With FoFA changes looming, advice businesses are turning to new models and using the latest technology in an effort to find more efficient investments and administration solutions.
David Heather, the CEO of specialist managed account provider managedaccounts.com.au, says planners and advisers are thinking more and more about how to construct their portfolio in a way that adds value to the clients, and in many cases this is a driver towards direct investment.
Independently owned dealer group GPS Wealth is one such company, and claims it has slashed its fees in half by working with managedaccounts.com.au to implement a managed discretionary account (MDA) solution.
“Traditionally planners would use a combination of a wrap platform and managed funds, and if you put the two costs together it will generally come out at about 1.4%,” Heather said. “In our structure we’re using the latest technology available so we’re able to deliver it at a much lower cost.”
Using new technology is key, he said, because many wrapped up models have been built on technology that is 10 to 15 years old, and although it has evolved over time, it wasn’t purpose built for other assets.
“We’re using technology that’s purpose built to run equities and direct investments, and is used globally,” Heather said. “Planners can give lower costs with greater transparency because you’re taking away duplicated structures.”
GPS Wealth managing director Grahame Evans said that the financial planning world is changing.
“The future of financial planning is one where investments are held in the investor’s name, costs are minimised by using passive investments where suitable and advisers better educate their clients about behavioural finance,” he said.
With conflicted remuneration, best interest’s duty, and much more disclosure necessary under the FoFA changes, planners are needing to be more transparent about revenue streams and the best outcome for the client.
“As a result the planner has to think about how to construct their portfolio in a way that adds value to the client, which is a driver towards direct investment,” asserts Heather.
But direct investments require much more activity and liaising with clients in order to get their tick of approval for any decision made. This is why an MDA solution can be attractive, he said, because it saves time and money.
“Anyone providing MDA services in Australia needs to get more efficient. Every financial adviser isn’t going to go and invest directly… but each adviser needs to look at their business model and how they want to be seen by their client.”
Ways to structure financial assets to maximise pension