The COVID-19 pandemic has prompted the beginning of a ‘great resignation’ as people reconsider their lives, but it could just as well be an opportunity for a ‘great reset’, says Midwinter’s Head of Advice Sales Stacey Cowan.
The number of advisers across the industry has plummeted in recent years as public scrutiny, heavy regulation, higher educational requirements, and a pandemic have all taken their toll.
With the Australian unemployment rate falling to a level not seen in over a decade, the skilled labour market is tightening, employees are increasingly leaving their employment in search of ‘better’ options, and the employee – not the employer – now has the upper hand in negotiations.
For practice principals trying to run an advice business, navigating the turbulence caused by this competitive environment seems like an additional and unwanted challenge.
But the reality is more nuanced.
The best advice practices are using it as an opportunity to reset their businesses. They are investing heavily in technology to support their staff, operations, and clients, and finding smarter ways of working after pivoting through one of the most volatile periods in recent memory.
The 2022 Future Ready IX report, sponsored by Midwinter, shows the average practice still posted a profit margin of 24% last year – an impressive result given the challenges facing traditional business models.
While advisers are doing an amazing job, the report reveals some potential strategies that can help practices attract the right talent and turbocharge growth into the future.
Invest in building a great business
The removal of grandfathered remuneration and product and marketing subsidies, as well as lower life insurance commission caps, have taken away steady revenue streams. It now takes a larger investment to run and grow a practice under a fee-for-service model.
Yet more than two-thirds (70%) of businesses are owned by a single principal, who has often established the business and manages it in a very hands-on fashion. Only one-quarter have clearly articulated their planning for the next 3-5 years.
The skills that make a great financial adviser are not always the same as those that make a great business manager. It takes an investment in training or an acknowledgment of your own personal skills and preferences – and then plugging any skill gaps with the right staff.
Practices that meet with an external business coach posted an average 35% uplift in profit per owner, according to the Future Ready IX report. An investment in business management skills can pay off.
Seek more feedback from clients
Clients rate their personal relationship with their adviser as their most valued attribute of the service.
Yet only about one-quarter (26%) of businesses formally sought feedback from their clients in 2021, down from about one-third (32%) in 2019, according to the report. Meanwhile, only one in four advisers said they were in touch with their best clients ten or more times per year.
Even when advisers do seek information from clients, it is often not recorded systematically in their CRM. Less than 10% are recording key relationship building data such as wedding anniversaries, children’s and grandchildren’s birthdays, or client interests.
A CRM that is integrated into your advice platform can make this a simpler process that becomes a habit.
Technology enables efficiency and compliance
While the average practice recorded a 24% profit margin in 2021, it is still down on the 28% margin posted the previous year, due to higher operational expenditure.
The quickest way advisers can tackle this fall in profit margin is to maximise efficiency gains from their technology stack.
While Treasury is looking to cut regulatory costs and duplication through its Quality of Advice Review, compliance will always be a key challenge given the importance of advice.
Yet one-third (33%) of advisers are “not very confident” that they are meeting breach identification, assessment, and reporting requirements – significantly higher than one-in-five (22%) reported in the previous Future Ready analysis.
With the growing responsiveness seen in the advice tech industry, practices should consider performing a regular review of their systems, to ensure they are fit-for-purpose. For example, in 2022, an advice platform should offer an out-of the-box solution that makes compliance simple and reliable. Similarly, a cloud-based platform should make it simple to produce Statements of Advice and other required documentation.
Another area of efficiency is online communication. Society has rapidly adapted to digital communication following the COVID-19 pandemic yet more than one-third of practices still conduct almost all client appointments in person.
Explore new advice streams
Financial advice has become holistic and personalised rather than product based – and clients have shown they are prepared to pay for it when they understand its value.
Many top practices are now expanding their offerings into new areas such as cashflow management, aged care, and estate planning.
Many of these are areas of untapped demand and represent potential new revenue streams for practices.
For example, one in three advised clients say they don’t have a current will and less than half of advised clients with superannuation have a binding nomination in place, according to the report.
But only one-third (35%) of businesses currently offer advice on aged care, less than half (42%) offer an estate planning solution and about half (52%) have a service to assist with Centrelink.
Grow through acquisition
Small practices with revenue of less than $500,000 are being hit the hardest in the current environment, with average notional profitability dropping to an all-time low of 6.8%, according to the report.
The people running these businesses are, in many cases, talented advisers who aren’t getting the rewards they deserve. But advisers who are part of the ‘great resignation’ don’t have to be lost to the industry.
Once the foundation of a strong business is in place, practices have an opportunity to attract other quality advisers or to grow through acquisition.
Attract and retain talent
In 2019 almost half (46%) of practice principals thought their staff would rank the morale in their office as ‘very good’ – this has now dropped to 37% according to Future Ready IX.
Maintaining company culture when staff have been forced to work from home for extended periods due to COVID lockdowns has been difficult. Although the flexibility of work from home arrangements has also been seen as a positive shift for many employees.
But even when they’re not in the office on a regular basis, employees want to maintain a regular dialogue with the owners and leaders of the business; they want to understand how their employer is tracking against its objectives.
Over half (52%) of employers have not conducted performance review or appraisals with their staff in the past 6 months, 49% do not have agreed and documented performance objectives and 37% do not have position descriptions. The Future Ready IX data in this area is clear – businesses that have invested in an effective performance management system are delivering considerably more profit than those that are not yet leveraging the full potential of their team.
Where to from here?
The advice industry has faced significant challenges in recent times, but the best practices are continuing to turn them into opportunities for growth.
Practices that invest in their future and people, establish strong business processes, and implement systems to support them will continue to thrive.
Stacey Cowan is the Head of Advice Sales at Midwinter. To find out more about Midwinter’s financial advice software, visit midwinter.com.au or email [email protected].