Compliance the major focus for advice firms


Client-focused advice and efficient value-added access to capital markets can be a successful combination for both.

Managing compliance and regulatory changes has emerged as the number one operational challenge for Australian financial advice firms in a major new global survey of the financial planning industry by asset manager Dimensional Fund Advisors.

Implementing workflow processes and improving profitability were the second and third ranked initiatives among the sample of more than 100 local advisory firms, representing some $24 billion in assets.

The local survey was part of a global study of advisory firms by Dimensional, now in its 11th year, which covered more than 800 participants in North America, the UK, Europe and the Asia Pacific – and focusing on business strategy, growth/marketing, human capital and the new business landscape.

Of the Australian sample in the survey, 58% of firms cited managing compliance and regulatory changes as one of their top three operational initiatives or challenges. This was in marked contrast to the US survey cohort, where only 12% of firms cited it as a top initiative.

The Australian Securities and Investments Commission this year consulted with the industry on how to promote access to affordable advice.

In 466 submissions received, many cited rising regulatory and governance costs – including the time dedicated to lengthy Statements of Advice. In reply, ASIC just issued guidance to the industry on how it can use shorter and less formal Records of Advice in certain circumstances such as when no product recommendations are made, where very small sums are involved or due to relief allowed under the pandemic until April, 2022.

Dimensional Australia’s Client Group Co-Head Nathan Krieger said his firm’s advisor and equivalent investor surveys show year after year that those with the benefit of a financial advisor value that relationship highly. The challenge for the industry is how to make that service both more widely accessible and profitable.

“What we know is that advice firms are being incredibly purposeful about how they grow their businesses, how they improve their processes and being aware of the obstacles they need to overcome,” Krieger said. “On the operational side, though, it seems the regulatory environment is still the number one focus.”

In terms of growth, the survey found the top two priorities for Australian firms are sourcing and converting prospects, with referrals both from existing clients and from centres of influence still the dominant source of growth – eclipsing digital marketing and other initiatives.

Interestingly, the study showed higher growth firms are dealing with capacity issues by investing more in new specialised in-house or outsourced roles – such as dedicated business development officers, tax specialists, digital marketing experts, estate planning and family office services.

Among other findings in the survey:

  • Focusing on systems and processes to improve efficiency is reflected in a much higher ratio of revenue per full-time employee among the top quartile of firms ranked by profitability.
  • While firms have modestly raised their fees in the past three years (to around 1 percentage point for clients with $500K in assets) there has also been a shift to more hybrid pricing such as retainer fees.
  • In terms of the post-COVID business landscape, faster-growing firms are more likely to provide IT benefits to their employees and two thirds allow staff and management to work from home.

Dimensional’s Krieger said as a wholesale asset manager that does not deal directly with the public, his firm has an interest in seeing financial advisors improve their capacity to both deliver high quality advice to as many people as possible, while building profitable and fast-growing businesses.

“We want to build deep, working relationships with advisors who share our desire to pursue better financial outcomes for their clients,” he said. “At the end of the day, client-focused advice and efficient value-added access to capital markets can be a successful combination for both.”

Founded in the US 1981 and present in Australia since 1994, Dimensional has a long history of applying academic research to practical investing. The company now manages more than $800 billion from 13 offices globally, including about $45 billion for clients in Australia and New Zealand.

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