The analysis, presented in the "Data Storm: Exposing the Real Data Challenges in Australian Wealth Management" report by Marshan Consulting and commissioned by Elemnta, uncovers significant operational inefficiencies hampering the sector's profitability. These issues arise as advice practices navigate the costs associated with delivering client services.
Ben Marshan, director of Marshan Consulting, explained to Professional Planner that the burgeoning focus on administrative costs arises partly due to an increase in advisory independence. He states, “A lot of it comes down to this movement of, let’s call it the more independence of advice and this move away from larger licensees...” This shift grants practices greater autonomy in selecting financial products, albeit at the cost of streamlined administration once offered by larger licensees.
This newfound independence has led to administrative complexities as practices grapple with disparate processes tied to each product, varying in application, reporting, and revenue collection methods. Marshan notes that, “all of that stacks up to create a much bigger administration problem for the practice.”
The strain on resources has palpable impacts on client service, including a reduction in adviser capacity to engage new clients effectively or offer comprehensive advisement to existing clients. Quality of advice may also diminish under such pressure, with the time constraints leading to broader, less targeted guidance.
Accessibility to financial advice faces potential threats due to these inefficiencies, further exacerbated by rising average annual fees—from $2,510 in 2018 to about $4,250 as per the report's findings.
The report highlights a phenomenon termed “system fragmentation,” where advice firms adopt various technological systems in an attempt to enhance efficiency. Contrary to intentions, many find these solutions increase operational complexity.
Furthers, the increasing reliance on disparate systems not only affects the data's consistency but also elevates cybersecurity risks by facilitating less secure, manual data transfer. Retaining sensitive client information on multiple platforms breeds opportunities for errors in data management and increases vulnerability.
Old-fashioned methods, like handwritten fact-finding or note-taking, still linger within the industry. Transforming these into accurate digital records demands additional time and resources.
The call for standardized, integrated technological solutions grows louder though implementing such solutions appears challenging. Marshan elaborates, “The simplest solution, or the most obvious solution, seems to be some sort of data lake, or data transformation integration layer...,” adding, “What I hope this paper does is highlight the problems that practices are actually having in reality by all this amazing technology that keeps getting thrown at them.”
Moving forward, embracing more cohesive industry-wide collaboration could pave the way for increased efficiency, but realizing this vision remains complex, necessitating significant groundwork and strategic alignment.
