The Australian financial services sector in the 1980s was characterised by big name life insurers and fund managers, star stock pickers, and expensive managed funds.

In 1983, Ray Connelly and Bradford Temple, established Connelly Temple and set out to disrupt the market by building a master fund and taking margin from the funds management giants that dominated at the time.

I cut my teeth at Rothschild in the early-1990s and joined Connelly Temple in 1998, right after Sun Alliance Life had acquired a 60 per cent stake in the company. A couple of years later, the life insurance giant, fresh from acquiring Tyndall for $750 million, took out the rest of Connelly Temple, as part of plans to build a wealth management platform that encompassed insurance, superannuation and asset management.

The turn of the century was also a turning point in Australia’s financial services history.

Master trust and wrap platforms, like Asgard, Navigator and MLC MasterKey, grew quickly and disintermediated funds managers.

Managers found themselves forced to negotiate with platforms and pay volume bonuses and shelf-space fees to access financial advice networks.

While the Connelly Temple brand no longer exists (initially gobbled up by Asteron before being absorbed into TAL), the dominance of investment and administration platforms continues.

Over the past 30 to 40 years, advisers have played a central role in building these businesses. They have made their shareholders very rich but they have not participated in the capital value created.

In more recent years, managed accounts have come to the fore, leading to the rise of boutique asset consultants. Again, advisers have been instrumental in the growth of asset consultants but, at sale time, they won’t benefit from their bumper valuations.

Through all of this, advice has sat at the bottom of the value chain, hampered by the perception that it is merely a distribution channel.

This degrading view has prevented capital from flowing to the sector, which partly explains why there are no large, recognisable advice brands. When something is seen as a means to an end, there’s no point investing in it.

Whatever small investment was made in advice went to licensees as a strategy to secure distribution, not to build strong profit centres.

Cataclysmic shifts creating change

The advice industry has matured in the past eight to 10 years, due in large part of the disastrous Hayne royal commission.

The period from 2018 to 2022, a passage that included sweeping life insurance reforms, a legislated ban of grandfathered commissions, and the introduction of higher education and training standards, plus a global pandemic, was extremely painful but it also accelerated the industry’s journey to professionalism by cramming decades of regulatory change into a few short years.

The advice industry was forced to grow up very quickly and, as it turned out, just in time to capitalise on opportunities arising from Australia’s ageing population, heightened economic and geopolitical uncertainty, and increasing demand for professional advice.

The stage is set for another period of disruption, only this time it won’t be just the funds managers, super funds, platforms and asset consultants extending their lead. Advice will emerge as an extremely valuable and important part of the financial service value chain, if not the most valuable and important given its proximity to the client.

Furthermore, personal strategic advice that removes complexity, provides certainty and delivers strong outcomes cannot be commoditised.

The value chain is being disrupted.

This reversal of fortunes will see the emergence of advice platforms.

These large, corporatised businesses will be advice-led and client-obsessed, as opposed to product-led and obsessed with funds under management.

While insurance, investments and administration solutions play an important role in the implementation of advice, they’ve been elevated above advice (and the client) for too long.

This has stalled the development of the advice profession. The perils of having a narrow, unbalanced approach are currently being laid bare in the superannuation sector where its long-term obsession with asset gathering and accumulation, at the expense of all else, has led to serious deficiencies in service standards and retirement income solutions.

The consequence is ailing member satisfaction, low retirement confidence, and greater regulatory scrutiny.

There is no question the superannuation industry has done a stellar job of managing investments and building wealth for members.

Australia’s superannuation system is recognised as one of the best in the world but its standing in the global rankings is sliding because the sector’s rapidly ageing membership is ill-prepared for the decumulation stage of life. Members have not been given the education, tools and strategies required to live confidently in retirement, which is ultimately the purpose of Australia’s retirement savings system.

It’s a timely reminder for businesses and organisations in every profession and industry to focus, first and foremost, on clients and their needs.

The rise of advice platforms will be underpinned by this fundamental principle and significant ongoing investment in the advice process and the advice eco-system.

A new foundation

Wealth management will form part of these advice platforms, in the same way that managing investment portfolios are a key part of what superannuation funds do, but product will be further down in the chain.

Instead, advice platforms will focus on delivering strategic advice (both comprehensive and episodic) at scale while also solving the problems that advisers commonly struggle with in their businesses such as client engagement, HR, workflow, technology adoption and integration, cyber risk, data management and change management. These issues will be addressed by advice platforms, and not one slither at a time but concurrently because advice will finally get the capital funding and support that it deserves.

This support will enable the sector to make quality advice more affordable and accessible and, in the process, build advice platforms of major capital value.

The financial services value chain is being disrupted and this disruption will fuel the rise of large, profitable advice platforms, which will sit at the top of the value chain.

Exactly where these advice platforms will spring from remains to be seen. Some may emerge from licensees, particularly as licensees expand their value proposition to become business services partners. They may also emerge from large ‘super firms’.

What is for certain is that advisers will have an opportunity to build, partner and join formidable advice platforms and finally share in the capital value created by these businesses.

Read more of Paul Barrett’s articles in Professional Planner.