Report highlights impact of Royal Commission on planning profession

Recep Peker

Peker Recep

Leading research firm Investment Trends has released its 2018 Planner Business Model Report, an in-depth study of Australian financial planners and their business processes.

The report, now in its fifteenth year, is based on a survey of 899 financial planners concluded in May 2018.

In light of the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, this year’s study sheds light on a financial planning profession in flux.

Financial planners’ active client base continues to shrink, further limiting practice profitability growth

The pool of clients advised by financial planners continues to decline. According to the latest research from Investment Trends, the fall in client numbers was driven primarily by increased attrition and subdued new client acquisition. In the last 12 months alone, the average planner lost 35 active clients relationships, while gaining only 20 new relationships over the same period.

A shrinking client base has adversely impacted practice profitability growth, with fewer planners saying their practice experienced year-on-year growth in profits (53% saying so, down from 59% in 2017 and 61% in 2016).

“Planners continue to face challenges on multiple fronts, chiefly with compliance, client acquisition and building process efficiencies,” said Recep Peker, Research Director at Investment Trends. “Further, the recent Royal Commission inquiry has amplified planners’ concerns with heightened regulatory uncertainty and negative press, and this is proving to be a major impediment to their growth prospects.”

Still, planners are keen to restore their client numbers, with the vast majority (69%) actively looking to grow their client book. “Despite challenging business conditions, the average planner intends to expand their client book and support from their licensee, technology and service partners will be more critical than ever to alleviating their top challenges,” added Peker.

FASEA led reforms seen as a positive step

While planners believe the Royal Commission has dented the reputation of the financial planning industry, the majority (66%) expect positive structural transformation to flow from FASEA led reforms. Only a quarter believe the new professional standards and education framework set out by FASEA will have a negative impact on the industry.

“Most financial planners accept that higher professional standards are vital for the financial planning industry to be truly recognised as a profession,” said Peker. “The younger generation of planners are, in fact, more positive towards these FASEA led reforms.”

Still, many planners see the implementation of FASEA standards will come at a cost, notably through the degree equivalence requirement (57% cite this) and the demands of the once-off exam (31%). “There will be a burden on time and cost for planners as the degree equivalence requirements come into effect in 2024, and support from professional associations and licensees is needed to ensure a smooth transition,” said Peker.

The move to self-licensing is accelerating

Industry wide, the population of self-licensed financial planners is on the rise. In 2018, one in five say they have their own AFSL, double the proportion observed in 2012.

While self-licensed planners brought in a higher level of new inflows over the last 12 months, fewer report annual practice profit growth compared to their colleagues in the wider planning market (47% vs 54%). In addition, the vast majority (78%) seek external assistance with a range of business support needs that they are willing to pay for, especially around SoA build, compliance and client engagement.

“These unmet business support needs represent a significant opportunity for service providers to expand their proposition to support the growth of self-licensed planners,” said Peker.

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