Royal Commission challenges planners

The number of clients seeking advise from planners continues to decline, as the move by more planners to self-licence increases.

These were two of the key findings to emerge from the 2018 Planner Business Model Report, which is an annual study of Australia financial planners and their business models by research company, Investment Trends.

According to Investment Trends research director, Recep Peker, in the wake of the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, this year’s study is reflective of the financial planning profession in a state of flux.

Client numbers

Interestingly, Peker said the pool of clients advised by planners continues to decline, with the decline in client numbers driven primarily by increased attrition and subdued new client acquisition. The research found that in the last 12 months alone, the average planner lost 35 active client relationships, while gaining only 20 new relationships over the same period.

A consequence of a shrinking client base has been the adverse impact it has had on practice profitability, with fewer planners saying their practice experienced year-on-year growth in profits (53 per cent saying so, down from 59 per cent in 2017 and 61 per cent in 2016).

“Planners continue to face challenges on multiple fronts, chiefly with compliance, client acquisition and building process efficiencies,” Peker said. “Further, the recent Royal Commission inquiry has amplified planners’ concerns with heightened regulatory uncertainty and negative press, and this is proving to be a major impediment to their growth prospects.”

Still, the research shows planners are keen to restore their client numbers, with the majority of them (69 per cent) actively looking to grow their client book.

“Despite challenging business conditions, the average planner intends to expand their client book. So, support from their licensee, technology and service partners will be more critical than ever to alleviating the top challenges facing planners,” Peker said.

Self-Licensing is accelerating

Industry wide, the population of self-licensed financial planners is on the rise. In 2018, one-in-five say they have their own AFSL, which is double the number recorded in 2012.

While self-licensed planners brought in a higher level of new inflows over the last 12 months, fewer report annual practice profit growth compared to their colleagues in the wider planning market (47 per cent vs 54 per cent).

In addition, 78 per cent said they sought external assistance with a range of business support needs, especially around SOA build, compliance and client engagement.

Peker believed these unmet business support needs represented a significant opportunity for service providers to expand their proposition to support the growth of self-licensed planners.

FASEA Reforms : A positive step

While planners believe the Hayne Royal Commission has dented the reputation of the profession, the majority (66 per cent) expect positive structural transformation to flow from FASEA led reforms. Only one-quarter of planners believe the new professional standards and education framework set out by FASEA will have a negative impact on the profession.

“Most planners accept that higher professional standards are vital for the financial planning profession,” said Peker. “The younger generation of planners are, in fact, more positive towards these FASEA led reforms.”

However, many planners believe the implementation of FASEA standards will come at a cost, notably through the degree equivalence requirement (57 per cent cite this) and the demands of the once-off exam (31 per cent).

“There will be a burden on time and cost for planners as the degree equivalence requirements come into effect in 2024, and support from professional associations and licensees is needed to ensure a smooth transition,” Peker said.

The Investment Trends 2018 Planner Business Model Report, now in its fifteenth year, is based on an in-depth study of 899 financial planners concluded in May 2018.





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