The financial advice landscape in Australia is rapidly evolving, with client engagement, digital solutions, and innovative service models at the forefront of this transformation. The 2024 Australian Financial Advice Landscape Report (AFAL2024 Report) reveals significant shifts in how top-performing practices adapt to meet client needs and leverage technology for better outcomes.
This week, we will continue our series on Defining Excellence in Financial Planning Practices by focusing on The Evolution of Client-Centric Financial Advice.
Client Engagement: A Shift Towards Regular, Meaningful Conversations
Regular, meaningful conversations with clients have replaced the days of annual check-ins. The AFAL2024 Report reveals that most advisers now engage in these conversations about topics of immediate concern with their clients more regularly throughout the year. This shift not only keeps advisers updated on their client's needs but also fosters a deeper connection and understanding.
While less than one-third of Australians have adopted digital solutions for managing their finances, the intention to use these technologies is rising annually across all age groups. This upward trend presents a significant opportunity for forward-thinking advisers, signalling a promising future for the industry.
In response to changing client needs and technological advancements, practices are innovating their service models. Some use digital applications to support data collection, while others are transitioning previously face-to-face clients to more digital-centric meeting approaches. Even more are recording meetings to automate file noting.
There's also an increasing trend towards using tools that help clients visualise their goals and see the impact of different scenarios. The era of text-heavy, A4 paper-based SOAs is being replaced by digital advice delivery that better supports client understanding. This approach not only enhances client understanding but also strengthens the adviser-client relationship.
Figure 1: Correlation between technology adoption and profitability in advice practices
More importantly, though, the report highlights that practices leveraging data analytics for client segmentation and service delivery are more likely to achieve higher profitability and growth. Technologically savvy practices operate at profit margins of 20% or higher, compared to 18% for those less tech-savvy. The most advanced users of technology achieve impressive margins of 29%, with the highest-performing practices reaching 40%. This clear correlation between technology adoption and profitability underscores the importance of embracing digital solutions in modern financial advice practices.
Figure 2: Tech savviness vs Profitability margin
Additionally, highly tech-savvy practices have 55% fewer staff per adviser than their low-tech-savvy counterparts, which significantly reduces overhead costs. This efficiency gain allows these practices to serve more clients effectively without proportionally increasing their workforce.
Figure 3: Average staff per adviser
While there is much talk about integrating AI in financial advice, and adoption is clearly growing, practices are mainly seeing benefits in consumer-related strategies, such as client engagement and marketing. Interestingly, clients generally believe AI will assist financial advisers rather than replace them, potentially leading to reduced fees and improved service delivery.
In our recent exclusive interview with Paul Barrett of AZ NGA, he noted the larger shift in the industry: "The old challenges that licensees had have been replaced now by new challenges. The old challenges were running commission models, managing conflicts, and compliance... The new evolving challenges of licensees are data management and cyber safety."
The Role of Financial Literacy
Financial literacy plays a crucial role in client engagement and service models. The report reveals that while advised consumers show higher levels of financial literacy than unadvised consumers, financial advisers can add more value to their clients in this area. Financial advice is more than just managing investments and 120-page SOAs. Clients benefit most from being educated and empowered to make informed financial decisions; technology can assist in this.
Figure 4: Consumer Financial literacy
For example, clients' top concerns in 2024 relate to managing retirement income, closely followed by fears about recession and the impact of emerging technologies like AI on their careers.
Excellent advice practices support their clients by making available digital tools that help clients answer questions when they have them in a format (text, video, audio, graphics, etc.) that they most easily understand. This kind of generic educational material is often far more useful for the client than their SOA, but if provided in the right digital formats, it can provide valuable data insights back to the practice for future client engagement.
Instilling this kind of financial confidence in clients benefits practices by reducing client concern, reducing clients' ringing to ask questions or to check their financial position, and providing clients with opportunities to show off to friends and colleagues how good their adviser is.
Looking to the Future
As the financial advice industry continues to evolve, those practices that can adapt to changing conditions while maintaining a steadfast commitment to client outcomes will likely thrive.
In conclusion, the future of financial advice in Australia looks bright, with well-capitalised, technologically advanced, and client-focused practices leading the way. By embracing digital solutions, enhancing client engagement, and evolving service models, these practices are not just adapting to change – they're driving it, ensuring better outcomes for their clients and solidifying their position at the top of the value chain in financial services.
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