A large portion of the financial advice sector is struggling under mounting compliance and governance demands, prompting some to leave the industry. While the old way of doing business is becoming less and less profitable amid higher regulatory costs, some advice firms are taking advantage of the regulatory reforms to find better solutions for their business and gain a unique competitive advantage.
Rising financial planning compliance costs from more arduous 'best interest' duties under the FASEA code of ethics and the upcoming Design and Distribution Obligations (DDO) in October 2021 means it is becoming trickier to provide advice cost-effectively. Time-consuming and expensive processes, such as providing statements of advice (SOA), are taking their toll.
However, rather than watch their profit margins shrink, canny advisers are exploiting the reforms to reinvigorate their firms and enhance their client value proposition. These advisers are placing the client at the centre of their business. This approach aligns their offering with the key aim of the best interest and DDO obligations, which require that advice is provided in accordance with each client's specific goals and financial situation.
At the same time, advisers who are re-thinking their business models are choosing to outsource non-core functions. For example, switching investment management to a provider, such as Dynamic Asset, introduces compliant portfolio solutions as they are specifically designed to meet the clients best interest and DDO obligations.
In addition to the ready-made compliance solution, the end-to-end managed account solutions provided by Dynamic Asset reduces the need to issue SOAs. It allows for investment changes to take place across an entire client base simultaneously, helping advisers meet their FASEA obligations to treat all clients equally. Furthermore, the advantages of managed accounts and resultant time savings permit advisers to scale their business and better nurture their existing client relationships. It's an efficient and client-centric business model that creates happier, more engaged and loyal clients – a true competitive advantage.
Building a genuine client-centric business starts with a goals based or outcomes based advice mindset matched with a true-to-label goals based investment philosophy. Using this approach, the adviser seeks to understand a client's individual goals and invests their funds to achieve those goals specifically. Goals based investing differs significantly from the strategic asset allocation (SAA) approach commonly favoured by traditional advice firms. SAA assumes the risk-return outcomes of asset classes will continue to generate the same risk-adjusted returns of past decades.
Today, the environment has changed, and strategic asset allocation is under real pressure as a justifiable investment approach. Advisers know that the tailwinds of falling rates over the last 30 years is not likely to create the same opportunities in the future. The economic dynamics that drive markets and the relative performance of asset classes has changed. Interest rates can't realistically go lower, and inflationary pressures are building. The traditional performances of asset classes as a means of balancing risk and return have changed. Client best interest duty demands a new approach.
A goals based approach using Dynamic Asset Allocation places a high value on capital protection, providing clients with peace of mind while satisfying their unique cash flow, risk tolerance and return needs. The result is an advice business that enjoys a growing and committed client base while also fulfilling today's rigorous compliance obligations.
The Dynamic Asset Managed Account Solution offers five actively managed portfolios that can be mixed to achieve each client's individual investment goals. The service delivers an out-of-the-box compliance solution while simultaneously bringing greater business efficiencies. It helps advice firms gain a competitive advantage and continue to thrive, despite the mounting financial advice compliance requirements.
