Flaws in advice system revealed by ASIC report

Does the below article suggests change is coming ?

http://www.financialstandard.com.au/news/view/12787507/

Evolution in Wealth Management

I was asked the other day why mass tailored portfoio management is going to be important, and so put together a slide that tries to depict such.

In short, we are experiencing two key trends that taking increasing priority in the business world today:

1) consumerism is shifting to customised offers, to be in 'context' of the consumer. This trend is highighted in the world of non physical delivery (ie music, financial services etc)

2) the need for scale for growth, or perhaps even survival in times of reducing margins. With this in mind, business today is seeking to eek out inefficiency and come up with 'unconstrained' or 'very elastic' operational models (There are probrally better phrases - comments invited).

So if we look at wealth management, where it started, where it has been, and given the above, where it is going, we end up with something like on the attached diagram.

THe questions we have to answer as an industry:

a) what happens to a lot of the current offers when 'client centric' becomes a standard, not just a premium service (just think what happened when itunes was introduced) ?
b) what happens when industry participants industrialise the process to the point where they can offer client centric offers at a very attractive price point ?

Does this make the lower left four boxes look redundant ? What are those participants going to have to do to remain relevant ?

Adapt or Face Extinction

Fascinating article on Darwinism and applicability to business from Ian Verrender from the Sydney Morning Herald at http://www.smh.com.au/business/adapt-or-face-extinction-20120220-1tjqa.html

Key quotes that I like:

• 'Successful businesses adapt to change and evolve. Those that don't become extinct.'
• 'Admittedly, the online threat to traditional retailers has hit with a bang. Consumer attitudes, and with them behaviour, shifted suddenly in the wake of the near recession in 2008 when debt repayment took precedence over consumption. Suddenly, everyone was looking for a bargain.'
• 'Regardless of technology, human beings are social animals. They crave interaction and demand personal service.
• 'There is no escaping, however, that the way we shop, and the way goods and services will be delivered is changing rapidly and those who fail to adapt will not survive.'

Clearly the article is focussed on the trends that the world is seeing in on-line 'retail' shopping, but many of the same trends are being seen in wealth management also. In translation:

• Much of the old product distribution based business model is facing threat from either regulatory changes or consumer backlash - adapt to a client centric model rather than product centric model or face the risk of extinction
• Consumers are more connected and comparing their wealth management services that they are receiveing. This is innevitably going to increase margin pressure, the days of the big salaries are going...
• Humans are social, and when it comes to their monies, they want communication and consideration of the THEIR situation in such. Market commentaries are a plenty around the Internet, what they want is communication about THEM, personalised and relevant
• There is no escaping that in a world of social media and the Internet, that the formula in the way that consumers seek out, and choose both investment strategies and solutions will, and is changing. The key trend here, like with retail shopping, is the unbundling of the process and doing at the pace that the consumer wants to. In Australia this trend is vastly accelerated as the SMSF structure even enables the consumer to have their own 'tax wrapper' and therefore free to invest (within reason) into whatever they seek, how they want, when they want.

No-one can argue that the world is changing, but are we now facing an acceleration in the change where there is now increasing confidence (and reward) for doing things a new way ? Has tradition become uncool and perhaps costly for those who are not preapred to make change ?

Mass Portfolio Customisation and the Unique Investor

It has suprised me that an industry such as wealth management, which in reality is not actually physically delivering much in terms of a physical 'product', has taken so long to adapt to one of the most powerful marketing and consumer concepts of all time, that of mass customisation.

In the linked paper here, there is a discussion of the power of mass customisation, and how it can work in wealth management, that of delivering mass tailored portfolios for investors.

With consumer power on the continuing up, we are seeing this trend on the up.

Platforms in 2012

Great article on the Tria Partners website about trends for investment platforms in 2012

http://www.triapartners.com/triapartners-blogs.php?article=content/Blog-Platforms%20in%202012&type=MjQ=

Industry pressures acknowledged are:

As we all know, the retail platform business model is under pressure from:

• A large and growing self-directed investor segment which is using SMSFs as its preferred vehicle

• Rotation by planners away from managed funds to direct assets (including equities and term deposits)

• Improvements in technology which are allowing planners to rotate away from traditional platforms entirely

and I love the lines to get people thinking like:

'Today’s direct customer may want advice tomorrow. '

'For incumbents, “do-nothing” looks increasingly unattractive, '

and the summary

'2012 needs to be about getting back in the game - regaining lost customers and restoring damaged confidence. There are many strands to this, but delivering quality, low-cost products to key customer segments, through whichever channels they want to buy, and with or without advice, is an important part of that journey. '

With the trends to the offering of direct owned assets, the need for wealth managers to both develop disciplines and tools for managing client portfolios is on the rise. Feel free to call to talk to me about the area.

Will increasing the SGC be good for the mainstream wealth management and superannuation industry ?

Stuart Holdsworth:

Aren’t we living in interesting times ? There is so much change happening in most of our lives, and the wealth management industry does not appear to be immune from change either, in fact quite the opposite. With FOFA, increasingly aware and connected consumers, social media, a period of unprecedented innovation in both technology and business models, and other regulatory changes slated, sitting still is probably not a long term option for any business in the wealth management industry today.

We are seeing unprecedented levels of activity in the dissection of the overall superannuation industry proposition, and with it unprecedented amounts of what I call ‘supply chain pirating’ where industry players are starting to become predatory over their traditional trading partners in order to increase the relevance of their offer, increase profits or perhaps even just remain viable. It is perhaps no surprise that an increasing number of organisations are inviting me to look at direct to consumer or ‘do it with me’ investment propositions, remembering that ‘D2C’ was written off by many only a few years ago.

Amongst all of this, there is considerable debate about increasing the SGC from 9 to 12% which at face value appears to have considerable merit in a world where there are clear gaps in meeting pension obligations placing stress on governments and ultimately the overall financial system.

However is it really as simple as that ?, just increase the amount of the proportion of everyone’s income that has to go into retirement savings and off we go, another boost to the wealth management industry. In a world of voting consumers who are probably starting to apply an increasing focus to their financial affairs, I suspect many questions are being asked about increasing SGC, and decisions being considered.

So what are going to be some of the changes, decisions and innovations that the impact of increasing the SGC from 9 to 12% may fuel ? At one end, is could be just more monies for the industry to manage and perhaps increase profits, or at the other end, will such a change to the amount of employees monies going into super increase consumer focus, make SMSFs more attractive to the alternative, and perhaps further dissection of the supply chain, encouraging more DIY or DIWM (do it with me) investing, and the traditional mainstream industry loose out ?

Clearly the tipping point for making a decision to set up a SMSF, which is often the first step in dissecting superannuation administration from investment management for many, is different for everyone, and it is not just about fees either, it includes tax efficiency, control, trust, transparency, and probrally many other emotional and irrational considerations that when at 12% of income may become higher priorities.

But also, is the shift to a SMSF also about being a member of the pack, the pack of self-determined individuals who are increasingly informed by social networking and the world wide web, enabling stand up novices to be well informed in very short space of time, leveraging each other’s knowledge rather than relying on experts. This group of people are often less enthused about ‘products’ designed for a market segment, but more interested in ‘why is this right for me’ ?

What appears to be the situation here is that there is a continually moving and sensitive balance between government finances, personal finances, popular opinion (or protest) and wealth management industry efficiency to service an increasingly demanding, informed, price sensitive and challenging consumer.

So with an increased SGC and the emotion and practical changes that this brings, will this fuel an increased temptation for workers that were borderline before to set up an SMSF ?, and if this is the case, what does the mainstream industry need to do to counter such ?

The answer in my view has to lie in the broader industry providing a superior value proposition in terms of the client experience and outcomes, and probably with some examination of costs also through increased administrative and investments operational efficiency. There are so many aspects to customer experience that count, but key ones that come to mind are ones of communication to investors and investment management. The benchmark for comparison now and available to SMSFs is the ever evolving on-line world of self, or professionally managed, personalized portfolios that can their investments on low or no cost platforms, access to a broad array of investments to cover most asset classes, in some cases with associated portfolio analysis, available on smart phones and tablets, and perhaps with advisers on-hand to see the same information only a call away.

From an investment management perspective, will offers have to progress beyond a ‘product’ with a mandate that attempts to be a best fit for a broad range of investors, to something that demonstrates the accommodation of differing terms to retirement or different emotional or other needs of investors ? Does it really make sense that 20 year olds and 50 year olds may be invested in the same product or fund ?

The technology change is well under way and moving faster than ever, however there is also a challenge of changing an industry culture under way, to move beyond an theme of product distribution to that of client centricity, the way the consumer sees it, not the industry. After all service is what is received not what is given.

With many areas of the world recognizing that there is quite a shift required to attain a position in the new world, the race is on to deliver this new industry model in a scalable, viable, efficient manner, and yes it can and is being done. Many are saying that the benchmark to stem the flow to a more self-directed investment model may be the offering of mass personalized individual portfolios at considerably less than 100 basis points all up. Something has to give.

Adapt or face oblivion: FPA

Andrew Starke

Financial Planning Association (FPA) chief executive, Mark Rantall, has called on all financial planners to aspire to the highest standards in what he called “extraordinary times”.

He also charged the estimated 6,000 financial planners not currently members of the FPA to join the industry association in its push for professionalism.

In a frank address to delegates at the FPA Conference in Brisbane yesterday (16 November), Rantall called for members to “step-up” or prepare for financial planning’s demise.

“There are two options for the future,” he said. “We either have a healthy new generation of financial planners who are committed professionals and who work to clear, enforceable standards supported by a strong, professional body and have earned consumer trust and confidence.

“Or there is the other option in which financial planning dissolves into oblivion with no future pipeline of new blood, having all but lost the battle for trust, credibility and respect.”

Rantall reiterated his organisation’s call for the term financial planner to be restricted to only those practitioners who operate to the highest standards in terms of education, experience and ethics.

FPA Chairman, Matthew Rowe, backed the call saying all FPA members should work to a future where financial planning is a universally respected profession.

“We envisage that there will be 20,000 financial planners in Australia over the next five to ten years who will be distinguished by law from product advisers, salespeople and others less qualified and experienced. Most, if not all, will be certified financial planner professionals.”

The FPA’s mission to not only raise professional standards but actively promote its intentions to the Australian public received a boost with independent endorsement of its recent national advertising campaign.

The independent research conducted by Ipsos ASI Australia described the FPA advertising as “strong on appeal, attention-grabbing and providing a relevant message”.