Financial advisers and licensees have an unprecedented opportunity to revisit how they define and deliver value – licensees to advisers, advisers to clients – as the financial advice industry resets itself for a future focused on the client, rather than centred on products and platforms.
Sentry Group executive director and head of business development David Newman says a redefinition of “value” by both licensees and advisers is critical to creating a sustainable and client-focused advice profession. And it’s the dislocation caused by regulatory changes and the ongoing fallout from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that presents the opportunity.
“From a personal point of view and a company point of view, we’ve never seen a better opportunity than now,” Newman says.
“From a personal point of view and a company point of view, we’ve never seen a better opportunity than now.”
David Newman
“Even though there’s a huge amount of stress and noise in the marketplace, and stress on advisers, you’re seeing the single biggest structural reform that we’re seeing in our lifetime.
“That in itself provides so much dislocation in the marketplace. But out of that dislocation comes the opportunity to reassess where a firm is, and this is [a chance] for practices as well as licensees to understand what their business looks like. It’s no longer a product-focused business, it’s about understanding how you provide value to your audience.”
Sentry knows of which it speaks
Sentry finds itself in a relatively strong position to not only comment on the state of the market, but also to demonstrate how the licensee-adviser-client relationship can be re-thought. In May this year Sentry received confirmation it had satisfied all the requirements of an enforceable undertaking (EU) entered into by Wealthsure Financial Services in April 2015.
Sentry inherited the EU when it acquired Wealthsure in 2015 and took responsibility for implementing a remediation plan focused on the licensee’s ability to monitor and supervise its advisers.
“The EU was nothing about the advisers or clients; it was all to do with the licensee and internal systems,” Newman says, and he says Sentry was able to apply its own systems and processes to Wealthsure as part of the remediation plan.
“The systems we have in place, and the work that we do in monitoring and supervising and doing the things we need to do as a licensee, are pretty robust.”
David Newman
“It means we’re really, really confident that the systems we have in place, and the work that we do in monitoring and supervising and doing the things we need to do as a licensee, are pretty robust,” Newman says.
Earlier this year, Sentry was named Independent Licensee of the Year in CoreData’s 2019 Licensee of the Year Awards, reflecting the strong standing the licensee enjoys in the eyes of its advisers. Newman says the award confirmed that the licensee is on the right track – at least in the minds of its advisers.
One-size-fits-all a thing of the past
Newman says the future for licensees will be dictated by how well they deliver value to advice firms, and each firm will have its own definition of what value is. Therefore a one-size-fits-all licensee value proposition just won’t work anymore, and licensee fees will reflect this.
“It’s not a rack rate that says we’re going to charge you X per cent of the revenue – no it’s a fixed fee, a fixed fee based on outcomes that they’re trying to achieve in their business,” Newman says.
“At the moment – and this sounds very arrogant, though it’s not meant to be – it’s not that we’re right and everyone else is wrong, but we can’t see any licensee out there who’s endeavouring to do something that’s substantively different. It’s a bit me-too: [they are] going to do the typical licensee stuff, the compliance stuff. That’s important, it’s critically important, but we don’t see that’s where it’s going to be won in the future.”
“We needed to be more hands-on and we needed to have a more consultative approach.”
David Newman
Newman says licensees must become more intimately engaged with the practices in their networks, and more consultative in the services they provide. Newman describes Old Sentry and New Sentry – essentially the business pre- and post-EU – and says Old Sentry was a low-touch licensee offer, providing a compliance framework and if advisers wanted nothing more than that the licensee didn’t engage with them.
“We took a view that no, we needed to be more hands-on and we needed to have a more consultative approach, and by consultative I mean even to the point now where we’re going to look to develop a suite of consulting services,” Newman says.
He says it may even be appropriate to drop the word “licensee”.
“We’d like to see ourselves as a professional services firm. We provide those ancillary services, we provide the insights and the capability and the experience to do the diagnostics on what a business looks like today, look at the value of the business, look at the CVP, how it’s priced, how it’s delivered, the technology, the organisational structure in terms of how that client experience is fulfilled, all of those bits.”
A consultative relationship
And that approach inevitably leads to a role in helping the advice practices execute on the plans they believe will get them to where they want to go, Newman says. In a consultative relationship the conversations with advice practice principals are different from those under
“You’re getting them to understand they have a business, it’s not a client book,” he says.
“You can have a more strategic conversation with them. You’re elevating the conversation to a more mature approach. It’s not all about finding the cheapest licensee and looking at the licensee as a cost of doing business rather than as an investment in their future.”
Newman says exactly the same challenge for firms delivering advice to clients applies the licensees delivering value to advisers.
“They’ve got to see the value, and if they can see the value, and they get it, then they’re prepared to pay for it.”
David Newman
“They’ve got to see the value, and if they can see the value, and they get it, then they’re prepared to pay for it,” he says. If clients perceive the value delivered by advisers, they’ll pay for that, too – but advisers have to realise that their value proposition no longer revolves around product.
“A lot of firms have struggled [with that] because they’ve been anchored around an institutionally aligned model, which is about platform and investment,” Newman says.
“That’s a generalisation, but you’ve got to unpack those businesses, and advisers for the first time in decades are in charge of the value chain.”
Financial advice will come to mirror how other professionals work. But Newman says transitioning to the new models of advice can take some doing.
“We are unpacking a lot of stuff over decades that has been the domain of others, driven out of self-interest,” he says.
Fees will rise to reflect value
And as subsidisation comes out of the licensee and adviser business models, Newman says fees charged by licensees will increase. Arguably, fees charged to clients will also increase. In any case, the onus is on the service provider to justify what they charge.
“We’ve just spent the last two days saying, OK, we’re no different from [an advice] firm in terms of if they are delivering a value proposition and a pricing model to a client, then contained within that has to be a profit margin,” Newman says.
“Our business going forward, our sustainability is on the fees, not because we get a kickback from some platform or some product promotion.”
David Newman
“We need to make sure that any fee we charge a firm has got an appropriate profit margin in there. Our business going forward, our sustainability is on the fees, not because we get a kickback from some platform or some product promotion.
“The challenge is to be really clear about the value that you can provide that firm in terms of their journey, wherever they are today but more importantly where they want to be, by helping them along the way. It is no different from what a firm has to do for their clients.”
