Advisers face challenge of streamlining businesses for generational transfer of wealth

APRA predicts that 3.6 million Australians will transition into retirement over the next decade, while also calculating that roughly 700 Australians retire every day.

The most recent Association of Superannuation Funds of Australia (ASFA) figures show that there is $3.3 trillion in total superannuation assets. To put this figure in perspective, that equates to roughly $206 million for every adviser in the country.

According to Steve Prendeville, founder and director of Forte Asset Solutions, the biggest challenge for advisers is not client acquisition, but rather managing the organic growth resulting from the increasing number of retirees.

“There’s significant capacity issues with most advisory firms that they can only take on one or two new clients a month,” Mr Prendeville said.

“We’ve got rising costs of production, through ASIC levies, increased dealer fees, increased PI, so the cost of advice is steadily increasing. So, how many people can access advice? We’ve got organic growth, we’ve got rising costs, which is transferring into rising advice fees.

“The other part is we’ve got a real war for talent. We’ve got 10,000 less advisers within the marketplace. We’ve got all this growth, but don’t have the talent.”

While the need for advice is set to increase in the coming years, it is still important for advisers to put themselves in a position to succeed, as well as ensure that their clients achieve their financial goals.

When it comes to intergenerational advice and the transfer of wealth, making sure the next generation, or two, are looked after is likely to be top of mind. Mr Prendeville believes shepherding a family through this period can prove the value of advice.

“This particularly happens when in retirement care advice, when all of a sudden, you’re putting your mum into her home. It’s a critical period for the family, highly emotional, they really need guidance to do it. It’s a really powerful one for winning the hearts and the minds of the second generation,” he said.

“The second one is estate planning, but also you have everyone around the family table and you’re planning the handover of the family wealth. The other thing to remember is that with mortality rates at the moment, then the kids are in their 60s and they’re planning for retirement. It’s actually a natural sort of succession.”

The question then becomes how advice businesses can handle the coming onslaught of organic growth, with Mr Prendeville suggesting that managed accounts are among the best ways to increase efficiencies in an advice practice.

According to the latest figures from the Institute of Managed Account Professionals (IMAP), managed accounts funds under management (FUM) reached $135.8 billion as of 30 June 2022, marking a 22 per cent increase from the previous year. This significant growth indicates that advisers are increasingly shifting towards managed accounts.

“Managed accounts are a way where businesses can really improve back-office efficiencies. If you’re going to move from ABC fund to CDE fund, instead of having to go to all clients with recommendations and wait for signatures, you can now do it in one simple movement across all platforms, all clients,” Mr Prendeville said.

Tech adoption key

He also urged advisers to look at all forms of tech adoption to streamline the operation of their business. 

While the pandemic forced the industry to adapt, leading to a rise in video conferencing through platforms like Zoom and Microsoft Teams, he noted there are a lot of other areas that can be improved.

“We’re also seeing the adoption of e-signatures, 30 per cent of firms have now client online portals, which increases cyber security but also increases a client service as well. We’re seeing increased use of data integration, better CRM solutions, we’re seeing better email campaigns with the likes of MailChimp. We’ve seen better investment tools,” Mr Prendeville added.

“Advice firms have, over the last few years, been improving client engagement, have been able to better communicate and ensure that level of engagement is high with clients and, at the same time, improve office efficiencies and therefore profitability as well.”

In addition to what businesses can do themselves to increase efficiencies, Mr Prendeville assessed that the Quality of Advice Review (QAR) may also help clear some red tape and lower the cost of advice.

“My hope is that Quality of Advice Review, with the removal of SOAs and ROAs, will substantially be able to reduce the cost to consumer, but also be able to increase the efficiencies to enable growth for the underlying practices as well,” he said.

“In the last 12 months, we’ve seen the price of advice rise 33 per cent from $3,656 for an SOA to now $4,865, and this is because of the bureaucracy and the cost of compliance. I think that releasing that red tape will actually free up the industry.”

Mr Prendeville concluded: “I think we’re entering a sort of a golden age for advice. 

“We’ve gotten better businesses, we’ve got high quality of advisers, we’ve got organic growth, and we’ve never before had the choice and selection we have on technology solutions. So it’s just understanding the market that we’re in coming into and plan for it.”