We’re currently in the process of finalising our latest analysis of the ‘health’ of Australian advisory practices (Future Ready VIII) and have noticed a few early signs as to how well (or not) financial advisers are faring in this most disrupted marketplace.

I thought I’d give you an early heads-up as to what perhaps will prove to be one of the most significant finding from our analysis – the dramatic reduction in client numbers. The average number of clients per practice has dropped from 715 in 2016 to 530 this year. A far cry from the 1,100 clients (or were they simply policy holders?) being served by an Australian practice ten years ago.

So, what’s been driving this reduction? A couple of factors spring to mind:

  • Rising costs and increased compliance responsibilities are no doubt, two of the major reasons, leading some business owners to pull back on their ‘exposure’ and reduce the number of clients they serve.
  • In a similar fashion to the previous point, the drive towards ‘fee for (explicit) service’ has meant that advisers simply can’t manage higher numbers of clients within their existing business model.

We’ve long encouraged practices to segment their client base, remove cross subsidisation between the various segments and ensure they’re only providing services to those who are actually paying for it. “Treat clients fairly and respectfully, but not equally” has been a Business Health mantra since we launched in 2000! Today, 80% of practices tell us that they actively segment their clientele.

I can’t help but wonder if, in their drive to segment, some practices may have thrown the baby out with the bath water – and moved clients on, rather than offer an alternative service that clients can afford to pay, and one that practices can deliver profitably.

Have practices drilled down into a particular market niche (multiple niches maybe) and in delivering specific services to their niche, they’ve opted to let their other clients go?

In an effort to control expenses and/or access some capital value, we’ve observed practices offer parcels of clients to other advisers, who are better placed to continue providing the services these clients need. A solid business strategy for sure, which we hope is further leveraged by the reinvestment of proceeds of any such sale back into the business itself.

Or is it simply the changing needs of clients has meant that their adviser can no longer provide the services they’re now looking for (and so, they’ve left)?

Irrespective of the reasons driving this reduction in client numbers, the fact is, our analysis indicates there are less Australians being ‘looked after’ by a financial adviser today, than there were two years ago. And, this is occurring during the greatest wealth transfer in our history, as aging parents (the majority of today’s financial advice clients) look to navigate the vagaries of retirement and pass on their wealth to their children in the most effective way, in what can only be described as an extremely complex financial services environment. If ever experienced, professional advice was needed – surely it’s now!

Wouldn’t it be ironic, if one of the major consequences of the past few years of regulatory change is that quality financial advice/guidance becomes available only to higher net worth Australians!

And if this scenario plays out:

  • Will the market (higher net worth clients) be sufficiently large to satisfy the number of financial advisers seeking to serve it? AND…
  • Will these advisers have the necessary and ongoing capability to address the more complex needs of the higher net wealth clients?

These are extremely important questions for every adviser and practice principal to carefully consider from their own perspective. I suspect (having worked closely with many Australian practices over the years), the answer to both questions will be a ‘no’ for a large number. In which case, what can they do right now to prepare for the future? Or, and here’s the opportunity… how can I (profitably) provide ‘non high wealth’ Australians with the advice they need?

The answer, in my view, will centre around new business models which will embrace:

  • A modular approach to providing advice – something akin to lifestyle, event or milestone advice. A specific need arises and help (advice) is needed.
  • A much larger base of clients, with the majority not paying an ongoing fee at any particular point in time – obviously needed as only a certain % of clients in any one year will require comprehensive advice.
  • A clearly segmented clientele – supported with differentiated offers and pricing.
  • An up-to-date, relationship-focussed CRM containing all key client information, allowing the adviser to stay ‘top in the client’s mind’ through targeted communication and marketing programs.
  • Increased marketing capability – internal or outsourced to an external expert.

Lots to consider for every adviser and while different roads will be taken, I’m pretty sure that those who arrive in good shape will share a few common traits. These will include:

  • Having a clear understanding of, and appreciation for, the world in which they work and live. The ‘bigger picture’ if you will. Leading trends and indicators.
  • A clear vision of their end game – how they can operate in, and contribute to, our ‘new world’.
  • A flexible approach to business going forward. And not necessarily being locked into past business models for example.
  • Openness to new ideas, concepts, approaches to doing business – there’s no such thing as a bad idea, right? Unless, of course, it’s uninformed and built on a weak premise or foundation.
  • A willingness to listen to, as well as share and collaborate with, colleagues and peers.

I’m sure that you can think of other traits but I hope you’ll agree that the above isn’t a bad list to begin with. Perhaps the one thing that is imperative and underpins all of the above, is the need for business owners to regularly take some time to work on (and not ‘in’) their business, and to think his/her ‘big picture’ and, in doing so, take the opportunities now on offer.

For your consideration.

Terry Bell.