‘Well on our way’ to bridging advice trust deficit

Founder and director of Forte Asset Solutions, Steve Prendeville, painted an optimistic picture of the future outlook for advice, noting that with the removal of conflicts of interest and improved transparency, advice businesses now have clear pricing and value proposition.

“We're well on our way to bridging the trust deficit in advice with the exit of the banks,” Mr Prendeville said.

“Moreover, we've got the requirement for degree qualifications for advisers and vigilant authorities [overlooking the industry]. During the last three to five years, the industry has built better businesses that have now uncoupled from market influences.

“We’re now looking at profit per client and we've got lower platform and product fees. We've achieved and continue to experience better client experiences and outcomes.”

While noting that confidence is rising in the advice industry due to the prospect of fewer legislative and regulatory changes, Mr Prendeville said the industry is “collectively holding its breath” for the Quality of Advice Review, which he hopes will simplify requirements for documentation such as statements of advice (SOA).

“In trying to reduce the duplication, we can therefore hopefully reduce the cost of production of an SOA,” he said.

“Our average cost is around $3,600. The average price for upfront advice fees is over $5,300. The hope (with some confidence) is that we're going to have the technological solutions to be able to provide cheaper and more efficient advice along with simplification of compliance legislation.”

Mr Prendeville’s comments preceded the ifa Future Forum 2022, where he will present a session on how advisers could boost balance sheet revenue in their practices by assessing the affordability and profitability of their offering and advice model, and increase the value of their business.

Mr Prendeville told ifa that valuations of advice businesses have increased since 2019 because the quality of the businesses have improved substantially, particularly due to the use of technological tools.

“My expectation on future valuations is that we’ll continue to see consistent pricing, with high-profit businesses being rewarded accordingly,” he said.

As such, Mr Prendeville urged advisers to increase the value of their business through bolstering efficiencies and productivity, and increasing profits.

Valuers separate premium from discounted advice models, with premiums afforded to those businesses with sustainable profitability, fixed fees, good age demographics, a high-net-worth client base or a specialist target market, and systems and processes that drive profitability and sustainability, he added.

“Discounts are unfortunately given to businesses that are in regional areas because of lower demand,” he explained.

“They’re also given to businesses with an aged client base, clients with low average funds under management [FUM] (less than $300,000 per client, especially in the pension phase as it is deemed to be a declining asset), low fees and corresponding low profitability, poor systems and processes, flatline or negative growth, and any signs of poor compliance.”

Reviewing pricing structures to ensure that each client is profitable and enables the business to maintain a margin of 35 per cent or greater before interest and taxation would also be beneficial, he added.

The general rule of thumb is a client is unprofitable if their advice fee is less than $3,000 per annum but this would depend on the business model, service offerings, and the technological tools at the adviser’s disposal.

“This is why we’ve seen around 100,000 orphaned clients in the last 12 months as advisers have unfortunately been forced to look at unprofitable clients,” he said.

During his session at the ifa Future Forum, Mr Prendeville will provide an outlook for advice businesses in 2026 and beyond.

He told ifa that he expects more merger activity, particularly between businesses that are sub-$500,000 in revenue and are looking to grow and benefit from scale.

Furthermore, Mr Prendeville predicted a rise in “independent super boutiques” with an excess of $3 billion in FUM, along with more “well-branded” businesses entering the market, “which there is an absence of at the moment”.

To hear more from Steve Prendeville on how to leverage the great advice reset and boost your balance sheet revenue and future-proof your practice in 2026 and beyond, come along to the ifa Future Forum 2022.

The free event will be held on 16 November 2022 at Montage in Sydney.

Click here to register for free and don’t miss out!

For more information, including agenda and speakers, click here.