree and a Diploma of Financial Planning; or an advanced Diploma of Financial Planning. You must also have worked as an adviser for at least three of the past five years.

AFSL. My Dealer Services’ fee for initial advice practice to set up, including complete licensing and compliance framework is circa $10k, plus GST.

PI insurance. Always get a quote first, but base premiums are typically in the region of $10-$12k per annum.

Annual financial auditing. Allow $3k-$5k per annum.

Compliance support. A specialist service to monitor and update compliance can be about $6k per annum.

 

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