ISN-commissioned research predicts that advisers and clients will make a marked shift towards scaled advice to make the most of FoFA changes.
As clients become aware of the cost of advice, those who are not regularly serviced by advisers (around 40%), will switch to receiving scaled advice on a piece-by-piece basis, says the Rice Warner report.
Advisers will also be making the shift to cover remuneration gaps left by FoFA. The average cost of advice is expected to reduce from $2,046 to $1,163, and the overall reduction in adviser remuneration is expected to be $2.7 billion by 2027.
Rice Warner predicts that the number of advisers giving purely scaled advice will grow from 350, to almost 1,500 by 2020 and 2,729 by 2027. On the other hand, advisers giving full advice – including scaled advice – are expected to drop from 17,746 to 15,689 in 2020, and 14,926 in 2027.
Many full advisers rely on substantial trail commissions and platform rebates to sustain their business, says the research. Remuneration structures for scaled advice will be very different, with a fixed salary and possibly a bonus depending on quality of work rather than sales and retention.
Dealer Groups are likely to offer scaled advice models, and are also expected to take a higher share of the adviser fee, as it will be more difficult to hold an adviser to a particular platform – their fee will be paid irrespective of the fund chosen. “This could lead to higher adviser fees but lower platform fees.”
The skills required for scaled advice will be different as it is more automated and provided over the phone rather than face-to-face. However, the selection and training is an on-going issue, according to Rice Warner. “The market has a shortage of appropriately skilled individuals with the desired profiles to provide assistance.”
The report states that the different type of work is “likely to lead to different people entering advice jobs and some existing financial advisers leaving theirs”.
What does scaled advice look like?
Scaled advice models have been structured around single issues, “based on the assumption that clients at similar life stages will often have similar goals and objectives”.
Typical groups are:
Young singles starting out in life – Require budgeting debt management and superannuation co-contributions.
Young married couples – Targets for voluntary super contributions and life insurance
Asset builders – Possible targets for salary sacrifice and higher levels of insurance
Mature people – May need to increase their superannuation
Transitional era – Require transition to retirement strategy
Retirees – Retirement income strategies
The price for scaled advice can vary anywhere between $200 and $1,500, but the research predicts an average cost of $275.