On October 1 this year NAB Financial Planning will launch a new ongoing financial planning offer to new clients, along with a program to move existing clients to the new offer. It will be the public unveiling of a strategy by the bank-owned financial planning licensee to reinvent itself as a stand-alone, profitable advice business, free of subsidies from product or from anywhere else in the wealth management chain.
Head of NAB Financial Planning Tim Steele says the new advice offer was planned for launch on October 1 even before NAB announced it would divest its wealth management business – including NAB Financial Planning – in a transaction expected to be completed next year. However, the spin-off clearly will be a more attractive investment proposition if it includes a profitable advice business.
Steele says NAB FP will offer flat fee-for-service advice, with a clear service promise, priced to profitably serve each individual client.
“It will be an even clearer articulation of our ongoing advice program and what we’re committing to, and at what price,” he says.
“We’ll have the systems in place, in an even more detailed way than we do today, to confirm that those services have been delivered. It’s a clear articulation of the promises we’re making to clients, and an understanding of the cost to serve.”
Steele says the only reason NAB FP can even contemplate being profitable solely from providing advice as a true service is because it owns the advice margin.
“I believe all licensees will need to get to that point,” he says.
“The big challenge, as you know, is in the self-employed space, where very few licensees have charged the true cost of service and risk and support that they provide. So the question is, how do you face into the opportunities and challenges that come from running a self-employed [licensee] business where you do not own the advice margin?”
It represents a tectonic shift in thinking for a licensee owned by a large, vertically integrated financial institution.
“Incrementalism isn’t going to get us there,” Steele says. “It’s not tinkering.”
Steele says individuals who lead licensees will need to be bold and think differently in how they support advisers and how they remain (or become) profitable and therefore remain valuable and relevant in future.
He says it might not even be advisers who pay for the services licensees provide. Just as advisers will need to explain the value of their service and set an explicit advice fee, which is paid by the client, the same could go for licensees.
“I wonder if the industry will be bold enough and whether we believe in the value of licensees such that we’d be willing to expose what we charge to the client,” Steel says.
“We [could] say we’re not going to charge a licensee fee to the practice – we might have cost recovery on professional indemnity insurance and potentially things like software – but we’re going to charge the client a fee; say, ‘Here’s our proposition’, to the client.”
Steele says licensees already stand behind the advice given to clients, provide research, compliance and audit services and so on, “but we’re just not explicit about it”.
“Should we charge the client for that?” he says.
“You’ve either got to significantly shift the quantum of fee that you charge practices, by multiples – it’s not 10 per cent; the analysis I’ve looked at suggests you’ve got to double, triple or quadruple the fees you charge practices – and it remains this opaque fee; or, let’s just open it up and expose the fee to the client. And it they think it’s worth it they’ll pay it.”
Removing the temptation
Steele says owning the full advice margin removes the necessity, and hence the temptation, to prop up advice from product or platform or any other sources.
“There would have been a time in history when that didn’t matter, because the organisation was less concerned about whether the licensee, from an advice perspective, made or lost money,” Steele says.
“They were more concerned about what’s the group-aligned FUA, or what’s the PIF that you’re generating from an insurance perspective. We’re saying we want to run our business as a stand-alone business, irrespective of whatever products we may or may not ultimately offer that are part of the group or not.”
Steele says the disruption the advice industry is facing – from regulation, from the royal commission and from the growing scepticism of the general public – is undoubtedly a significant challenge, but also presents opportunities for licensees to think differently, rewrite the playbook and put their services on a new, sustainable footing.
“That’s the new world I am hoping, if we’re bold enough, that we can start to think about,” he says.
“Quality leadership I hope will come to the fore in the next four to five years in advice, and if we can make the right calls and get the right investment we’ll be really proud of the profession we’re part of and we will have fundamentally shifted the landscape.”