Challenges ahead but MDS survey confirms self licensees are optimistic about the future

A recent survey of My Dealer Services Pty Ltd (MDS) national network of self-licenced financial advice practices confirmed that despite the upheavals and disruptions of the past few years (including the pandemic), the principals of these businesses are optimistic about the future said Director Mr. Alex Euvrard.

Commenting further, Euvrard said that advisers with their own AFSL has allowed them to be far more entrepreneurial and operate innovative client centric business models.

“Respondents affirmed there are challenges ahead for the industry with the most significant being 1) the current compliance regime that requires practices to devote up to 30 percent of time and resources to this undertaking; and 2) the exit of experienced practitioners”, added Euvrard.

“58 percent of the advice practices surveyed confirmed they were more profitable than two years ago despite the impost of compliance related costs impacting the finances of their businesses.

“The rising cost of compliance is unsustainable in the long run and needs to be addressed as an industry priority”.

Staff costs and increases in PI insurance premiums (some as high as 50 percent) were additional expenditure outgoings negatively impacting business profitability.

Survey respondents also viewed the growth in consumers needing professional advice as another industry issue that will deteriorate further as more and more advisers exit the sector as the deadline for academic qualification nears.

Although a negative on one side, the exodus of advisers was also regarded as an opportunity with 42 percent of advisers confirming that they were considering acquisition of books of business to facilitate growth.

While 26 percent of respondents said they were unsure if they would pursue acquisition opportunities, Euvrard was confident many in this group would do so.

Even though many mature age advisers were leaving, the uplift in education standards and qualification requirements was viewed overwhelmingly as a positive for the industry.

Asked what mattered most to their clients – it was the interpersonal relationship with the adviser that topped the list. Strategy to reach goals and investments was next, followed by investment returns.

Euvrard continued, “An overwhelming 98 percent of advisers affirmed that technology will play a bigger role in the future with benefits measured in reduced costs and improved operational efficiency. Most importantly, it will significantly enhance the client experience and provision of advice”.

“However, when it comes to technology and its impact on client engagement, the humble telephone was still number one as there was no substitute to speaking personally with a client”.

Although the primary focus of planning practices is the provision of professional financial advice, additional complementary services are being offered to clients and these are (in descending order):

• SMSF administration and related services
• accounting, finance and mortgage broking facilities
• estate planning and aged care
• budgeting and cash flow management services

“Demand by mature age clients is expected to increase considerably reflecting the nation’s ageing population and the largest intergenerational transfer of private wealth in Australia’s history”, said Euvrard.

“Although a major marketing opportunity, it requires advisers to improve their skills and knowledge in this highly specialised undertaking”.

Asked about their views regarding the investment outlook for 2021 and 2022. The survey respondents believed there are headwinds ahead with the biggest threats being:

• geopolitical risk
• inflation
• inflated valuations of the stock market

Euvrard concluded, “MDS is very pleased with the results of the recent survey, especially as it has reaffirmed the positive mindsets of self-licensed advice practices and their outlook for the future.

“Increased professionalism of the advice sector will lift the standing of the industry and act as a beacon attracting the next generation to consider a career as a financial advice practitioner.

“Technology will definitely assist in reducing costs, improving client engagement and facilitate and encourage growth through acquisition opportunities.

“However, of the challenges ahead, the most crucial is the impact of compliance and regulators need to heed the calls of advice professionals for a more workable and practical framework going forward”.