As the Australian financial services industry starts to sputter to life after five years of product, distribution and strategy stagnation, two separate bets on growth are starting to emerge among the new financial services business.
This means that if you are starting to think about how to invest money or entering the financial advice market for the first time, you can start to think beyond the major banks or aligned wealth management businesses.
There are essentially two paths to profit in financial services. The first is that financial services succeeds as a product play — that advice itself has no real value.
The second is a bet that true value is created through the right advice — that a professional adviser can fundamentally change the wealth of an individual through choice of the right structure, the right investment mix and essentially read the future of investment markets.
The reality is that to a certain extent both models are right — for people who have very simple investment needs the low-cost product strategy is the right thing and as you move up the wealth curve complexity means greater expertise is needed.
The difference between the existing models is that they have tried to be all things to all people and been poor at satisfying everybody’s needs. Two new entrants in the market are kicking off with a focus on the value of advice: New Generation Advisory (NGA), started by ex-ANZ Global Advice head Paul Barrett and backed by Italian funds management giant Gruppo Azimut, and Koda Capital, which is focused on changing the advice model from product and platform -based to advice-based for mass affluent and high net worth clients.
The goal of NGA, according to Paul Barrett, is to enable quality financial planning groups to join together to create a business with increased capability, scale and financial strength.
In other words, NGA will enable financial planning businesses to grow, and to de-risk the succession planning strategies of the firms’ principals by taking a stake in their businesses.
NGA says they will compete for planners by offering a genuine succession pathway by co-investing in their business, operating in an open architecture environment — which means planners can offer any service they like to their customers and backing in all the tools they need to manage and monitor their client’s assets.
While NGA is new, the Azimut group has a history of success in this area and is pouring over $100 million in capital into this area. Indeed the group already has a network of more than 1500 advisers across 10 countries; a formidable network in which it has already created a strong foothold in the Australian market.
The other entrant in this space is Koda Capital. Koda’s offer is focused on changing the advice model from product and platform based to advice based for mass affluent and high net worth clients.
According to Paul Heath, the business has been designed to shift the power away from the vertically aligned product businesses which tend to dominate the industry back to the customer and the adviser. (See Andrew Main’s column on this topic).
The focus for Koda is on Australian high net worth individuals, which Mr Heath believes are poorly serviced by the current models.
Andrew Inwood is the founder and principal of CoreData.
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