Regulatory changes across the Australian, UK and South African financial advice markets have irrevocably changed the landscape for advisers.
Speakers from Australia, the UK and South Africa taking part in the Allan Gray Global Advice Landscape webinar at the end of last year agreed that seismic shifts in the advice landscape across the world were catapulted to the fore by the Coronavirus pandemic.
The speakers found common themes across the three markets. These included: ongoing regulatory developments, technology advancements, fee scrutiny and questions around the benefit of advice. They agreed that as a result, advisers today are having to work that much harder and faster to futureproof their businesses.
JD de Lange, Chief Operating Officer of Allan Gray Australia said: “In a recent survey from Wealth Insights Australia, one-third of advisers reported that they would leave the industry within the next year or two. This is a frightening reality and shows the impact of the last 10 years on the advice market in Australia.”
Factors contributing to the situation in Australia include the ever-increasing compliance burden, a loss of revenue in the form of commissions or rebates, a drop in practice valuations and the stress of meeting new educational requirements.
Said Mr de Lange: “We last saw adviser sentiment this low in 2010 following the global financial crash and it makes it very hard to grow the industry and encourage new entrants to join because advisers feel under constant threat.
“There are about 10% fewer advice clients than five years ago, which has created fee pressure for advisers. As a result, advice has become extremely expensive even by Australian terms.
“In an asset-based-fee world, the discussions were more investment focused and price was a function of assets under management. Today an advice plan needs a structuring fee and an ongoing management fee both based on the value proposition offered by the adviser.
“A new proposal costs AUD$3,600 or more to deliver, while the annual fee could easily be more than double that. This all means the adviser needs to have a very clear and quantifiable value proposition.”
Mr de Lange added that the advice given today is of a much higher quality than before and client needs are better served, which all equate to a positive for the advice industry in the long term.
Tamryn Lamb, Head of Retail Distribution at Allan Gray South Africa, noted there have been a number of major regulatory changes or updates in South Africa since 2014. She pointed out that the Financial Services Conduct Authority, the body in South Africa responsible for market conduct regulation and supervision, was drafting regulation to support advice and to make sure it was available, sustainable, fair, and appropriately priced.
However, she said the devil would be in the detail of how the regulations are implemented. In her view, it is important to protect the key principles critical to the success of the South African investment and advice industry over the past two decades. This means focusing on measures that can result in good client outcomes, including independence of advice and distribution, open architecture, choice and transparency of fees.
Marcel Bradshaw from Orbis in the UK said the UK had taken a big bang approach. The Financial Services Authority, now the Financial Conduct Authority, created the Retail Distribution Review (RDR) which forever changed the distribution landscape in the UK. The result was banks had exited wealth management and the IFAs now control the value chain.
Bradshaw said the UK had seen a reduction in the number of financial advisers from 33,000 in 2012 to 26,000 today. But he also noted it could be a result of an inability or lack of willingness to change and adapt to the evolving landscape.
David Haintz from Australian-based Global Adviser Alpha said: “Advisers need to change their perspective. They are giving away what they should be charging for and charging for things they should be giving away.”
He added that advisers should be shifting from a product-led offering to an advice-led model and said what was needed was for advisers to deliver what clients are looking for, not what is in the adviser’s kit bag.
