• 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.

Dallas Booth

The National Insurance Brokers Association (NIBA) has launched a first-of-its-kind report, prepared by Deloitte Access Economics, detailing the economic value of insurance broking.

The study represents the most comprehensive analysis of insurance broking ever undertaken in Australia. As well as examining the economic value, the report describes and quantifies the elements that comprise the industry’s value: to customers, insurers, governments and broader society.

“In 2018-19, insurance broking collectively contributed nearly $2.6 billion in gross value added (GVA) to the Australian economy, and directly employed 15,000 full-time equivalent (FTE) workers,” NIBA CEO Dallas Booth explained.

“As a point of reference, these direct economic contributions are roughly equivalent to the economic activity in each of the, gas supply, and creative arts industries in Australia,” he added.

“The industry also indirectly supports economic activity in other businesses, worth almost $900 million in 2018-19, supporting over 5,000 extra jobs.”

Insurance brokers help business clients during crises, like the 2019-2020 bushfire season and the COVID-19 pandemic, but also to better understand long-term emerging risks to business, such as from climate change and cyber security threats.

Insurance broking also provides wider economic benefits:

• encouraging greater competition in insurance, with the average NIBA broker offering products across 10 different insurers,
• reducing underinsurance, with 45% of new broker clients being underinsured prior to engaging a broker,
• using their experience to provide advice and save clients’ and insurers’ time, regarding risk assessment, policy selection or claims.

“The prevalence of broker use throughout the economy and across all types and sizes of businesses speaks to the value that organisations place in them,” Mr Booth said.

Fifty-four per cent of clients pay the same or less on their insurance after engaging a broker.

The author of the report, John O’Mahony, Partner at Deloitte Access Economics, said: “Insurance broking is not as simple or transactional as walking into a store and buying a good. It is a relationship-based business that involves up to 10 pre-sales and post-sales services and creates many sources of value.”

“We analysed information provided by 421 individual brokers, 78 brokerage businesses, and the six largest insurance broking businesses. We consulted senior staff at three insurance companies, two small business clients and representatives from the LMIGroup, to help understand the stories behind the statistics. All up, we consulted almost 100 different articles, reports and data sources about the sector.”

The report highlights the key role brokers play in the market for general insurance in Australia and provides evidence of brokers facilitating a more efficient insurance market, which supports risk management and economic recovery across society.

Key findings

Value to clients

• Quality of advisory service: ranked as the number one factor by clients.
• Tailored risk management solutions: 40% of clients are under insured or not insured at all, before engaging a broker (on average).
• Greater choice: the average NIBA broker offers products across over 10 different insurers.
• Time savings: saving each client an average of 11 hours, which equates to more than $230 million in time savings from business customers.
• Claims support: saving each client an average of 2.5 hours in the claims process, and where 41% of SME clients agree that it would otherwise have been ‘much harder’ to process.
• Understanding and managing risk: noting that brokers identified 62% of clients had limited understanding of their risk.

Value to insurers

• Saved resources: saving each insurer an average of 3.3 hours, which equates to 1,380 FTE staff each year.
• Product distribution and client reach: 38% of broker premiums written for clients outside of Australia’s capital cities.
• Product Innovation: 13% of a broker’s policies sold represent new market opportunities (on average), with ‘cyber risk’ commonly identified.

Value to the economy

• Market efficiency: reducing uncertainties for insurers and closing information gaps, which allow for more appropriate pricing and product matching, and encourage greater competition.
• Risk management and economic stability: to facilitate better product matching, faster claims receipts and provide broader risk advice.
• Brokerage businesses employed 15,000 FTE workers, and contributed $2.6 billion directly to the Australian economy (2018-19).

Value to government and broader society

• Disaster relief, advocacy and policy advice: supporting clients with claims preparation, assessment, lodgement and negotiation processes.
• Helping to obtain insurance for difficult-to-insure clients.
• Supporting local communities: surveyed brokerage businesses donated over $25,000 per year to charitable and other social causes, and volunteered more than 550 staff hours to charities and other organisations (on average).

The post NIBA launches report on the economic value of insurance broking appeared first on AdviserVoice.