2030: Advice, investment and superannuation in a brave new world

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Extract

Financial planners have been subject to constant change. From the industry’s earliest days, changes in regulation, strategy and product have been an annual occurrence. Since 2014, the pace of change has rapidly increased, fuelled by technological advances and the prevalence of commentary on social media.

In this white paper, we endeavour to project what the financial advice industry will look like by the year 2030. This is a significant undertaking, with great unknowns, however the starting point and the focus of Part 1 of this paper is an examination of the various reviews, reforms and reports that inform the projections.

There are six main drivers of change identified. They are:

  • The Life Insurance Framework reforms,
  • Retirement income reform,
  • The FASEA reforms,
  • The Productivity Commission’s final report on efficiency and competition in the superannuation industry,
  • The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s final report, and
  • The Royal Commission into Aged Care Quality and Safety.

The volume of changes contained in these six reports, reviews and reforms is immense. They are set to completely alter the remuneration structures of financial planners, the services that planners offer, and the characteristics of new entrants to the advice industry. They also will alter the greater financial services environment, including the role of the super fund and purpose thereof, the nature of funds management and investment platform businesses, and the ownership structure of financial planning businesses.

Part 2 of this white paper focuses on how these forces will change the industry by 2030, as well as the reasoning behind these predicted changes. In formulating these predictions, we have made the presumption that the recommendations of the Productivity Commission and the Royal Commissions will be executed in totality. Furthermore we take it as read that already implemented reforms are maintained with planned future reform programs executed as currently outlined.

The results of applying this methodology show an advice industry in 2030 that is very different from today’s. The rise of intra-fund and other super fund-based advice offerings will have forced unaligned advisers to examine different advice services. A greater delineation between transactional and ongoing advice will emerge, with more product-agnostic advice services available than is currently the case. Services such as aged care advice and debt management advice will become more prominent.

Financial planners will have reduced in numbers, be younger on average, and will be less likely to have changed career to enter the industry. Small-to-medium sized privately owned licensees, some aligned to boutique Managed Account providers, will have risen in number, while advice businesses will face reduced valuations of ongoing revenue.

Industry funds will have taken over the superannuation marketplace, however the indexed nature of their investments will cause investment managers to apply fewer resources to active investment strategies. Those fund managers providing active investment strategies will target direct investment and self managed super funds. Insurers will be forced to look to new technologies and avenues to distribute their products with adviser-intermediated policies accounting for a smaller distribution footprint.

Lastly, automation and robo-advice will provide a challenge to financial advisers, but will also drive improved processes and outcomes which will ultimately benefit consumers.

It is important to acknowledge that there will be further twists in the road before 2030 and financial planning is always subject to changes in political will. That said, the road to financial planner professionalism, the public-service expectations being placed on super funds, and the progress of technology all provide strong markers as to the future of the industry.

The median planner in 2030

In light of all the change in the financial planning environment, it is worth exploring what the median adviser will look like in 2030. The features of the median adviser described below are not based on projected industry averages, rather they are a combination of what will be the most common features across the industry.

Services

The median adviser in 2030 will provide a mix of transactional and ongoing services to clients. Higher net wealth clients will receive ongoing advice in the areas of wealth management advice, Self Manager Super Funds (including retirement income streams) and detailed financial counselling and cashflow analysis. The ongoing clients of the median adviser will also consult their planner when confronted with questions regarding in-home and residential care. These queries will result in point-in-time advice and may be referred to an aged care specialist in the practice.

The median adviser will also provide some transactional advice services on a fee for service basis, most likely to the children and grandchildren of ongoing clients, as well as to potential future ongoing clients. The transactional services will include life insurance recommendations, debt management / mortgage broking advice and point-in-time cashflow analysis.

Background

The median adviser in 2030 will be in their late 30s or early 40s. They will have completed a university-level degree majoring in financial planning. They will have commenced their career in financial services and will have progressed to planning.

AFS licensee and business ownership

The median planner will be licensed through a small to medium licensee that provides a vertically integrated investment solution in the style of a Managed Account. They will be a joint owner of their business with 3 to 4 other principals involved. There will be specialisations amongst the principals, generating internal referrals where appropriate.

Products used

In 2030 the median adviser will recommend a range of different products to support their strategic recommendations. Various SMSF service providers, as well as investments through a Managed Account service, will be employed. Transactional product advice, such as that relating to life insurance and mortgages, will be aided by robo-advice tools capable of assessing the full marketplace.

Robo and automated tools

The median adviser in 2030 will employ technology for a range of different purposes including product selection, goals-based client meeting processes, compliance obligations, documentation production and cashflow analysis. Some of these tools will be incorporated into larger software suites (such as a client management system or advice software) and others will remain stand-alone.

Time management for the median adviser in 2030

The increased automation of compliance obligations, research and documentation production will free up greater client engagement time for the median adviser in 2030. The median adviser will be in touch with their clients more often, in person, through meeting software and through the use of online tools. The median adviser will also commit greater time to transactional clients as they look to form the basis for an ongoing relationship.

The median adviser in 2030 will be an educator. Financial counselling and cashflow analysis services will provide the bedrock for the median adviser to continually work with their clients to help them meet their goals.

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