1. We’re seeing a surge in debt levels recorded on the myprosperity platform.
Recorded debt has increased by almost 200 per cent since the beginning of 2020, to $12 billion in total. Since late 2019, the number of credit card accounts being used by clients has also increased by 80 per cent. More here.

2. Tech-enabled firms are seeing better exit valuations.
Practice owners are being urged to drop low-value clients alongside the release of the 2020 Financial Planning Practice Sale and Valuation Guide. Shedding unprofitable clients from their books was reported as one way to retain or indeed bolster the valuation of advice businesses. According to the article, it has become increasingly difficult for an adviser to be profitable when fees charged are under $3,000. More here.

3. $15b underestimated.
The government now expects around $42 billion to be removed from the super system as a result of the early release scheme, having revised up its initial estimates of $27 billion at the start of the scheme.
More here.

4. Avoiding greenwashing.
According to Morgan Stanley data US investors had $US4 trillion held in sustainable investment products at the end of last year. It’s a growing market but one that has limited regulation in terms of how green or how sustainable an investment is. However, some tighter restrictions could be on the way. More here.

5. CBA has increased the amount it is putting aside to pay back customers who received poor financial advice by $300 million, taking its total bill to $834 million.
More here.

As Australians increasingly turn to financial advisers to help navigate the COVID-19-induced downturn, myprosperity is seeing record quantities of debt recorded on our platform.

Up nearly 200% since the start of the year, recorded debt on the myprosperity platform is now more than $12 billion. There’s also been an estimated 80% increase in credit card accounts added to the platform since late 2019.

The myprosperity portal is used by advisers and households to track assets and liabilities so that better decisions can be made regarding a person’s entire wealth situation. The platform is used by more than 35,000 households in Australia.

“As Australia copes with this recession, many are turning to their accountant or financial adviser to find a way through these challenging times. The increase in liabilities recorded on the myprosperity platform, combined with climbing usage figures, demonstrates that there’s growing concern over managing debt. People are seeing the need to keep on top of their money during these tough times,” myprosperity founder Peter McCarthy said.

“For households, we’ve seen a significant spike in requests around assistance in financial management, retirement and estate planning, highlighting the increase in concern around financial health. These troubling times suggest people are looking for advice to help stem the loss and shore up their financial future.”

Tim Munro, Founder of Change Accountants said, “We support many business owners across varying sectors of the economy including the hospitality industry which has been smashed by the lockdowns. When COVID-19 hit, like many advisers, we were inundated with requests from clients seeking help with their finances, from applying for Jobkeeper and Jobseeker to drawing up weekly or monthly cashflows to help them get through. It’s been a really busy and challenging time. Technology has played a vital role in enabling us to engage with, and undertake reviews of many more clients than would otherwise have been possible in the traditional face-to-face world.”

As Australia headed into its first lockdown earlier this year, myprosperity experienced soaring usage of its platform as more advisers and accountants moved to work remotely. myprosperity has again seen the usage of its platform increase as many Australians move to manage their wealth more closely and many advisers continue to work remotely. The use of online forms – or digital fact finds, tax checklists and onboarding forms – which help advisers digitise the engagement process by eradicating paper to streamline data collection, has increased by over 500% since December 2019.

Ifa last week reported that practice owners are being urged to drop low-value clients alongside the release of the 2020 Financial Planning Practice Sale and Valuation Guide. Shedding unprofitable clients from their books was reported as one way to retain or indeed bolster the valuation of advice businesses. According to the article, it has become increasingly difficult for an adviser to be profitable when fees charged are under $3,000. Hence, books with clients at or below this level struggle to attract more revenue, with many unable to be sold at all. It is unfortunate that the (unintended) consequence of the Royal Commission reform is fewer Australian households will have access to an adviser.

Impact of the Royal Commission

Back in 2018 when the impact of the Royal Commission was just starting to be felt, one financial planner, who we will call Bob, had a small advice business and decided to exit the industry late that year. His business serviced mainly middle-income clients and was arguably more of a lifestyle proposition, and with the scrapping of trail commissions, impending FASEA standards and accelerating professional indemnity insurance premiums, he decided he would get out and sell his client book. His fee for service clients, which was the smaller part of his book, was traded at about 2.5-3.0x revenue, and grandfathered commissions from insurance policies at about 1.5x. On top of that, he was able to sell his AFSL some months later and so made a complete exit. At that time he wasn’t overly thrilled with the result based on multiples that would have been achieved some 5 years earlier, but in light of what we are seeing today I suspect he is quite happy he exited when he did.

Unfortunately for the industry and his clients, Bob was actually a really good adviser but, typical of many smaller financial advisers, was reliant on low value clients with trail commissions on insurance policies and other financial products. To add to his challenges, Bob was a technology laggard. I suggested to him back in 2018, that a platform like myprosperity could help him capture and identify whole-of-wealth opportunities across his base, and it would also allow him to deliver his services more efficiently. In fact, it would enable him to handle a higher volume of clients with the same resources. Unfortunately, Bob did not want to change. The highly manual nature of Bob’s practice meant he could not scale and hence improve profitability, and when the fallout of the Royal Commission hit, running a sustainable business became unachievable.

Where the opportunities lie

Bob’s story is not an isolated case. We are seeing a growing number of capable advisers exit the industry due to their struggle to operate profitably. Client profitability will continue to be an important focus for the advice industry, and will separate the successful firms from others. The outlook from Centurian shows a growing number of Practice Principals are cleansing their books of unprofitable clients and ensuring demonstrable profit margins, before they decide to sell.

Advisers investing in technology that can demonstrate a transition to digital engagement with clients, along with meaningful efficiency gains, will be the ones that prosper. And unlike Bob, if they decide to exit the industry, can do so at a premium.

Here’s what you need to know this week: 

1. After weeks of uncertainty and speculation, the Morrison Government finally came out this week to clarify the path forward with regards to Jobkeeper payments in an effort to reassure the nearly 5 million Australians receiving payments. So whilst payments will be cut, the program will be extended to March 2021. Read about it here.

2. Meanwhile, a new report from the small business ombudsman, Kate Carnell, has taken a slightly different approach to address the huge economic impact of a distressed small business economy. The report has recommended free financial advice to struggling business owners in an effort to assist them trade through the pandemic and avoid insolvency. Read about it here.

3. It’s not just face masks that we have to worry about, with reports that Victoria is likely to experience a recession worse than that in the early 90’s. The numbers are sobering. In the event of a six-month shutdown, it is expected that property prices will plunge by up to 9 per cent and up to 270,000 jobs lost – unemployment is estimated to peak as high as 11 per cent. Read more here.. 

4. NetWealth released their 2020 AdviceTech report last week. The 52-page report provides a great insight into the leading technology categories that advice firms are investing in to help them succeed. Our own Chris Ridd, Director of myprosperity, shared his insights into the report and how the advice industry should approach technology opportunities to help them thrive.  Read more here.

5. And lastly, a warning from one of the billionaires of the dotcom boom some 20 years ago. Mark Cuban of broadcast.com, a company he sold to Yahoo for $5.6 billion, has likened the current rush on tech stocks to the dotcom bubble of 2000. Back then he predicted the bubble and liquidated much of his tech wealth before things went to custard. Could he be right again? Read about it here.. 

This week’s episode will give you headway into a different trajectory, as Chris Ridd gets growth tips from Digital Growth Genius, David Katic.

David’s background in Science and love for data set him up for the perfect transition into digital marketing several years ago. It may come as a surprise to many however, it does not change the fact that everything in digital marketing is underpinned by data, making it all measurable. Not only can you track engagement, you can also generate a return on investment by optimising your digital strategy on the many platforms available these days.

David sees great opportunities in the current state of the Advice industry since:

1. The Royal Commission – many big players have or are exiting the market. There’s also the thousands of financial planners who do not want to complete their professional development assessments. This means fewer competitors.

2. ASIC research (prior to COVID) showed that over 2 million people need or want financial planners’ help, so it’s likely this number has grown since the consequential volatility of the stock markets, and people’s retirement funds tied up in it. So right now is the right time to put your brand out there.

3. Digital marketing enables you to target the right people with your messaging.

4. Only about 4% of financial advisers are doing digital well, so the digital advice market isn’t cluttered with different offerings and messages.

Here are David’s 4 big tips to get you going:

1. Focus on lead generation using Facebook and Google advertising. Take the time to tune up your digital strategy so that when people click on an ad they’re directed to a meaningful page with specific and clear messaging.

2. Ask your clients for reviews. Online reviews are really important. Think about when you last looked into something, did you read reviews to help you make your decision? Most likely. So email your client database and request those reviews because prospects will read them.

3. Make sure the messaging on your website is right. Does your website talk in industry jargon or the way clients speak? Clients don’t necessarily understand industry jargon and so should be spoken to the way they would understand things.

4. Don’t constrain your digital strategy to postcodes. This pandemic has changed the face of client interactions with video conferencing the new norm, so cast a wide net with your messaging and reap the benefits.

Watch the full episode below.