What Will a Successful Financial Advice Business look like in 2020?
The regulatory environment for financial advice businesses is already challenging - in the last 4 years we have had FOFA, Conflicted Remuneration, Life Insurance reforms and there are 1,000+ pages of ASIC RG on advice. And there are more challenges on the way with the introduction of a Code of Ethics and proposed Professional Standards for advisers.
So how is the industry coping with these more challenging regulatory requirements? Not well according to ASIC and The Royal Commission.
In a report issued earlier this year ASIC identified that 75% of the SoAs it examined did not comply with best interests requirements while ASIC reported last year that 90% of the SoAs it examined in relation to advice on SMSFs did not comply.
In addition to the Regulator's assessments, we have witnessed the proceedings in the Royal Commission which identified widespread examples of advice businesses that were charging their clients fees without providing the promised services.
So what will a successful and sound financial advice business in 2020 look like? In my view, such a business will possess the following characteristics:
- a more sophisticated investment product analysis capabilities;
- an embedded compliance culture understood by all and an embedded client service culture;
- the business model will look more like that of a professional services firm and it will be supported by a strong ethical framework; and
- it will have a fee for service charging model and will be able to demonstrate value for money on each occasion it provides advice.
In summary, the successful financial advice businesses in 2020 will have much more emphasis on advice and much less emphasis on sales. Those firms that do not base their business models on these fundamentals will not survive the increased scrutiny placed on them by both regulators and consumers of financial advice.