Active Advice: The Future of Financial Planning

The financial advice landscape is undergoing a significant transformation, with active advice emerging as the dominant model for successful practices. According to Encore Advisory managing director Tom Reddacliff, advisers who deeply engage with their clients' financial lives are best positioned for future success.

"Active is the only viable business model," Reddacliff asserts, pointing to recent regulatory changes that have reshaped the industry landscape. The abolition of grandfathered commissions and the transition from biennial to annual opt-ins are driving this shift toward more engaged advisory relationships.

These regulatory changes are more than just compliance requirements – they're reshaping the fundamental nature of adviser-client relationships. "If you don't have an active, valuable relationship then that form of revenue is dead in the water," Reddacliff explains, highlighting the critical importance of maintaining meaningful client engagement.

The impact of this shift is already evident in practice valuations. Reddacliff notes a significant disparity in how the market values different types of advice businesses. "A revenue book where a buyer is concerned about future 12-month opt-in is being discounted to a two or below revenue multiple," he says. In contrast, practices with proven, engaged client relationships are commanding valuations "somewhere in the high twos."

This valuation gap underscores the market's clear preference for active advice models. Businesses that can demonstrate strong client engagement and consistent value delivery are being rewarded with higher valuations, while those relying on legacy revenue streams face increasing pressure.

Looking ahead, Reddacliff predicts that the adviser population will contract to approximately 15,000 by 2023. However, this reduction, combined with growing demand for financial advice, could create favorable conditions for remaining practices. "There's every reason to be optimistic that there's some greener pastures ahead," he notes.

For advisers navigating this shifting landscape, the message is clear: building and maintaining active, engaged client relationships isn't just good practice – it's essential for business survival and growth. The future belongs to advisers who can demonstrate ongoing value to their clients through regular, meaningful engagement.

This article draws insights from "Active advice 'the only model in town'" which appeared in Professional Planner, February 2021.

Read the full article here:
(https://www.professionalplanner.com.au/2021/02/active-advice-the-only-model-in-town/)