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Financial Planning & Advice: (R)evolution to a new operating model. Michael Monaghan 2010 Deloitte Touche Tohmatsu

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(1)

Financial Planning & Advice:

(R)evolution to a new operating

model

Michael Monaghan

(2)

A “blue ocean” is emerging for

provision of financial advice:

the millions of members of

superannuation funds who need

education and limited personal

advice – mainly about their

super

this needs a totally different,

massively lower cost delivery

mechanism

their needs are largely unmet

under the current system

Key message

2

Simultaneously the traditional

financial planning delivery model is

under threat:

from regulatory change to

abolish commissions and

conflicts of interest

from industry forces wanting to

move to a more professional

financial planning industry

(FPA, IFSA)

(3)

Blue Ocean Strategy: Value Innovation

3 Costs Value Innovation Buyer Value

(4)

THE WINDS OF CHANGE

(5)

5

Forces at play

ASIC RG 200

• Rise of intra fund advice • Simple SOA production

Ripoll Inquiry

• Chris Bowen announcements April 2010 • The Future of Financial Advice

Cooper Inquiry

• Advice & fees • Efficiency in super • SuperStream

• Role of SMSF’s • MySuper

Henry tax review

• Increase SG to 12%

• Contribution limit changes

• Support for low income earners

• Quite a few recommendations deferred • Several proposals rejected

(6)

Recent developments

Cooper review –

MySuper proposals

• Access to general and intra-fund advice at no charge • Exclusion of bundled advice

• No trailing commissions or ongoing advice payments; • Basic insurance but with no commission or like

payments

Chris Bowen – “The

Future of Financial

Advice”

• Removal of conflicted remuneration structures – Commissions

– Volume bonuses

– Shelf space fees and dealer rebates

• Introduction of product neutral adviser charging regime

• Advisers agree fees with clients with full disclosure • Statutory fiduciary duty for financial advisers

• Requirement to act in best interests of client

Expansion of simple intra-fund advice to super fund members

• Review of professional standards in financial advice industry

(7)

THE NEED FOR ADVICE

Social and demographic dimensions

(8)

Significant inequality in household wealth

(9)

… and significant differences in access to superannuation

22% 45% 16% 12% 4% 1% <$1,000 $1k - $20k $20k-$50k $50k-$200k $200k-$500k $500k

and Review of Australia’s Super System

and Review of Australia’s Super System Source: Deloitte 2009

Member account balances by size

(10)

Member demographics are changing rapidly

10

(11)

…but communication methods are lagging

77% 31% 93% 100% 100% 7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Call centre inbound Call centre outbound

Email Paper/ post Fund website

SMS, Twitter, etc

Respondent use of communication channels

General communications

(12)

12

The need for advice

Majority of

households only have

super and/or their

house

advice needs to be focussed on super

Younger people are

majority of members

simple advice on specific topics

delivered in real time

and at low or no cost

As age and/or wealth

increase

more comprehensive advice required

but with varying levels of

complexity/sophistication

(13)

The financial advice continuum

Information Education General advice Personal advice on specific topics More complex advice but still restricted to matters within the fund Straight-forward comprehensive financial advice

Increasing complexity and need for assistance

Increasing demand and self-service

More complex comprehensive advice

Linked to super fund

Financial planning

provider

(14)

A NEW OPERATING MODEL?

(15)

Implications for Advice Business

Operating Model

15

Traditional Financial

Planning –

Comprehensive Advice

Wholesale delivery of

simple/intra-fund

(16)

Operating model: customers

First Tier:

“Soon-to-be” noncustomers – members who know they

need advice, but do not have time or want to pay

Second Tier: “Refusing” noncustomers – Generation X members

Third Tier:

“Unexplored” noncustomers – Generation Y members

Third Tier Second Tier First Tier Baby Boomers 16

(17)

17

Operating Model: Advice “Product”

Retirement Income

How much will I have?

How much do I need?

Contribution Strategies

Salary Sacrifice

Co-Contributions

Spouse Contributions

Investment Strategy

Default option

Other choices

Insurance

Death

Total & Permanent disability

Income protection

(18)

Operating model: multiple delivery

channels

Web-based Email Telephone Video

conference Fax/post Face-to-face

Wholesale services: Intra-fund and limited

personal advice Comprehensive advice 18 Rating scale: Not appropriate Somewhat appropriate Appropriate Primary

(19)

19 Members Contact centre/IVR Escalation point Advice centre (personal advice) Escalation point Comprehensive advice Education Seminars • Factual Information • Financial literacy • General advice • Calculators • View/change member details

• Self service advice (SOA) • Escalation point for

advice

• Information and general advice

• Escalation point for personal advice

• Operators trained to refer on to advice centre • Provision of limited

personal advice (SOA) • Calculator/website

coaching

• Escalation point for comprehensive advice • Factual information and

updates • General advice • Escalation point for

advice Request advice

services

• Comprehensive advice • Super and non-super • Optional annual reviews

Escalation point

(20)

Operating model: Integrated

technology and communications

20

Members

Integrated Communications Platform

Financial models • Projections • Calculators • Scenario testing Information base • Disclosure • Newsletters • SOA templates General Information

General and specific advice

Member helpline Advice helpline

Comprehensive advice

Comprehensive personal advice

Online information resources & tools

Super fund member data

• Age • Balance • Contributions • Insurance • Other Member profile & advisory (SOA) archive • Information packs • SOAs

(21)

BLUE OCEAN ECONOMICS

(22)

22

Demand generation - role of the fund

Member engagement

activities

• Use of social media

• Data mining and segmentation of members

• Induction of new members

• Call centre referrals

Seminar invitations

• Members can be identified by generation (Gen Y, Gen X, baby boomers)

• Benefit size

• Level of engagement

• Postcode

Promotional letters and

flyers , SMS and social

media

• New members

• Members who are receiving a benefit payment

• Members who have previously received advice

• Members who are within 12 months of their

early/ normal retirement age

(23)

23

Wholesale advice – some financial levers

Wholesale advice - adviser utilisation

Weeks worked 42

Daily utilisation (minutes) 340 Time per GA call (minutes) 10 Time per Intra-fund SOA (minutes) 35 Time per LA (multiple topics) SOA (minutes) 60

Time spent on GA 17% Time spent on Intra-fund advice 58% Time spent on LA 25%

Adviser salary + bonus $150,000

Direct cost per call/SOA

GA $21

Intra-fund $74

Limited advice (multiple topics) $126

Cost per unit of advice

Self service advice/general advice $40 Intra-fund advice $150 Limited advice (multiple topics) $250

(24)

MySuper cost estimates for intra-fund advice

24

Estimated operating costs for MySuper products of varying sizes

(as $ per member per annum)

Fund size: $millions <100 500 1,000 2,000 5,000 10,000 >20,000 Fund size: membership 4,000 20,000 40,000 80,000 200,000 400,000 800,000

(Assuming average account balance $25,000)

Third party administration fees $124 $90 $78 $68 $57 $49 $43

Trustee office $120 $105 $71 $46 $31 $28 $23

Total operating costs (excl.

advice) $244 $195 $149 $114 $88 $77 $66

Intra-fund advice $18 $15 $13 $11 $10 $9 $8

Total operating costs (incl.

advice) $262 $210 $162 $125 $98 $86 $74

(25)

THE RED OCEAN

(26)

Client Adviser Dealer Group Product / Platform Custodian Asset Manager Invest $

Retail value chain

Revenue/Commission Split e.g. Adviser 90:10 DG Emerging fee-for-service 50-100bps? Investment Returns Comprehensive Regular Reporting Back Office Infrastructure 80 - 100 bps 30 – 40 bps Average 50 bps

(range 30-60 bps) Overall client fees of 180 – 230

bps

Client 180- 230 bps

Average 60 – 80 bps, or 40-60 net of Shelf space fee

Average 3-5 bps

(27)

Client Adviser Dealer Group Platform Custodian Asset Manager Invest $

Retail value chain?

Fee Split e.g. Adviser 90:10 DG

Separate fees for: Advice Platform Product Investment Returns Back Office Infrastructure Average 3-5 bps Platform administration fees Asset management fees Invest $ Investment Returns 27

(28)

Time for a revolution?

• Regulatory initiatives driving demand

• Technology enabling lower cost delivery

• Emergence of new competitors in wholesale

advice space

• Disruption to traditional advice delivery

• A blue ocean with millions of generation X and Y

consumers

References

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