Update: Winning the Long Game for Practices and Licensees
Post-Hayne Royal Commission, financial services firms must look to the long game to ‘future-proof’ their businesses and continue delivering trusted advice. This involves aligning with the three foundations of trust: capability, character, and communication.
Foundations of Trust
Capability: Trusting the adviser’s capability, process, and approach, supported by a professional accreditation system.
Character: Trusting that the adviser understands client needs and operates within a fiduciary framework.
Communication: Consistency and clear communication to reinforce client faith in the advice experience.
The industry has struggled to achieve these pillars of trust, but they represent the long-term future of the financial advice sector.
Core Tenets for Long-Term Sustainability
1. Client-Driven, Active Revenue
Practices must derive 100% of revenue from professional services, removing conflicted remuneration. Active, valuable client relationships will command a premium under the RC Report’s guidelines. Revenue streams such as grandfathered commissions and broking commissions will face discounts or elimination.
2. Data Cohesion and Efficiency
Integrated advice platforms with unified data sources can reduce costs and enhance client experiences. Practices must eliminate inefficiencies like multiple data entry and rework to adapt to the growing complexity of compliance and operational demands.
3. Professional Ownership Structures
Succession planning, cultural alignment, and partnerships with long-term capital partners are critical. Sole operator models are becoming unsustainable, and the AFSL system could eventually phase out as financial planning evolves into a profession.
4. Strategy, Governance, and Accountability
Governance processes, including independent chairs and documented strategic plans, are key to driving proper strategy formation and execution. Practices with effective governance can see significant profitability improvements.
5. Licensees as Value-Added Advice Groups
Licensees must provide professional support services and build peer networks that enhance practice efficiency, profitability, and client outcomes. Removing product-subsidized remuneration models will drive this evolution.
Looking Forward
The post-RC landscape offers both opportunities and challenges. Practices must focus on what consumers value, eliminate past biases, and develop efficient, effective business models. Integration across financial planning, accounting, and mortgage broking could finally lead to a unified financial services profession.
Long-term success requires clear strategy, disciplined action, and a mindset oriented towards opportunity rather than disruption.
This article draws insights from the original paper written in August 2018, updated to reflect impacts from the Hayne Royal Commission Final Report. For further insights, visit Encore Advisory Group.
