• Australia’s advice industry is expected to grow by $2bn in revenue and 486,000 customers in the next five years.
• If all Australians could access better advice, the pool of national savings would be $2 trillion higher in 30 years.
• External factors such as shifts in competition, social values, demographics and client priorities provide opportunities for financial advisers to modernise their offerings and service a high growth market.
• Advisers are urged to proactively adapt to changes in clientele, products, technology, and business structure to stay competitive.

Deloitte Access Economics (“Deloitte”), in collaboration with Iress, has released the ‘Advice 2030: The Big Shift’ report which identifies seven megatrends that are set to shape the future of financial advice. The report anticipates that shifts in competition, climate impacts, demographics and client priorities will generate greater demand for specialised financial advice delivered through a customer-centric, technology-led offering.

Australia’s advice industry has the potential to grow from $6.1 billion in revenue to $8.2 billion by 2030, which is contingent on advisers scaling up to serve an expected 486,000 new customers. Additionally, consumers are demanding a broader set of advice support across retirement, intergenerational wealth transfer, wealth accumulation outside of the family home, natural disaster resilience and digital assets.

Beyond traditional advice, opportunities abound to tap into the estimated 11.8m Australians with unmet advice needs through scaled and digital advice offerings.

The Australian financial advice industry has been characterised by significant internal upheavals, including a 43% decline in advisers, major institutions selling their advisory arms, regulatory reforms, and decreased trust in the industry. Those advisers which have remained in the industry have proven to be remarkably resilient, and have seen profitability rebound to be generating 22% profit margins, with high performing advice practices able to achieve even higher margins representing $550,000 more in business profits annually.

While acknowledging the resilience of these advisers, ‘Advice 2030: The Big Shift’ outlines a suite of external factors that will profoundly impact the industry and act as stimuli for advisers to shift how their advice is delivered. Deloitte identified seven external megatrends that will influence the sector over the coming years:

1. Skyrocketing retirement demand: With an ageing population and increasing life expectancy, advisors can expect increased demand for self-managed super funds, greater competition with superannuation funds providing retirement advice, and an increased availability of government data.
2. Natural disasters and environmental volatility: 80% of Australia’s population has experienced natural disasters since 2019, increasing the need for financial advice linked to lifestyle and asset risk management strategies. Future advisors will need to navigate client trauma and the growing complexity in solutions required.
3. The “New” Australian Dream: For many Australians, the Australian dream of home ownership as a primary investment is out of reach, driving them to look elsewhere for wealth generation.
4. Digital delivery of everything: Advances in FinTech will enable cost-effective mass delivery of financial services and disrupt financial advice, emphasising the importance of deep client tailoring and identifying varying pricing strategies.
5. The Grey Tidal Wave: As the baby boomer generation enters retirement, Deloitte predicts a growing demand for new products and strategies that provide more holistic financial advice that will facilitate a significant wealth transition.
6. The Green Wave of Future Investing: As clients increasingly seek investments that align with environmental, social and governance (ESG) principles, advisors will play a complex role in balancing risk and performance, incorporating ESG factors into investment strategies and conducting due diligence.
7. Digital assets: The rise of digital assets, cryptocurrency, blockchain and fintech innovations with increasingly borderless financial systems will create a need for advice about investing while managing security, risks and tax implications.

Rice Warner (part of Deloitte) estimated that if all Australians could access better advice that resulted in a 1% p.a. increase in their asset returns, the pool of national savings would be $2 trillion higher in 30 years. This presents a compelling case for the advice industry to invest in fit-for-purpose strategies that cater for a broader client base, in support of greater economic prosperity and a thriving financial advice sector.

Deloitte Access Economics Finance Lead Partner John O’Mahony said that while the ‘big shift’ will transform the competitive landscape of the advice industry, advisers have agency to ready themselves for the future:

“To take advantage of a changing future, advisers need to make choices today that can best service evolving customer needs across the Australian market. Advisers can avoid being edged out in an increasingly competitive sector by adapting and perfecting their unique customer profile, business model, specialised advice capabilities and technology selection. By embracing the megatrends and mapping their practice against the current landscape, advisers can carve themselves a sustaining market position.”

76% of the surveyed Australian financial advisers agree the sector needs to evolve its use of technology to help service a growing client landscape.

Iress CEO Marcus Price said proactive advisers can adapt and improve their practices by harnessing advanced technology and developing an acute awareness of their clients’ changing needs:

“The findings of this research are compelling – despite a number of challenges in the industry over the past few years, advice revenue is forecast to grow substantially over the next five years driven by strong consumer demand. What’s clear though is that advice business models must evolve to capture this demand effectively, as well as adapt to better reflect the breadth of needs from consumers. At Iress, we know that technology and data is at the heart of this and we’re committed to reinvesting in our core software, while exploring emerging technologies, to help drive greater efficiency, scale and relevance across all aspects of advice delivery.

“We’re excited about what the future holds for advice, and look forward to supporting our clients and the broader industry as they step into this new frontier of opportunity.”

Read the report.

The post Deloitte Access Economics identifies seven megatrends that will drive the financial advice industry to $8.2 billion appeared first on AdviserVoice.

Joel Lipman

Artificial intelligence (AI) is poised to transform the financial services industry, particularly in the banking sector, with the costs associated with shifting banks predicted to plunge.

The New Physics of Financial Services, a World Economic Forum and Deloitte report, examines how AI will transform the realities of financial institutions by radically changing front and back-office operations, creating major shifts in the structure and regulation of financial markets.

Deloitte Australia Digital Partner Joel Lipman said Australians now face significant costs to shift their mortgages between financial institutions but this is poised to change with expected AI advances.

“Banks today may have customers who aren’t willing to change banks because of the high costs associated and the effort involved with shifting mortgages,” Mr Lipman said.

“But the future will see these costs removed as AI developments, such as personal banking assistants, are able to identify the best deal for customers and move them without the current high dependency on humans.”

The change in AI will also prompt data regulation beyond the financial regulation requirements for the banking industry.

The report identifies nine key findings about how AI is changing the physics of financial services, weakening the bonds that have historically held together financial institutions while creating new and old capabilities combined in unexpected ways.

Four core findings explore how AI is radically transforming front and back office operations: Cost centre to profit centre; A new battlefield for customer loyalty; Self-driving finance; and Collective solutions for shared problems.)

Mr Lipman said AI-enabled back-office functions will see financial institutions turning their centres of excellence into services, while outsourcing most other capabilities.

“There is also a new battlefield for customer loyalty, with past methods of differentiation between financial institutions, including cost, speed and access, eroding,” he said.

Tailored banking solutions, which will be geared toward customer needs will also mark a new era of self-driving finance, and upend existing competitive dynamics, Mr Lipman said.

While AI presents increased opportunities for competition, it also presents a strong mechanism to collaborate as the value of shared data sets is tremendous.

“There is huge potential for industry collaboration on issues as broad as fraud prevention and anti-money laundering controls, often run inefficiently and ineffectively in the current environment,” Mr Lipman said.

Additional findings from the report explore major shifts in the structure and regulation of financial markets and critical challenges for society to resolve:

Bifurcation of market structure: As AI reduces search and comparison costs for customers, firm structures will be pushed to market extremes, amplifying the returns for large-scale players and creating new opportunities for niche and agile innovators.

Uneasy data alliances: In an ecosystem where every institution is vying for diversity of data, managing partnerships with competitors and potential competitors will be critical, but fraught with strategic and operational risks.

The power of data regulators: Regulations governing the privacy and portability of data will shape the relative ability of financial and non-financial institutions to deploy AI, thus becoming as important as traditional regulations to the competitive positioning of firms.

Adapting talent strategies: Talent transformation will be the most challenging road block on institutions’ implementation of AI, putting at risk the competitive positioning of firms and regions that fail to effectively transition talent alongside technology.

New ethical dilemmas: Global communities have a joint interest in mitigating the risks and harms of rapid technological development. AI will necessitate a collaborative reexamination of principles and supervisory techniques to address the ethical concerns and regulatory uncertainty that are hindering institutions’ willingness to adopt more transformative AI capabilities.

Download the full report.

The post AI is reshaping the future of financial services appeared first on AdviserVoice.

Vanessa Matthijssen

In a new Deloitte survey of what measures Asia Pacific (APAC) companies are undertaking to manage costs and improve margins, Australian companies were found to have the least aggressive cost reduction targets in the region (74% of Australian respondents cited a cost reduction target of less than 10% and a further 18% cited no target) and despite this, 75 per cent are not meeting their cost reduction goals.

Deloitte’s biennial cost survey, Thriving in uncertainty: Cost improvement practices and trends in Asia Pacific, also found that Australian companies appear to be making an effort to reduce costs on many different fronts, citing all approaches to cost reduction more frequently than their APAC peers. The most widely cited tactic over the past 24 months was taking ‘targeted actions to reduce costs in a few divisions, business units, functions or geographies’ (87% of Australian respondents v 61% APAC average), followed by ‘drive all divisions, business units and corporate functions to reduce a fixed percent of their costs’ (71% v APAC average of 52%).

Vanessa Matthijssen, Deloitte strategy & transformation partner, said: “Australian companies take a more balanced approach to cost reduction and growth than our Asian counterparts, perhaps a reflection of our mature economy, political stability and a focus on strategic flexibility. Yet high failure rates suggest that cost reduction programs are not as effective as they could be, creating an opportunity for companies to significantly improve how they manage costs.

“The right approach for cost reduction varies from one company to the next, depending on its unique situation and challenges. However, achieving cost targets greater than 10% will generally require a cost management approach that is more strategic and transformational in nature, as tactical improvements alone are unlikely to produce more than single-digit cost savings.”

Looking to the future, Australian respondents predict that cost reduction initiatives in the next 24 months are likely to continue to be tactical rather than strategic in nature, with an average of 73% of respondents anticipating such actions as improving policy compliance (71%), reducing external spend (76%) and streamlining business processes (82%). The most frequently cited strategic action is to increase centralisation (50%).

“The relatively low expectations for taking strategic action on cost reduction initiatives may be explained by the fact that some Australian companies have already implemented significant actions, such as offshoring or outsourcing, and have shifted their attention to customer-centric growth transformations, which aim to deliver growth and cost efficiency simultaneously,” said Vanessa Matthijssen.

“However, to continue to retain competitive advantage, companies will need to adopt a more strategic and transformational approach to cost reduction, which is likely to include capitalising on digital breakthroughs such as robotic process automation (RPA) and cognitive technologies. They are changing the basis of competition and laying the groundwork for massive improvement in efficiency and effectiveness. Companies may soon find themselves needing cost improvements in excess of 50 percent, not just the 10 percent improvement that most are currently pursuing.”

The survey also found that Australian companies are less concerned about nearly all types of external risk than their APAC peers. In particular, two types of risk are noteworthy – political climate (5% of Australians rank as a risk vs 26% for APAC) and macroeconomic concerns (8% vs 25% for APAC) – because those risks are the top two ranking risks for APAC overall and particularly in China and Singapore.

Despite Australia’s comparative economic and political stability, looking ahead, Australian companies are slightly less optimistic than average about their future prospects for growth, although their overall outlook for growth is still decidedly positive (71% see annual revenue growth over the next 24 months, compared to 95% of Indian and 91% of Chinese companies and an APAC average of 78%).

APAC Insights

Across Asia Pacific, the top three strategic priorities are sales growth, product profitability, and cost reduction. India ranks sales growth the highest priority (73%) and India also cited balance sheet management much more frequently than the region overall (53% versus 20% for APAC).

Cost reduction programs are failing across APAC, not just in Australia. The majority of companies did not meet their cost reduction targets (range of 63% in China to 83% in India, with an APAC average of 72%). But Australia had the most conservative cost reduction targets by some measure (74% targeting less than 10% reductions, with the next closest country in that category being Japan with 50% and an APAC average of 43%). India has the highest targets for cost reduction, with 44% of Indian companies targeting cost reductions of more than 20%.

According to respondents, implementation challenges are the biggest barrier to effective cost management (61% in Australia, 60% APAC average). This is particularly true in India (73%) and China (72%) perhaps because they are pursuing the most aggressive cost targets.

The two most popular cost reduction approaches for respondents over the past 24 months were ‘intensifying existing productivity programs’ (62% average in APAC) and ‘targeted action to reduce costs’ (61% average, 87% in Australia). Zero-based budgeting (ZBB) is the least popular of the cost reduction approaches cited in the survey, although it is much more common in Australia (42%) than across the APAC region as a whole (20%).

The most frequently cited cost management capabilities developed over the past 24 months across APAC were: improved processes for forecasting, budgeting, and reporting (67% average, 87% in Australia); implement new policies and procedures (58% average v 76% in Australia); and set up IT infrastructure, IT systems, and business intelligence platforms (55% average v 63% in Australia).

About the survey

The Thriving in uncertainty report surveyed 299 business leaders (C-suite executives and senior management) from large and mid-size companies in Australia, China, India, Japan, Hong Kong and Singapore; comprising 89 per cent of the Asia-Pacific economy based on gross domestic product. The poll was conducted in January and February 2017.

The post 75% of companies not meeting cost reduction targets appeared first on AdviserVoice.