The financial planning industry is entering an era of massive disruption and change, and planners will need to be proactive and adaptable to survive.
This was the message from Bernie Ripoll during a recent Netwealth webinar, The advice practice of the future: does it belong to you? where he outlined some of the challenges he sees facing the industry and urged financial planners to begin preparing for them now.
Ripoll is a former shadow minister for financial services and chaired the inquiry that led to the development of the FoFA legislation, the Ripoll Report of 2009. He is now a director of financial planning fintech Map My Plan.
The fall-out from the Financial Services Royal Commission, sweeping changes to legislation and the rise of ‘’robo everything’’ are among the forces he sees shaping the future of financial planning.
“What do our jobs look like in the future?’’ asked Ripoll. “Change is constant. We always tend to think that it happens to other people. It's hard to see it coming. By the time change gets here, it's too late, we've missed it, just like the taxi industry did.’’
Royal commission, upcoming elections
The Hayne royal commission is currently in full swing and is due to issue its final report by February 2019. At the same time, a federal election is due by May 2019, and Ripoll said the confluence of these two events meant turbulent times ahead for the financial sector.
“You just never know what's going to happen in Parliament. It's the most unpredictable, volatile place in Australia,’’ he said.
“I think post the royal commission we're going to see a really different environment in Canberra, with a bit of chest beating, and everyone's going to try and outdo each other. My message to you is this: expect some pretty harsh outcomes from what happens in the royal commission.
“From a financial services perspective, what does that mean? It means anything could happen, a whole range of really serious outcomes that could have a massive impact on the whole sector.
“Potentially the government will do a range of things, even extend the royal commission if some more bad things are discovered. It possibly will lead to more inquiries in specific areas. It's hard to tell.’’
Ripoll said he was proud of what FoFA had achieved, but the legislative environment was constantly changing. Since then, Australia had seen the advent of FASEA, BEAR and now “FoFA 2” was already in the wings.
“FoFA was the big thing that I worked on for a long time,’’ said Ripoll. “That's about best interest duty and getting rid of conflicted remuneration. All painful things, but all in the right direction.
“It's only five years from when we really first kicked (FoFA) off to now. Before the ink's even really dry on FoFA, there's going to be FoFA mark II. We're seeing that evolve right now. It's a run and run fast environment.’’
He also said increasing pressure on ASIC, APRA and even AUSTRAC would in turn mean more attention on the activities of providers of financial services from the regulators.
“We're going to see much more scrutiny,’’ he said.
Fees under pressure
“In all areas of financial services, the long-term trend in fees is steadily downwards. This is because of regulatory pressure, increasing competition and advances in technology’’, said Ripoll.
“I think in terms of fees we're seeing an environment where fees are continually being pushed down,’’ he said.
“Whatever revenue model, whatever business model you have in place, if you haven't already then you should put that into your risk register, or your matrix, or however you need to look at these things, and say, ‘What's going to happen to our fees in the future?’
“There's some statistics about how people will trust Google or Amazon or Facebook with their money more than they might their financial institution, which is a blight on what it is we do every day.
“The big threat for everyone's business model, if I can be blunt, is that people are going to trust you less and less, but they're going to trust technology more and more. Hence the rise of robo everything: robo advice, robo product advice, robo asset management, technology-based platforms.’’
Ripoll warned that the fintechs currently making inroads into financial services would eventually disrupt the industry.
“Sure they're small, their fees are really high, but it's like electric cars—the first few are going to be expensive and difficult to get, but as the sector moves on we're going to see a really big change.’’
Despite all the challenges facing the financial planning industry, Ripoll said its role was becoming more important than ever, as ageing demographics meant more people living longer after working than ever before, and the wealth transfer from the Baby Boomers and the Xers through to the Millennials would be the largest in history.
He urged planners to approach the future proactively and positively and said the industry would emerge from this difficult period the better for having been through it.
“I think it's a much more difficult environment, but it is for a good reason,’’ said Ripoll. “In the end we need to understand exactly why all these things are taking place.
“For me it's always just about the simple things. It is about a single person's best interests. It is about the consumer, the client - your client. It's about their best interests. It's not necessarily about your best interests.
“It's really about knowing your client better, understanding what their needs are and understanding, too, that people are changing, demographics are changing, so what might continue to work in the future for your existing client base may not work at all for their children when they inherit the wealth that's coming to them in the next generation.
“Your skills and knowledge and ability are really what's going to help you to manage that. It's going to be the value add. What value are you providing for the service that you're giving? It's the more for less argument.
“It’s about proactive advice, it's that interaction - running reports, understanding what's going on and having solutions for people where they need it as well.
“And education. Education is really important not only for your clients but for your own people. That ongoing education piece is, I think, critical.
“Restoring trust, for me this is hand-in-hand with everything that's going on. Everyone needs to participate. You can't be a bystander when it comes to these things. It's the small things that drive the big outcomes.’’
To hear the full discussion with Bernie Ripoll, listen to the to the complete The Advice Practice of the Future: Does it Belong to You? webinar, or contact Netwealth to find out more.