Over 220 delegates attended IMAP’s Portfolio Management Conference on 2 August. With 14 sessions on offer, there was a good selection of topics and presentations to whet the appetite of managed account professionals. Jayson Forrest reviews some of the highlights.

 

Research reveals advice firm of the future

In an ever-evolving advisory landscape, the traditional role of the adviser is changing. Today, more emphasis is being placed on client relationships and soft skills (48 per cent), with one-third (35 per cent) of advisers believing there is an increasing need for them to be more resilient and adaptable to change.

These were two of the key findings to come out of the Macquarie 2018 AFS Benchmarking Report, with 11 per cent of advice firms reporting there was an increasing need to become a specialist, and only 6 per cent saying there is a greater need to focus on technical skills.

“What will it take to be an advice firm of the future?”, asked Sherise Mercer – Head of Macquarie’s Virtual Adviser Network. “The Macquarie 2018 AFS Benchmarking Report shows that high performing practices will be concentrating on three core areas: clients, staff and systems.”

 

1. Clients

Speaking at the IMAP Portfolio Management Conference, Mercer said the report showed a clear separation between high performing benchmark firms (surveyed between November and December 2017), compared to a wide variety of firms surveyed throughout 2017.

“We asked advisers what they believed were the most effective strategies to improve profitability

in the current market, and 68 per cent of the benchmark firms said, ‘Adding value to existing clients’,” Mercer said.

According to the report’s findings, in terms of focusing on what matters to clients, firms were placing greater emphasis on personalising the experience for clients, with 74 per cent of the firms recording an increase in client referrals as a result.

“High performance advice firms are improving their profitability through referrals,” Mercer said.

“They are doing this by ensuring they clearly articulate their value proposition, are generous with their time in educating their clients, and when it comes to asking clients for referrals, they know who to ask, when to ask and how to ask.”

Mercer said the research revealed the best referrals tended to come from clients aged 30-45 years and who had been with the practice for 1-4 years.

She added that advice firms were preparing for future growth by actively engaging with the next generation of clients. The research found that 82 per cent of benchmark firms engaged with the adult children of their current client base, compared to 67 per cent of all firms.

“The research shows us that the next generation of clients want their adviser to be able to identify their needs and connect them with other professionals, like accountants, to help them with their money management. They also want a responsive service, with speed and efficiency of implementation.

“And the next generation are telling us they want information and education from their adviser about their investment portfolios. In fact, twice the average want more education and portfolio-specific communication from advisers.”

 

2. Staff

The retention of high-performing staff was also an important consideration for 64 per cent of the benchmark firms, when it came to improving their business profitability.

And while staff remuneration was also an important factor in retaining staff, the research found that 78 per cent of high performing organisations were also using workplace flexibility, training opportunities and a positive workplace environment, as important inducements for rewarding and retaining staff.

 

3. Systems

Another effective strategy identified in the report to improve business profitability was the use of technology and systems.

Seventy-eight per cent of the benchmark businesses recorded improved profitability through efficiency gains using technology, with 72 per cent seeing an improvement in profitability through process improvements.

In fact, of the benchmark firms surveyed in the report, 28 per cent were intending to introduce a new CRM system, 24 per cent a new client portal, 24 per cent were intending to roll out a managed accounts offering, 18 per cent were going to introduce new data aggregation and dashboard tools, and 14 per cent were implementing a new client mobile app.

Only one-third (28 per cent) of firms said they were not going to introduce any new systems or platforms.

“For an advice business to remain profitable and relevant to clients in the years ahead, it needs to understand the key drivers that underpin successful businesses: clients, staff and technology. By better understanding the demands and requirements of each, an advice firm can better position itself for future growth,” Mercer said.

The Macquarie 2018 AFS Benchmarking Report is based on the 2017/18 Macquarie Accounting and Financial Services Benchmarking survey, conducted in December 2017, and the 2017 Macquarie Propensity Project surveys conducted throughout 2017.  

 

2023: What will investment management look like?

In an entertaining panel session at the IMAP Portfolio Management Conference, the Joint Managing Director of Netwealth, Matt Heine, and the Head of Distribution at Praemium, Martin Morris, provided their views on what investment management will look like for advisers in five years time.

Heine said that with 60 per cent of managed account portfolios comprising of managed funds, he saw this as being a huge risk when markets next go into meltdown.

“That type of scenario will affect all assets. That’s why, I see a growth in ‘intra-day trading’, enabling advisers and portfolio managers to move faster with portfolio adjustments in real time,” Heine said.

Morris believed the growth of fintech and technology solutions would enable advisers to better service their clients, while reducing the complexity of advice.

“The advice process in Australia is complex,” Morris said. “But clients aren’t interested in this complexity. When they see their adviser, they’re looking for an experience. Technology will enable advisers to improve the client experience, which should lead to more client referrals.”

Morris added that consumers are demanding greater transparency and control of their investment portfolios, and was therefore bullish that fintech solutions would continue to keep up with those demands. “If not, then that will be a real threat to the industry,” he said.

Heine agreed saying that what drives client referrals is a consistent and seamless experience that the client values. “And that’s where managed accounts excel,” he said. “They are the perfect solution for future-proofing your business.”

Heine also predicted a surge in automated investment services and a “huge” growth in ETFs over the coming five years.

However, both panellists agreed that in the wake of the Hayne Royal Commission, governance and compliance standards will increase across the financial services industry.

“There is a misnomer that the industry is awash with IFAs setting up their own managed accounts. That’s simply not the case,” Morris said.

“To become a responsible entity, there are onerous due diligence requirements. And, of course, advisers would need to think like investment managers, which means isolating themselves as model managers from their advisory work. That leads to the question: Are they an investment manager or a financial adviser?

“So, there are a lot of considerations and requirements they first need to be meet if they want to set up their own managed account.”