S&P Dow Jones Indices for financial advisor

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S&P Dow Jones Indices for financial advisor

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By Russell Medcraft CFP Chief Executive Officer Financial Choice Pty Ltd

Corporate authorised representative of Self Managed Super Institute P/L AFSL 292925

EVOLUTION OF THE ADVICE INDUSTRY IN

AUSTRALIA

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I STARTED IN JUNE 1982.

THE NUMBER ONE SONG IN THE WORLD WAS

PHYSICAL” BY OLIVIA NEWTON JOHN

AND

THE BIGGEST LIFE COMPANY IN AUSTRALIA WAS

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1982-

ALL WE HAD TO SELL WAS WHOLE OF LIFE AND

ENDOWMENT SAVINGS AND PROTECTION

PLANS

• Sell 3 per week at $100 per month and earn $60,000 per year.

• Go on a fully paid conference every two years

• Only 5% retention of adviser recruits stay in the industry after 5 years.

• Our target market was young to middle age working men and women

• The Retirement/Investment market was almost non existent because when people retired they put their money in the bank or bought a property.

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1985-ADVICE INDUSTRY GREW UP ON THE BACK

OF SUPERANNUATION.

0

5

10

15

20

25

1982 1987 1992 1997 2002 2007 2012 2015

GROWTH OF SUPER

THE ADVICE INDUSTRY

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1985- THE BIRTH OF THE

ROLL OVER

MARKET IN

SUPERANNUATION.

• The changes to superannuation gave rise to the Financial Planning profession.

• We started to break termination payments into Pre and Post which gave the incentive for people to preserve their Superannuation to age 55 at least.

• Up front commissions of up to 10% on property trusts

• Approved deposit funds (ADF’s) versus Deferred Annuities and Variable Annuities.

• Commutations of pensions encouraged Public servants to cash in the lump sums and double dip

• The end of Whole of life and endowment policies.

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IN 1986 WE HAD THE START OF THE INSURANCE

REVOLUTION-

―BUY TERM INSURANCE INSTEAD OF WHOLE OF LIFE AND

INVEST THE REST‖.

IT WAS A PRODUCT DRIVEN WORLD.

PEOPLE GET SOLD INSURANCE THEY DON’T BUY IT.”

• The Life office model was dominated by the Mutuals.

• To compete you either needed scale in distribution or you had to innovate with product changes - the introduction of term insurance.

• Term insurance stripped out the cash component of policies and provided a lot more cover for the same price.

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Then we had

the 1987 Stock

Market Crash-

investors panic

Australia crashes 41.8%

United Kingdom 26.45%

United States 22.68%

NZ 60.0%

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1988-BT PERFORMED BEST OUT OF THE CRASH

WAS IT GOOD LUCK OR GOOD TIMING?

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AMP V NATIONAL MUTUAL V COLONIAL MUTUAL

-CONFERENCE IN THE GREEK ISLANDS.

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THE SCALE WAR WAS ON.

TO SELL A PRODUCT YOU NEEDED

DISTRIBUTION.

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1992.The start of compulsory

superannuation and the demise of the

personal tax deduction on superannuation.

The adviser market almost halved overnight because without upfront

commission fuelled by tax deductions many advisers believed they couldn’t

make a living.

Trail commission was the value driver not upfront commission.

Between 1992 and 1997 advisers focused on advice and would search for

outperformance by moving fund managers and central sourcing of services.

Investment money was not sticky.

Insurance came into the picture and under pinned advisers income.

If you didn’t perform you were out. BT started having massive outflow of funds

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1997 – THE DOMINATION OF THE WRAP

ACCOUNT.

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Others soon followed.

The Fund Manager could perform badly but offer other products and clip the ticket as long as you had scale!

FUND MANAGERS COULD SEE THAT FUNDS

UNDER MANAGEMENT WAS NOT THE ONLY

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Clients battle with below par returns and frozen funds Advisers question their value proposition

Dealer groups realise that conflicted remuneration is the only thing keeping them alive , makes up 30% of their revenue.

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THE DAWN OF FEE FOR SERVICE.

MOVING FROM ADVICE TO JUST THE HIGH NET WORTH

ADVICE TO ALL AUSTRALIANS.

• The Adviser has to deal with FOFA and the abolition of trail commission on

superannuation and the further abolition of commission on insurance under the ―My Super‖ framework.

• Scaled advice responsibility will apply to the advice provider rather than the dealer

• Best interest test requires you to verify the veracity of the clients information

• Safe Harbour provision Section 961 B(2) will require a lot more accurate data collection from the client.

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2012 HOW WILL ADVISERS SURVIVE?

• Average age of advisers 57

• Clients moving from managed funds to direct investing in term deposits

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THE FUTURE IS HERE NOW –

SOCIAL CONNECTIVITY

We're at an inflection point where work and value creation can reach

"scale" without having to be done by a large, single firm. We can see

today that Social is more than tools, information-enabled efficiency,

products, services, or processes. It is not that we have more ways to

be social. It is that the cumulative difference of all these ways of being

social allows for an entirely new way to scale — through and with

connected individuals.

The improvement in what is possible creates

new economic effects that add up to a new way of doing business.

Organizations that get this are — in essence, creating entirely new

business models.

Today, value creation can now happen through the organizing and

connecting of individuals together.

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CONNECT WITH YOUR CLIENTS AND STAY IN TOUCH

IN THE MOBILE DEVICE WORLD.

There are 5 billion mobile devices in the world. Total population of 7 billion people.

In the near future you will be able to video a client interview on Skype and save

the file to the cloud that will become a record of advice and be fully compliant.

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2013 WILL BE THE BIGGEST YEAR FOR

FINANCIAL PLANNERS.

• Regulatory Changes will come into force in July 2013

• Investment returns will be low so fees will be under pressure

• Conflicted remuneration

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Change your Business Valuation from 2.5 times trail fees

To

8 times net profit before interest and tax

BECOME AN INDEPENDENT FINANCIAL

ADVISER TO PROTECT YOUR BUSINESS-

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CLIENTS NEED OUR HELP MORE THAN

EVER-PLENTY OF REASONS TO BE POSITIVE

• Their financial world is in a mess

• $21 billion in unclaimed and inactive superannuation to be auto consolidated

• 1,400,000 million dormant life insurance policy holders

• 33 million superannuation accounts for 9 million workers

• More people than ever before are in financial stress

• Divorce rate all time high-the number one reason is financial stress

• Living longer and running out of money sooner and working longer

• Underinsurance in Australia.

Figure

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