There appears to be a perception in some circles that a financial adviser sits in his plush office, while clients queue up outside, waiting for their turn to make use of his invaluable services.
While this may, to a far lesser degree, be true of highly experienced and professional advisers, for most it is a daily grind to obtain leads and convert it into sales.
Not every client you see turns into a sale. Some even use the knowledge gleaned from you to place their business elsewhere.
Statistics indicate that new intermediaries usually have a success rate as low as 20% (excluding family and friends) as far as converting leads into sales. This eventually improves to around 80% as a client base is established, and clients become supporters as a result of the value added by the adviser.
Very few make it this far. There is a massive fall-out, even today, despite the use of scientific selection criteria, and regulatory requirements regarding qualifications, experience and character traits.
In striving to make financial products more accessible to clients, the authorities need to seriously consider finding ways to assist the industry in countering this, or exactly the opposite will happen.
Making financial products more accessible for consumers is a stated goal of the authorities, but without intermediation, it will not happen in the foreseeable future.
Those who made it
The term “survival of the fittest” can very aptly be applied to the survivors of the long journey to the top. Whilst there are varying degrees of success, the common trait is an ability to overcome obstacles.
The last ten years or so have seen constant challenges as changes in the industry brought new demands, including:
- Sales support for advisers, other than top producers, being seriously downscaled
- Technological demands and challenges adding extra layers of cost
- Increasing regulatory demands seriously impacting on productivity
A friend in Australia mentioned another potential threat – the baby boomers still prefer human interaction, but the younger generation, who is much more at ease with technology, will lean towards “robo advice” as this becomes a more established medium across the world.
It is of vital importance that the Retail Distribution Review proposals consider the impact of its implementation on the real income, especially of smaller FSPs.
A recent article in RiskAdviser, an Australian industry publication, compares potential advice fees to commission payments. Although one has to bear in mind that commission rates in Australia are substantially higher that here, the indication is that there could be a substantial drop in income. Some of the possible outcomes noted in the article include:
- A reduction in businesses and advice professionals advising in the life assurance space
- A flight to larger a1dvice businesses who are better able to subsidise the initial loss making period
- Middle Australia not having an advice solution
- Small business advice professionals leaving the industry
- Consumers self-serving via the direct market, resulting in an off-the-shelf rather than tailored solution (and likely paying more for the equivalent amount of cover)
- An exacerbation of the underinsurance problem, in turn leading to a significant cost to government in health, disability and associated support services.
The RDR discussion document identifies specific threats to intermediary sustainability, and makes mention of the fact that advice does not currently enjoy the recognition that it deserves, nor is the intermediary adequately remunerated for professional advice.
We trust that the feedback from the industry to the FSB will highlight this potential threat to advisers and their clients alike, and will be addressed during the next round of talks.