Netwealth Business IQ - edition 8 | Business, Wealth, Technology | Firm of the future

Business. Wealth. Technology.

SPECIAL REPORT: ADVICETECH

Firm of the future

Building a culture for digital transformation

By Netwealth

Welcome

We’re excited to bring you a new issue of Business IQ, full of actionable insights to help you better understand clients and run your advice practice.

This month, we dig deeper into our ongoing research into the Advisable Australian, looking at how to build trust with prospects, as well as the behaviours and traits that may be preventing them from taking a crucial step into the world of advice.

We also showcase our annual Advice Tech research, with articles which will look at how to build a culture of digital innovation and execute digital transformation. We examine the role of leadership, culture and digital strategy, plus do a deep dive on process automation.

You’re in for a treat with Between Meetings interviews with Jean Oelwang from Virgin United looking at how to create a business with purpose, and Facebook Australia & New Zealand’s former CEO, Stephen Scheeler, sharing key leadership lessons he’s learnt. We also dig into scientific research on preferences for retirement, and chat with experts who talk about investing in private credit and alternative assets.

We’re also lucky to have Rob Jones from Peloton Partners providing insight on how to build a pricing model that delivers value to both the client and your practice.

We’ve once again included several articles from our IQ Bites series to challenge your business IQ on topics including mindfulness and creating an employee value proposition. And our In The Know section will keep you up to date with interesting research from around the globe.

We hope you enjoy reading this issue of Business IQ.

Matt Heine CEO and Managing Director, Netwealth

Netwealth provides a suite of Investment, Super and Managed Account solutions designed to drive better financial outcomes for you, and importantly, your clients. Contact us today to discover why Netwealth is Australia’s #1 platform* for user satisfaction and how we can assist you now, and in the future.

04 In the know Round-up of trending global research

Firm of the Future

Building a culture for digital transformation.

48 Building a digitalready organisation

We look at the attributes of leadership and culture that impact a firm’s digital maturity.

52 Designing your digital strategy

Some tips to help create a great plan to digital maturity.

62 Preparing for automation Streamlining financial advice to enhance client service.

58 The power of prototypes for digital change

The steps involved in rolling out technology for successful digital transformation.

66 Product spotlight Helpful new features across Netwealth’s products.

The value gap and winning new clients

Netwealth’s Advisable Australian research

uncovers important tactics advice firms can adopt.

Unpacking

Netwealth’s latest for advice efficiency

A comprehensive suite of tools.

The price is right

Finding the balance between the value provided to clients and the amount they are able to pay is essential for advisers.

20 Understanding why prospects don’t buy

Understanding motivations can motivate new clients.

24 Turning prospects into clients using Netwealth’s Value for Money Model

Engaging the value drivers of motivation, ease and context.

32 The power of language in converting prospects

Principles of behavioural science can make a difference.

Family offices: 6 ways technology can enhance your value proposition

How technology can be of value to family offices.

In the know

A round-up of thought-provoking research from across the globe on a variety of themes.

Time to stop ‘stress bragging’?

While work can often be stressful, psychologists have identified a phenomenon called stress bragging – and it’s not good for the workplace.

One study found that showing off to colleagues about stress has an impact on the bragger, making them perceived as less competent and less warm by co-workers. It also has an impact

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How people fall for crypto scams

on their colleagues, increasing their likelihood of burnout due to crossover effects.

So while stress might be real, bragging about it is not the way to go.

About the research

“I’m so stressed!”: The relational consequences of stress bragging. Jessica B. Rodell, Braydon C. Shanklin, Emma L. Frank. Published: March 2024, Personnel Psychology

A consumer’s vulnerability to cryptocurrency investment scams has little to do with their socioeconomic status, according to a study led by the University of Queensland.

UQ researchers surveyed 745 Australian adults who’d purchased cryptocurrencies or non-fungible tokens (NFTs) and found both socioeconomically advantaged and disadvantaged people were vulnerable to investment scams. The number one place they learned about cryptocurrency was social media.

The researchers found two distinct groups were vulnerable to losing funds to scams. The first group did have features often associated with socioeconomic disadvantage and reported being influenced

by social media hype. They also lacked sufficient financial or IT literacy.

However, the second group had more socioeconomic advantage such as a university education, full-time work, and owning their home. And while they were more financially literate, they may have assumed they wouldn’t become a scam victim and been overconfident or overambitious, exposing themselves to risk.

About the research

Cryptocurrencies: Who is vulnerable and what are the vulnerabilities? Levon Blue, Congcong Xing, Thu Pham. Published: July 2024, Australian Journal of Social Issues, July 2024.

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Birth rates to keep plummeting

Human birth rates are continuing to drop, which will have far-reaching consequences, according to a new study published in The Lancet.

In the future, fertility rates will continue to decline worldwide. By 2050, only 49 of the 204 countries surveyed is predicted to have enough births to replace its population. By 2100, it drops to only six countries.

Researchers warn these changes will have far-reaching economic and societal consequences due to ageing populations and declining workforces in higher-income countries.

About the research

Global fertility in 204 countries and territories, 1950–2021, with forecasts to 2100: a comprehensive demographic analysis for the Global Burden of Disease Study 2021. Published: March 2024, The Lancet.

The lowdown on new tech

Fancy using your walls for your wireless connection? It may be less crazy than you think.

A new report from the World Economic Forums looks at what to expect for tech developments this year. The first is AI for scientific discovery – because while it’s been used in research for many years, advances in deep learning, generative AI and foundation models are revolutionising the scientific discovery process.

Meanwhile, synthetic data is set to protect personal privacy while providing new opportunities for data sharing by transforming how information is handled. And reconfigurable intelligent surfaces will turn ordinary walls and surfaces into intelligent components for wireless communication while enhancing energy efficiency in wireless networks.

High-altitude platform stations will use aircraft, blimps and balloons to extend mobile network access to remote regions, while the advent of 6G networks facilitates simultaneous data collection or sensing and transmission or communication.

About the research

Top 10 Emerging Technologies of 2024, World Economic Forum, Published June 2024.

How does loneliness influence trust?

A study has found that lonely people tend to trust others more, but also expect others to be less trustworthy. Therefore, the study authors found there is a discrepancy between their trusting behaviours and their expectations of the trustworthiness of others. Furthermore, the effects of loneliness on trusting behaviours and expectations of others’ trustworthiness

were particularly strong for individuals who were less extroverted.

About the research

Loneliness is associated with more trust but worse trustworthiness expectations. Gabriele Bellucci, Soyoung Q. Park. Published: May 2024, British Journal of Psychology.

As talented employees seek more than just financial reward, it’s worth understanding the benefit of an enticing EVP.

Employee Value Propositions

In today’s competitive market, many businesses are struggling to find the talent that they need, while others are battling to retain the talent they have. Phrases such as “the great resignation” and “war for talent” are circling around, referring to the fact that top employees have a lot of choice, and are not afraid to move for the best opportunity.

One way that businesses can resolve this is by developing an Employee Value Proposition (EVP). A well-considered EVP can set a business apart from its competitors, and can even be a contributor to company growth.

THE THEORY What’s an Employee Value Proposition?

According to Rodd Wagner in Forbes, EVPs help companies attract and keep great employees, particularly when the labour market is tight. An EVP is an agreement between an employer and its employees, in which the employer outlines the benefits an employee will receive, and the type of overall experience the employees will have with the company. An EVP includes, but stretches beyond, financial compensation. An EVP is in some ways like a customer value proposition – a marketing approach which defines what a business delivers to its customers, and the experience a customer should have with the “brand”.

Who is responsible?

It may sound like the EVP is the job of the Human Resources function, and it should certainly be involved. However, in The War for Talent (Page 16), Ed Michaels, Helen Handfield-Jones and Beth Axelrod write that “all managers, starting with the CEO, are accountable for strengthening the talent pool”. When the EVP is shaped by leadership, and has input from employees, it has a better chance of resonating with everyone.

Why businesses need an EVP

Michaels, Handfield-Jones, and Axelrod argue that in the “war for talent”:

Companies need people

Talented people are the competitive advantage

Better talent makes a huge difference

THE HISTORY

1997: The term Employee Value Proposition started to circulate. EVPs were pitched as a potential solution to the “war for talent” – an issue identified by consulting firm McKinsey & Company, which recognised that businesses were fighting to attract the best staff and keep them. (Forbes)

2001: In a new book, The War for Talent, exMcKinsey consultants Michaels, HandfieldJones, and Axelrod argued that it’s talent that separates one company from another. They argued that the best talent are always “passive job seekers” with an eye out for better opportunities (page 6). They wrote that highly talented people have “attractive options to choose from” and companies must recognise that the ““price” of talent – in financial and nonfinancial terms – has gone up” (page 41).

Early 2000s: The dot com boom saw tech companies lure talent from consulting and financial firms by offering large salaries and lifestyle perks. Tech tools, social clubs, ping pong tables, company bars, on-site sleeping pods and more were part of the deal. Traditional businesses had to rethink their EVPs to compete.

2020: Amid the COVID-19 pandemic, employees expected EVPs to feature flexibility, hybrid working and remote working, and even compressed work weeks. These perks are now a point of tension for some CEOs who want their people in the office full time.

2024: EVP’s have become increasingly linked with “purpose”, according to Hays. There’s a growing expectation that companies must stand for something bigger than the product or service they deliver. That could be supporting climate sustainability, or a societal challenge. “It is therefore crucial that companies express their purpose within their EVP,” Hays writes.

Discover more Between Meetings

Join Matt Heine, CEO & Managing Director of Netwealth, as he chats to industry thought leaders on what opportunities and challenges they see for financial advisers and the wealth industry as a whole.

Don’t miss an episode, listen on: Apple Podcasts YouTube Podcasts Spotify

The War for Talent, page 6

Talented people are scarce

People are mobile and their commitment is short term

People [today] demand much more

“Leaders need to address the factors holistically to ensure that a focus on one doesn’t undermine another.”

Mark Mortensen and Amy C. Edmondson

IN ACTION

Best EVPs in Australia

To get inspired about what you could offer in your EVP, you could review the EVPs of the winners of Australia’s Best Workplaces List Awards. To begin, here are some EVP features from the top three large Australian workplaces in 2023:

• Cisco: The IT company promotes its purpose of creating technology to address society’s greatest challenges. It offers an inclusive culture, financial perks (e.g. competitive compensation, annual bonuses), flexible work practices, generous holidays, and a “talent marketplace” so staff can gain experience in different parts of the company.

• Hilton: The hospitality firm promotes a key purpose as creating “unforgettable experiences for our guests”. For employees, it offers financial wellness, parental support, mental health support, and a diverse and inclusive culture. It also offers travel perks such as staff discounts and family and friends’ benefits.

• Atlassian Inc.: The IT company promotes its ‘Team Anywhere’ approach, meaning employees can work online from all over the world. It offers continuous learning through Atlassian University, and free mental wellbeing support (professional counselling etc.). A staff superannuation fund, income protection insurance, and plenty of discounts and perks from partner organisations feature.

• Netwealth: At Netwealth, we rally behind our purpose to inspire people to see wealth differently and discover a brighter future. Our EVP is designed based on four pillars: meaning and purpose; growth and development; connection and community; and the products and services what we offer. For example, we provide continuous learning opportunities, flexible/hybrid working, monthly social events, breakfast in the office, 12-weeks of paid parental leave, and school holiday care programmes for kids. We also offer various health and wellbeing initiatives, a comprehensive employee assistance program.

IN PRACTICE

Leadership questions

Leadership needs to take an active role in developing the EVP. Wagner writes in Forbes that they can ask themselves fundamental questions such as: “Why would the people we need want to join, do their best work here, and stay?” The answers should underpin the EVP.

Know your workforce needs

Developing an EVP can be a chance for leaders to define the characteristics of people they would like to attract to the business – such as innovative or creative. KPMG writes that it’s also a chance to consider the workforce you need for the future. Ask, what skills do you need to bring in to meet your strategy, and what EVP features do people with those skills expect?

Employee insights

In addition to the leadership perspective, it’s also important to hear from employees what they value in an EVP. PwC suggests that there are seven areas to survey your employees about. These are:

• Remuneration and reward: Understand expectations around bonuses, profit sharing and subsidies.

• Workspaces and places: Get clear on preferences for office versus remote work.

• Ways of working: Explore their thoughts on flexibility, collaboration, meetings, work-related travel, and more.

• Wellbeing: Find out what would help in terms of wellbeing programmes and policies, and what they expect in terms of work-life balance.

• Career development: Ask how much employees value education and upskilling and in what formats, such as study assistance, feedback, and secondments.

• Experience: Ask about team preferences, and expectations around diversity and culture.

EVP inputs

When developing your own EVP, you can draw on the leadership and employee insights you’ve gathered. However, Mark Mortensen and Amy C. Edmondson write in Harvard Business Review that you should also ensure it covers four key pillars. These are:

1. Material offerings: Outline factors such as compensation, location, and flexibility.

2. Opportunities to develop and grow: Be clear on how you help your employees upskill.

3. Connection and community: Consider how your employees work with others, are appreciated and valued.

4. Meaning and purpose: Make clear the reasons the company exists, such as improving an aspect of society.

By considering the four pillars, you can ensure, for example, that offering remote work doesn’t outweigh connection and community. Or, that you don’t overemphasise financial remuneration and neglect upskilling.

Recognise differences

Every employee has different priorities and EVPs should recognise this. PwC writes that you may need to tailor an EVP for different groups of people, perhaps across gender, generation, income level, location, seniority, or full-time and part-time employees. Workforce Australia offers some case studies of what might matter in an EVP to women, knowledge workers, and frontline workers in this handy guide.

Review and refresh

EVPs are not a “set and forget exercise”. Mortensen and Edmondson emphasise how important it is to continually review and update them. This is especially true after significant events such as mergers or acquisitions, as these can shake up roles, team structures, and company culture.

Close the loop

Developing your EVP is a great step, but KPMG writes that it’s even more important to “close the loop”. This means understanding and implementing the business initiatives and capabilities required to match the EVP. For example, if it’s remote work, your teams need the right technology tools for off-site collaboration. If you’re proposing continuous learning, you’ll need to flex peoples’ schedules to accommodate.

Communicate the EVP

Communicating the EVP to potential employees can be done through job advertisements. Workforce Australia suggests reviewing your job ads to see if there’s more opportunity to feature attractive parts of your EVP. You can:

• Review your job ads to see the story you’re telling about the business, its culture, benefits and values.

• Consider how that story stands out from competitors.

• Assess if you’re making the best use of social media to share these features.

Aim for certification

One way to get the word out about your great EVP is to be certified as one of Australia’s best workplaces via Great Place to Work. Becoming certified requires a formal review of your company culture and how you treat employees. Great Place to Work reports that it has found the companies in its World’s Best Workplaces list have a 52% higher level of employee intent to stay at the workplace, and 65% more employees willing to recommend their employer to others.

In summary

EVP’s can make a significant impact when it comes to attracting talent and keeping employees engaged with your business. Taking the time to understand what employees want, developing an aligned EVP, making sure you have the systems in place to support it, and communicating your EVP to potential employees can reap rewards for both your people and your business.

Behind the scenes at Netwealth:

Unpacking Netwealth’s latest for advice efficiency

A

deep dive into Netwealth’s comprehensive suite of efficiency tools.

For decades, technology has driven business efficiency, and with emerging technologies like big data, automation and AI, this is set to continue. Further, with constant change, and the need to “do more with less” this need is not set to abate.

Recognising this, Netwealth has released numerous features over the past 12 months to support the need to continually improve advice efficiency, and support better profit margins. Here is a highlight of some of these features:

Reimagined adviser experience

Netwealth has rethought and re-architected its user interface to provide a more cohesive and accessible experience. The new desktop interface, designed with a user-centred approach, is progressively rolling out with a major sitewide release due in September. It features a simplified top menu for quicker access to features and a detailed three-column layout which exposes more information on a single page, such as detailed data, guides with helpful tips.

Matt says, “We have a laser focus on trying to improve the user interface, aiming to help advisers find information and lodge transactions faster. Over the coming months, our clients will see continuous improvements in this area.”

Enhanced client reporting

Recognising the critical role of client reporting, Netwealth has heavily invested in its reporting toolset. Time-saving enhancements include pre-configurable report settings, the ability to create custom report templates (or packs), and the ability to generate multiple reports for multiple accounts simultaneously.

International trading T+1

With the rising importance of global markets, Netwealth has launched straight through processing and execution of international equities on 16 exchanges to support T+1 settlements. This includes live trading and limit orders, significantly reducing friction in the trading process.

Automated customised ROAs

For advice firms looking to produce a Record of Advice (ROA) as a result of initiating a trade for a client, Netwealth has introduced a feature that allows them to input specific pre-defined text (e.g. a rebalance reason) and customise the disclaimer using a text editor. This can reduce friction for the client and speeds up response and trading times.

Data integrations

Netwealth now supports over 20 data and software integrations, providing daily data feeds of Netwealth client data to third-party software. Plus our relationship with Xeppo also adds a further 40 software connectors.

Matt notes, “Netwealth’s open architecture approach to software development and our strategic relationship with Xeppo provides support for multiple integration options with a wide selection of apps, software and data sources. This reduces double handling of data, improves accuracy, and enhances security.”

Mobile digital consent and approvals

Helping to lead the push towards frictionless client approvals, Netwealth has developed a new process that allows clients to quickly approve adviser-initiated instructions via the Netwealth mobile app. Matt says, “People expect to manage their wealth from their mobile phones. At Netwealth, our focus on the client portal and mobile app helps advisers deliver on this goal while saving time on paperwork and signatures.”

Managed accounts

According to Netwealth’s 2023 AdviceTech report, 83% of advice firms that use managed accounts benefit from greater efficiencies. Netwealth continues to invest in our managed accounts service broadening the range of investment options available which are increasingly sophisticated and cater for key market segments including HNW clients.

Netwealth is at the forefront of driving innovation and efficiency in the wealth management space. “We are excited about the future and the transformative power of technology in our industry. These latest updates demonstrate our ongoing efforts to make advisers’ work more efficient and impactful,” says Matt. “As we harness the power of data, technology, and connectivity, our focus remains steadfast on delivering innovative products and services that help our clients achieve their goals with greater ease and confidence.”

“People expect to manage their wealth from their mobile phones. At Netwealth, our focus on the client portal and mobile app helps advisers deliver on this goal while saving time on paperwork and signatures.”

Matt Heine, CEO & Managing Director, Netwealth

Netwealth sees more than global markets, investments, data and technology. We see a world of choices, a world of relationships, a world of efficiency and a world where everyone can discover a brighter future. Wealth is about tomorrow and progress. With Netwealth – a world of opportunity awaits you.

Discover a world of opportunity at netwealth.com.au/woo and see wealth differently

Making a difference

Businesses have the ‘opportunity of a lifetime’ to make an impact – even small ones. Jean Oelwang, CEO of Virgin Unite, gives advice practices ideas about how they can enhance their impact and improve their bottom line at the same time.

Jean Oelwang CEO Virgin Unite

Jean Oelwang, Founding CEO of Virgin Unite, has a firm belief in the power of creating change in the world.

“If we change the way we do business to put people and the planet at the centre, it will create better businesses and it will also create change in the world,” she says.

Jean helped found Virgin Unite, a nonprofit arm of Richard Branson’s Virgin Group about 20 years ago. Virgin Unite changes unacceptable issues and systems for good by building leadership collectives like The Elders, The B Team, and the Planetary Guardians. They also use their voice to shout about issues and partner with incredible leaders on the frontlines. They’ve worked on issues including refugees, Aboriginal affairs, the planet and LBGTQ rights.

How can advisers increase their impact?

And while advice practices are already by their nature having an impact on people’s financial futures, there is still plenty more they can do if

they wish. On Netwealth’s Between Meetings Podcast with Matt Heine, Jean shared her ideas about how to go about this.

“Smaller companies need to make sure they’re sustainable and are going to be there long term – that’s important for their clients. So firstly, it’s about making sure they’re a well-run business,” she says.

“But I think the beauty for small businesses is sitting with their team members to figure out what makes them passionate – what makes their hearts sing, what builds that bonfire in their belly.”

For advice firms, that might look like talking to people in their direct community and their customers, then figuring out how to take that passion and use it to drive change that links back to their core business.

“It doesn’t have to be something separate, but something that will help them build a better business,” she explains.

“That will help them build better relationships with their customers, with their team members, and improve retention.”

Key Takeaways

• Businesses have the opportunity to make a significant impact by putting people and the planet at the center.

• Partnerships and collaboration are key to enacting change and improving business outcomes.

• Creating a sustainable and well-run business is essential for long-term success and client trust.

“If we change the way we do business to put people and the planet at the centre, it will create better businesses and it will also create change in the world.”

Jean Oelwang

Power of partnerships

Partnerships are key to Virgin Unite – and the power of bringing together different executives to enact change in the world is a lesson for the finance sector as well.

“Everyone in your extraordinary community has the power to do that,” Jean says.

For advice practices, this could include teaming up with peers and industry partners to make profound changes such as building companies that have more shared ownership or changing boards to put more purpose at the centre.

“You might look at how you can change incentive structures that encourage more purpose. Or create pathways to living within the boundaries of the planet,” she says.

Impacting the bottom line

Jean explains this is not just nice to have, it’s good for the bottom line as well.

“JUST Capital [a nonprofit which ranks America’s most just companies] has shown again and again that companies which deliver to people and the planet are outperforming financially,” she says.

She describes this as “the opportunity of our lifetime”.

“This is where new businesses are going to be created, and where the growth is going to happen,” she says.

“Particularly in the finance industry, because you’re going to be the ones financing change. There is such an opportunity to create that future that we all dream about.”

Building a team

Another key learning that advice practices can take away from Jean is the importance of building a good team.

“We build boards, we build teams, and very often we think of people’s expertise and skills,” she says.

“We often don’t think about making sure the people at the centre of that team or board have good relationships and can model great values and behaviours.”

She uses ice cream company Ben & Jerry’s as an example – the founders attribute their success to being “all in with each other”.

“They talked about how they had a deep love for each other, for their team. That’s how they built the company from the start,” she says.

“And to them, that meant a hundred per cent having each other’s backs.”

She also points out their trust and respect, as well as generosity and humility. One example that sticks in her mind is their ‘veto power’.

“If one of them couldn’t agree on something when they were arguing, they could raise a veto card and they would just stop the discussion and not move forward,” she says.

“And they said they used that rarely, but when they did it saved their company – and most importantly their friendship.”

Jean also mentions another business, an investment house, Draper Richards Kaplan, which revamped incentive structures.

“They took out all the incentives that had people competing against one another and replaced them with incentives that meant they were competing altogether as a collective on how much difference they could make in others’ lives.”

“So they each played their role and used their skill set to create this extraordinary business and extraordinary company.”

A useful lesson from Jean on the power of having an impact, forming partnerships, and humility.

To learn more about this topic, subscribe to Netwealth’s Between Meetings Podcast.

Scan to listen

The value gap and winning new clients

Understanding why prospects don’t buy

Perceptions can get in the way of people deciding to go ahead with financial advice. By understanding their barriers, you can motivate them to make the decision.

Key Takeaways

• Prospects view the cost of financial advice as a loss rather than an investment.

• Procrastination and choice paralysis are substantial barriers to engaging financial advice.

• Many prospects believe their financial situations are too simple for professional advice.

Consider fitness intentions. Many people understand the benefits of regular gym attendance for health and wellbeing, yet fail to visit. The intention is present, but the action is missing. This disparity is prevalent when engaging a financial adviser too.

Many Australians recognise the benefits of engaging a financial adviser, however, don’t commit the time and money to one. Perceptions get in the way of acting, and potential clients remain stuck as “prospects.”

Netwealth’s 2024 Advisable Australian research investigated those ‘considering engaging a financial adviser in the next 2 years’ (prospects). The findings, using the principles of behavioural science, showed that human decision-making is not always rational, but is influenced by predictable biases, which then impact one’s perceptions around whether something like financial advice is valuable.

Based on this research, our latest report, The Value Gap and Winning New Clients, identified five behavioural science-backed barriers that explain the gap between interest in financial advice and acting on this interest. Understanding these barriers can help you more effectively connect with your prospects, and in turn, engage them as loyal clients.

The value gap and winning new clients

Through a behavioural science lens we have identified five critical areas creating the value gap for prospects – holding “considerers” back from being clients.

They are:

Prospects are loss-averse

Prospects feel they are not right for financial advice

Many prospects think they don’t need financial advice because their situations are simple, or don’t understand it properly.

Prospects are focused on ’today’ People live in the present and don’t relate to their future selves. This makes them prefer instant gratification over long-term financial planning, which lowers its value.

Prospects are overconfident in their financial abilities

Many prospects think they know enough about finance and so they don’t feel they need an adviser, however our research suggests otherwise!

A disconnect exists between the cost of advice and prospects’ willingness to pay

Financial advice costs much more than what many people expect.

1. Prospects are loss-averse

The cost of financial advice was cited by half (51%) of prospects as a barrier to engaging an adviser, while a quarter (24%) were unsure of the value they would gain. Prospects often viewed the cost of financial advice as a loss rather than an investment.

An Emerging Affluent explained, “I’ve watched some of my friends engage expensive financial planners but get poor advice and make losses. At least when I do it myself, there are no fees and less risk.”

2. Prospects are focused on ‘today’

Procrastination and choice paralysis are substantial barriers when it comes to engaging financial advice. Around onethird of prospects reported that they delay financial planning: ‘Other things in my life distract me’ (30%), or they ‘Haven’t been able to find financial advice yet’ (27%).

Behavioural science studies show that humans are present-focused creatures, and struggle to connect with their future selves. Financial advice prospects are therefore often ‘present-biased’, favouring immediate comforts over future benefits, which can diminish the perceived value of long-term financial planning.

3. Prospects feel they are not right for financial advice

A quarter of prospects (25%) believed their financial situations were too simple for professional advice. One prospect noted, “My finances aren’t big enough.” Another said, “I always thought you needed to be rich to have an adviser, like it was a luxury thing.”

This misconception – that financial advice is only for the wealthy or those with complex financial needs – reduces its perceived utility. Prospects can struggle to find a way to confirm the advice would be useful and relevant to their personal situation and goals.

4. Prospects are overconfident in their financial abilities

A notable barrier to engaging a financial adviser was that many prospects believed they possessed adequate financial knowledge. They probably thought, ‘I can do financial planning myself.’ However, this can lead to undervaluation of professional advice.

Our research highlighted that this perception of capability is misjudged. We found that there is a real discrepancy between how financially literate a person thinks they are versus actuality. For instance, while 59% of prospects self-reported moderate financial literacy, and 23% claimed high literacy, objective assessments revealed that only 15% genuinely possessed high financial knowledge, with around one-third (35%) actually having low financial literacy.

Fig A

5. A

disconnect between the cost of advice and prospects’

willingness to pay

As part of the research, we shared typical financial advice packages and their typical price with prospects. They were asked to comment on whether the packages were suitable to their needs, and then how much they would be willing to pay – from the package being ‘too cheap’, to ‘just right’ or ‘too expensive’.

Although a prospect might have found a package suitable for their needs, they significantly undervalued it against what it would typically cost. For example, two thirds (63%) of those prospects indicated that they were not at all willing, or only slightly willing, to pay $7,500 per annum for such a package. And they felt that at $3,750 per annum, the package was ‘starting to feel expensive, but not out of the question’.

People make decisions and judgments based on familiar reference points, or ‘anchors’, and adjust behaviours based on these anchors. Because prospects do not have prior experience of financial advice and its costs, they will be relying on the assumptions and conclusions they arrive at based on the information available to them.

B

Sources:

1. Hershfield, H.E. (2011), Future self-continuity: how conceptions of the future self transform intertemporal choice. Annals of the New York Academy of Sciences, 1235: 30 43. https://doi.org/10.1111/j.1749-6632.2011.06201.x

The disconnect between claimed vs. actual financial literacy

How would you rate your own level of financial literacy?

Perceived (Claimed) vs. Actual.

Fig

Here are the packages we tested:

Package 1

A one-time financial plan and its implementation to get you started

• Comprehensive, one-time financial planning service for mainstream investment advice, structured advice, and assistance with investment setup.

• Additional services: insurance advice, 5-year cash flow planning.

• Digital tools for self-service management without ongoing support.

Package 2

Ongoing holistic advice and support to keep you on track

• Continuous portfolio management adapting to life changes and market conditions.

• Complex investment options like private equity and responsible investing.

• Additional services: loan assistance, will creation, family trust establishment.

• Annual reviews, semi-annual investment reports, dedicated team.

• Enhanced educational resources including podcasts.

Package 3

Concierge wealth with exclusive opportunities

• Most comprehensive package.

• Acts as a personal CFO for proactive household wealth maximisation.

• Access to exclusive and new investment opportunities.

• Detailed tax planning and debt management advice.

• Quarterly reviews, on-demand support from a dedicated adviser or specialist team.

• Expanded education benefits including exclusive events and detailed investment research.

At what price point (for the year) would you consider this service to be...

Package 1

A one-time financial plan and its implementation to get you started

Package 2

Ongoing holistic advice and support to keep you on track

Package 3

Concierge wealth with exclusive opportunities

Too cheap – priced so low that you feel the quality can’t be very good

Bargain price for good quality service – great value for money

Starting to feel expensive – it’s not out of the question, but I’d have to give it some thought

Too expensive – would not consider it

How willing are you to pay for this package at this price (of those who think the packages are suitable for their needs)?

Not at all willing Slightly willing Moderately willing Very or extremely willing

Proposed market rate p.a.

Willingness to pay market rate?

Package 1 $5,500 p.a.

Package 2

p.a.

Package 3

p.a.

Turning prospects into clients using Netwealth’s Value for Money Model

If you can engage the value drivers of motivation, ease, and context in your marketing and communications, you’ll have a better chance of converting prospects into clients.

Australians are interested in financial advice, however, for many, several ingrained and somewhat negative perceptions are holding them back. These include the cost of advice, its inappropriateness for their personal situation, and a tendency to emphasise “now” rather than the future.

Key Takeaways

• There are three main drivers that impact a prospect’s perception of the value your business can provide them.

• Use Netwealth’s Value for Money Model to address negative perceptions about financial advice.

• Almost three-quarters of prospects rank ‘trust & transparency’ as their most important value driver.

“I always thought you needed to be rich to have an adviser, like it was a luxury thing,” one prospect told us.

In the Netwealth IQ report, The Value Gap and Winning New Clients, we set out to understand what could drive more positive perceptions of advice, and to provide advisers with the right insights and tools to change behaviours and turn prospects into clients. We interviewed Australians 18+ and combined the insights they shared with behavioural science models to find the most powerful drivers of value. This examination focused on more things than just pricing, instead considered 84 value drivers, grouped into 14 themes, and then attributed to one of three dimensions of value. We call this the Netwealth Value for Money Model.

Fig A

The three dimensions of value are motivation, ease and context. Prospects are looking for a trusted partner on their journey to achieving personal financial goals (motivation). They’re wanting services that feel straightforward and reassuring (ease); and they want social endorsement of their choice, and a strong brand to bolster their confidence in the service (context).

When you understand these dimensions, you can communicate and market to prospective clients in ways that can shift their values and attitudes, effectively closing the ‘value gap’. By understanding Netwealth’s Value for Money model, you will be better prepared to influence prospects through your web copy, articles or reports, client case studies, events and forums, and of course when you meet prospects in person.

Based on our report, here are some tips to get started.

The Netwealth Value for Money Model has three critical drivers necessary for behaviour change:

Ease

Makes it easy to find and access value: Simplifying interactions to make the process straightforward and user-friendly, ensuring that individuals feel at ease when engaging with the service.

Motivation

Helps me achieve my goals: Aligning services with the personal ambitions and desires of the individual, ensuring that the service helps achieve their goals.

EASE MOTIVATION

Makes it easy to find and access value

Helps me achieve my goals

VALUE

Has contextual associations and heuristics for value

CON T EXT

Context

Has contextual associations and heuristics for value: Ensuring cultural alignment, social endorsements, and a strong professional brand to bolster confidence in the service.

Percentage of advice prospects that rank this factor as valuable when thinking about a financial adviser (2024 Advisable Australian research)

Can I trust you?

Is the advice relevant to me personally?

Tailored advice

Flexible plans

Acts on suggestions

Maximising returns

ROI relative to fees

When communicating your relevance, use language such as:

“ Flexible plans designed to fit your specific financial situation.”

Driver 1: Motivation

To show you can deliver to prospects’ needs around ‘motivation’ you will need to make it clear that you can be trusted. In fact, 74% of prospects rank trust as the most important factor when thinking about a financial adviser. Clearly, you cannot just say “trust me,” but rather you will need to demonstrate it. To achieve this, you could:

• Highlight your team’s qualifications and professional certifications on all marketing touchpoints, e.g., on your website and as part of your first meeting

• Showcase authentic client testimonials or case studies

• Create a ‘meet the team’ video, or run a ‘get to know us’ webinar

• Use language such as, “Our advisers act with the highest integrity and honesty.” Another factor in motivation is ‘transparency’, especially when it comes to your fee structure. The research suggests that when fee discussions are held during initial meetings, or are published on a firm’s website, it’s best to provide a transparent breakdown of fees and services, explaining how each part of the process adds value. You could use language like, “Transparent fees and services, with fees clearly explained”, so that your position is immediately clear.

Behavioural science experiment

We tested a message approach that framed the goals of financial advice in terms of emotional rather than financial benefits. A message which focused on achieving personalised short- and long-term goals (Concept B), resonated significantly more than a message around investment returns (Concept A).

Percentage of prospects that selected the concept that appealed to them most

A key ingredient in motivation is showing your prospects that your service will be relevant to their personal needs, now and into the future. For 63% of prospects, this is as much about tailored strategies as it is about feeling seen and understood. One way to communicate long-term relevance is to emphasise how you focus on both financial and emotional outcomes. To demonstrate this, you could:

• Illustrate how involved clients are in the planning process, and how their inputs and suggestions are respected

• Highlight your process of regular reviews to recalibrate your understanding of the client’s situation, and how that impacts planning

• Show how you provide personalised financial roadmaps that evolve with your clients’ life milestones

• Create case studies of clients with similar profiles and how personalised advice helped them achieve their goals.

Concept A:

Our model and aim as your financial adviser is to maximise the performance or your investment portfolio using a suite of products we have on offer.

Concept B:

Our model and aim as your financial adviser is to help you shape your financial future around the important goals you want to achieve, while designing the best life you want to live now.

Driver 2: Ease

For 71% of prospects, ease is all about showing you can deliver long-term strategic guidance without complexity. To make it clear you can support this, you can share how straightforward it is to take part in the advice process. Try language such as, “Our streamlined process ensures you understand every step of your financial journey. Here’s how we make financial planning easy for you.” You could provide clear descriptions of the different advice strategies that you have available, and examples of how you can use these strategies to assist in crucial financial decisions. Another way to build awareness is by creating video ‘success stories’ of clients who have navigated significant financial milestones – whether that be buying a house, or getting ready to retire – with your help.

An important factor when it comes to ease is meeting prospects’ need for support and a stronger sense of security for their future. In fact, this was essential for 62% of prospects. One Established Affluent explained what support and security looked like to them: “Value for me, it wouldn’t be about whether my fund or balance is going up or down. That’s never immediate. It’d really be about the interactions and the advice at those critical points. Making sure that you’re overall on track, and there is support when the plan isn’t reaching the goals.”

To appeal to prospects, you could outline the onboarding experience, showing what they will need to do and when, and explain how your team will help them. In person, you could show them how you offer regular updates and tracking against agreed investment and financial goals. It could help to share a ‘calendar of events’, which outlines your regular check-ins with clients, and some of the positive outcomes that prospects should expect to see in the first 12-24 months. Again, you could highlight your track record by using stories of clients who have felt secure and reassured by your proactive communication and support, whether via written case studies or via video.

To get across how much you can support your clients, you could use language such as:

“ We’re here for you at every step. Expect regular updates and personalised reports to keep you informed.”

Discover more Between Meetings

Join Matt Heine, CEO & Managing Director of Netwealth, as he chats to industry thought leaders on what opportunities and challenges they see for financial advisers and the wealth industry as a whole.

Don’t miss an episode, listen on:

Percentage of advice prospects that rank this factor as valuable when thinking about a financial adviser (2024 Advisable Australian research)

Can you guide me towards long-term success?

71%

Long term strategic guidance

Can you provide consistent support and security?

Regular updates on goals

Progress against strategies

Assurance on performances

Proactive communication in good times

Clear expectations

Security

Track record & consistency

Goal-focused planning

Long term wealth growth

Guidance for crucial decisions

Navigating complex scenarios

Navigating regulatory changes

Exclusive opportunities

62%

Support, security and reassurance

Percentage of advice prospects that rank this factor as valuable when thinking about a financial adviser (2024 Advisable Australian research)

Do others who matter to me trust you? Relevant education

46%

Community endorsement

Can you relate to my cultural background?

Associations with renowned brands

Visibility

Accessibility

Connection to other partners

Intuitive platforms

Industry associations

Meaningful brand image

Accreditations

WOM

Referrals from trusted partners

Case studies of similar clients

Endorsements from influential networks

33%

“ I’d probably ask the accountant for a few referrals. That’s always strong because their reputation is on the line by recommending you someone.”

Driver 3: Context

Context, including community endorsement and social association, is important to prospects, as they want to know that the advice firm that they sign with is well respected. Context is particularly important when prospects are uncertain about their decision, as they will be looking for positive signals about your business that amplify their perception of its value. One Established Affluent told us, “I’d probably ask the accountant for a few referrals. That’s always strong because their reputation is on the line by recommending you someone. I don’t think I would just go and do a search and just sort of pick a bunch of people myself.”

To build community endorsement and social associations around your firm, assuming you have evidence of this through things like Google reviews, you could try using language such as, “Join the hundreds of satisfied clients who have trusted us with their financial futures.” Other things you could do to boost context are:

• Add logos of industry accreditations, plus use client testimonials and case studies of real-life client success stories on your website.

• Host and record panel conversations with satisfied clients, and create short videos of client feedback to share.

• Engage social media to amplify word-ofmouth recommendations and to share client stories and reviews.

• Develop a ‘success story newsletter’ to email prospects as part of the sales process, showing how your advice has supported clients to reach their goals.

To further build up prospects’ sense of confidence in working with you, you can focus on cultural resonance. For 30% of prospects, this matters, as they want to know you will be a good fit for their specific needs. One Established Mass prospect told us, “I’d want to see case studies of people in similar situations to me, growth charts and tax charts and, overall, just things to help me figure out whether the brand of the company or adviser is good or bad and matches me.”

To show your cultural awareness, you can use language such as, “We provide financial advice that respects and aligns with your cultural values.” You can also share insights from team members from different cultures and demographics in your marketing materials, and likewise, embrace the diversity of your client base and share success stories from people with different cultures and perspectives.

To find out more about this topic, read our new Netwealth IQ Report, The Value Gap and Winning New Clients.

Established Affluent prospect

The power of language in converting prospects

When it comes to turning prospects into clients, leaning on certain behavioural science principles in the language you use in marketing materials can make a difference.

When prospects are considering a financial adviser, our research shows they’re driven by powerful perceptions of whether the experience will be valuable for them or not. These perceptions of value are beyond the price of your service, extending into more intangible qualities of your offer, like how trustworthy you are, or how your service will meet their emotional needs. In Netwealth’s Value for Money Model we explore these perceptions of value in detail.

Key Takeaways

• Language influences perceptions and can help convert prospects into clients.

• Behavioural science principles enhance marketing effectiveness and client trust.

• Tailored communication at each stage of the decision path is crucial.

One of the most effective ways to shift these perceptions in a positive way is to tap into the power of language. Using the right words on your website, marketing materials, in meetings, and in follow-up emails could give prospects the confidence and the assurance that they need to jump on board.

We explored this in our Netwealth IQ Report, The Value Gap and Winning New Clients. Whilst each firm needs to be conscious of the strict legislative requirements when using language to influence behaviour (for example, you can only use the word ‘independent’ in certain strict circumstances), Netwealth has outlined some ideas that might be of use.

Understand the power of language

Behavioural science tells us that language is a key ingredient when it comes to influencing perceptions, like ‘positive framing’ having a strong sway on behaviours. For example, to encourage seatbelt use, language focusing on safety gains often will be more motivating than talking about the risk of accidents. Language is also key to providing clarity and understanding, and helps people to make informed decisions. It can also shape social norms, for example, describing something as common, like “most people recycle”, could drive greater compliance. Language can motivate people, using encouraging phrases such as “you can do it”, and conversely can demotivate, for example, with phrases like “you’ll fail”. Language also evokes emotions, which can strongly influence actions.

When to tap into language

Leveraging language is not just about what you say, but when you say it, and timing is especially important when it comes to prospects. You’ll need to be aware of your prospects’ ‘path-to-purchase’, and consider what messages will resonate most at each step along the way.

A prospect’s ‘path-to-purchase’ with an adviser will typically start with a referral, perhaps from a friend or colleague. They will then review your website or social media feeds, and perhaps attend one of your seminars or workshops. After some more research, they might finally meet with you (probably several times) prior to becoming a client. At each step, you could be using the power of behavioural science and language in your marketing. The key to success is being mindful of where the prospect is likely to be on their decision path, and engaging language in your communications that is meaningful to them at each stage.

For example, when a prospect is close to making a decision, you could communicate to them that it’s an easy process to onboard; or if they are in a demographic prone to big life changes such as buying homes or having children, you could communicate how you support clients during complex decisions. Using the right words at the right times could give you a stronger chance of bringing them on board as a client.

Can I trust you?

Prospects value the integrity of the firm they hope to work with, with 74% of them highlighting ‘trust and transparency’ as a key value driver in their decision to choose a financial adviser, especially at the beginning when they’re unsure where to look or who to listen to.

Telling a person to “trust me” will not work, and instead your language will need to somehow communicate this notion. You could use words such as “integrity and honesty” on your website or marketing material. You could even highlight your team’s qualifications and professional certifications. For example: “Our team is comprised of certified professionals who have successfully guided clients through various financial challenges. Here’s how we helped [Client Name] achieve [Specific Goal].”

To demonstrate transparency, you could outline your fees and services clearly, perhaps indicating upfront that ”fees are clearly explained”. It could be helpful to highlight your autonomy as a firm, with phrases such as: “Agnostic and neutral in our advice ensures your interests are always at heart.”

The 2024 Advisable Research tested two different approaches to the best language to use when communicating fees. We saw prospects have a strong preference for the message that talked to pricing plus service transparency (77% of all prospects preferred Concept B), indicating that a clear breakdown of costs and services impacts prospects’ perceptions significantly.

Fig A

Is the advice relevant to me personally?

It might seem obvious, but your prospects want to know you can help them. Keep in mind that many have never experienced financial advice prior, so they just don’t know what to expect. For two-thirds (63%) of those considering advice, they need to know that your service meets their needs and delivers a positive outcome now and into the future. This is as much about tailored strategies as it is about feeling seen and understood. You can use language on your website and marketing materials such as, “Our service is tailored advice that meets your unique financial goals and needs,” or “We have flexible plans designed to fit your specific financial situation,” or “Part of our process is that we value your input and incorporate your suggestions into our strategies.”

“ I’d want someone who could understand or relate to my world, that grew up in a similar place or context.”

Will it be easy?

Prospects want to know that the journey to their financial goals is not going to require overwhelming effort. Prospects will likely be averse to putting in too much effort if they don’t understand the reasons for doing so. Ease doesn’t just mean offering a sense of security, support and reassurance (valued by 62% of prospects), but also a sense that you will be able to guide them to long term success (71% of prospects value this).

An example of communicating how you support clients for the long-term could be sentences such as, “Our streamlined process ensures you understand every step of your financial journey. Here’s how we make financial planning easy for you,” or “Our financial planning process is centred around helping you achieve your long-term aspirations. We have previous experience working with clients just like you.”

Getting across that you are supportive could also include phrases such as: “We provide regular updates on your progress and our strategic plans,” or “We’re here for you at every step. Expect regular updates and personalised reports to keep you informed.”

You can also show how the advice journey won’t be daunting by stating: “We help reduce your mental load and financial anxiety.”

Are you relevant?

When humans are uncertain about a decision, (like comparing between a handful of advisers) having contextual signals around your business can help to amplify the perceived value of your services.

Prospects want to see that others in their peer group endorse your services, and that you’re respected within your industry. They also want to know whether you understand and can relate to their cultural values, which might be community, social or environmentally related.

The words you can use on your marketing touchpoints to get these messages across include:

• Community endorsement: “Join the hundreds of satisfied clients who have trusted us with their financial futures.”

• Social/industry associations: “Our advisers adhere to the highest standards of professionalism.”

• Cultural awareness: “We provide financial advice that respects and aligns with your cultural values.” Or, “Our commitment to community and environmental impact sets us apart.”

Underestimating the power of language in shifting value perceptions could mean missing out on working with prospects that would gain immensely from your services. You can find out more about how to leverage language in our Netwealth IQ Report, The Value Gap and Winning New Clients.

Concept A:

Our personalised financial advices costs $700 per month to help you make and execute your financial plan.

Concept B:

Our 1–1 personalised financial advice service costs $700 per month. This fee pays for:

• Extensive and ongoing analysis of the market.

• Its impact on your portfolio.

• Work completed by our expert financial analysts and strategists.

• Access to speak to us anytime to discuss and act on changes to your situation.

The price is right

Finding the balance between the value provided to clients and the amount they are able to pay is essential for advisers. Rob Jones, co-founder and owner of Peloton Partners, looks at the evolution of pricing models and how to put a different pricing structure into practice.

Recently Rob Jones, co-founder of Peloton Partners, sat down with Netwealth during our IQ Webinar series and discussed how advice firms should consider their pricing models. Below is a summarised transcript of some of the key insights from his presentation.

If someone was to ask me what has gone wrong in our industry over the past 25 years, it’s where our pricing equation has not been balanced. Either the firm puts itself above the clients and charges too much or puts clients above itself and charges too little.

As a pricing specialist, I think you should be setting out to charge a fee that captures the value of the advice you provide, provides a good return for your firm, and at the same time is a fair fee for the client.

When you look at the average health of a financial planning practice, regardless of its maturity, the average is around 25 per cent EBIT margin, or 15-18 per cent after tax. That’s not a sufficient margin for a professional services business. Especially as expenses in our industry are never static.

We’re very privileged to have worked with the industry on getting profit margins up toward 40 per cent, or 30 per cent after tax – which is a good and fair return these days. So, I want to share some of the learnings and experiences from our journey.

“Most clients forget all the great advice moments, and we need to remind them of the value of that advice.’’

Rob Jones, Co-founder and Owner, Peloton Partners

We should be more sophisticated

In this country, we’re fairly unsophisticated when it comes to pricing models. When I ran my own firm, we priced by funds under management (FUM), and then by fixed fee, which was still segmented by a person’s wealth rather than value delivered to clients.

We should be a lot more sophisticated. This doesn’t have to mean complex, but it does mean more accurate.

Too often, advice firms tell us “This client’s easy to manage, we don’t do much for them.” And that’s not true. Saying that is a problem because you’re putting a ceiling on your own fees.

It’s extraordinary the amount of value that’s sitting in your average financial planning practice. Throughout my career, I’ve looked at and valued about 600 practices, and noticed how much value was sitting inside, but hasn’t been unearthed because there wasn’t capability or time. But that value is sitting there, and it’s primarily in client fees and what clients are paying for advice.

A

One consistent challenge for firms when it comes to pricing is a huge variance in what clients are paying. Some clients are paying over and above the value they are receiving and clients are paying under, and everything in between. The way forward is to minimise that variance as much as possible.

There is material latent value in your business, and it’s there for the taking.

Alternative fee models

The industry standard of segmenting clients by a single factor like how much money they have are outdated.

Chart A versus Chart B shows this. In Chart A we see thousands of firms, segmented and charging fees by FUM. In Chart B we have repriced clients individually according to our value models – in other words, the number of services that they are accessing.

And what this has done is disrupt that smooth line of “how much money someone has determines how much they should pay.” This proves that pricing clients according to their needs and the value they receive gives you a different outcome. And as a result, through this repricing we found about $15 to $20 million of untapped recurring revenue for the firms. It shows that many firms are not passing on reasonable fees to their clients, and the power pricing fees on the service value you offer, rather than charging a fixed fee based on a single factor like FUM.

Fig

Fig B / Fig C

$10,000 $15,000 $20,000

Chart A — FUM based pricing Chart B — Value based pricing

$5,000

Partners, 2024

$15,000 $20,000

$10,000

Established Affluent (>$1mil FUM)

Emerging Affluent ($250K – $1mil FUM) Mass Market (<$250K FUM)

$5,000

Emerging Affluent ($250K – $1mil FUM) Mass Market (<$250K FUM) Legend

Established Affluent (>$1mil FUM)

Partners, 2024

Peloton

Peloton

Talking value

Every adviser wants to be able to stand in front of clients, and with a sense of conviction, saying “Here is the fee, which includes our profit and is fair and right for you.” Too often, however, advisers are too unsure about their value, and that’s because they’re not prepared to break out exactly what’s required to service clients.

With a fee model based on the number of services offered, it gives the adviser the confidence that the pricing is right, it’s defensible, and that they can articulate it and answer any questions.

That’s powerful because it means the adviser has thought about the client’s needs and requirements and has the evidence to justify it all. Most clients forget all the great advice moments, and we need to remind them of the value of that advice.

Fig D

Rob Jones is the co-founder and owner of Peloton Partners, an expert in restructuring pricing models to accurately reflect the value delivered to clients. He has a long history in the wealth management industry and is a frequent industry commentator, sharing his views on the evolution of pricing.

Coverage of your wealth management affairs enabling

Discover more Between Meetings

Join Matt Heine, CEO & Managing Director of Netwealth, as he chats to industry thought leaders on what opportunities and challenges they see for financial advisers and the wealth industry as a whole.

Don’t miss an episode, listen on:

Apple Podcasts

YouTube Podcasts

Spotify

netwealth.com.au

Rethinking risks

There are limits to the traditional methods of understanding client risk preferences. Here, two specialists discuss science-based alternatives, and how a greater understanding of client preferences can be applied in areas like ESG and advising the modern couple.

Shachar Kariv and Bernard Del Rey

Co-founders Capital Preferences

Shachar Kariv and Bernard Del Rey are co-founders of Capital Preferences, a company that provides solutions for understanding client preferences and behaviours in financial decision making.

They take a scientific approach to this. Shachar is an economics professor at Berkeley, while Bernard was formerly head of strategy of a private client group for a major bank and a CMO for a large asset manager.

On a recent episode of Netwealth’s Between Meetings Podcast with Matt Heine, they discussed limitations of traditional risk profiling in advice and ways to overcome them.

The limitations of current approaches

Bernard says the advice industry has spent a lot of time perfecting investment solutions and less time on the science of understanding the client.

He believes the future lies in the ability to understand what investment the right fit for every client is, based on factors like who they are, their attitude to risk, social values, goals, and consumption preferences.

There are, however, limitations in the current approach to understanding clients and their attitude to risk. One is asking the right questions. For example, if you ask a client what they would do if their portfolio fell by 20 per cent, but they’ve never lived through a downturn and experienced that, they’re not qualified to answer.

“The industry is doing two things wrong. One, we are only focusing on a slice of what we need to know about the client. It’s the slice about risk attitudes and while it’s a very important slice, it’s not the only slice,” Shachar says.

Key Takeaways

• Traditional risk profiling methods have limitations and often fail to capture the full picture of a client’s risk preferences.

• Capital Preferences’ system offers an interactive simulated activity that provides deeper insights into clients’ decision-making processes.

• Understanding client preferences and behaviours is crucial for tailoring investment solutions to fit their unique needs.

“ The advice industry has spent a lot of time perfecting investment solutions and less time on the science of understanding the client.”

Bernard Del Rey, CEO & Co-founder, Capital Preferences

“The second is we’re measuring using questionnaires. The problem with these is they require enormous amounts of imagination.”

Capital Preferences’ system works as an interactive simulated activity. Instead of the adviser asking them questions on their attitudes to areas such as risk versus reward or spend versus save, they’re given different simulated trade-off scenarios in which they have to invest. It takes 60 to 90 seconds and gives the adviser insights into their attitude to taking risks and sensitivity to losses.

To learn more about this topic, subscribe to Netwealth’s Between Meetings Podcast.

Advisers can still allocate them into one of their model portfolios afterwards, but they can have a richer and more precise conversation around this.

“There’s no better way for me to look deep inside who you are and how you make decisions with your money than to put you inside a quick interactive experience and let you make some trade-offs,” Bernard says.

“It’s going to change the level of engagement of the end investor by having them understand what’s behind the advice they’re going to be given and the kind of trade-offs they’re going to be exposed to during that journey.”

Understanding risk vs. loss vs. ambiguity aversion

Meanwhile, Shachar explains how their research can help advisers understand that there’s a difference between risk aversion, loss aversion and ambiguity aversion.

As an example of loss aversion, he talks about someone finding $100 on the street versus losing $100. While it’s the same amount of money in absolute terms, the chances are the loss will feel proportionately worse.

“It’s the additional fear and anxiety that we feel when markets are down and our portfolio is losing,” Shachar says.

“So for example, older people are not more risk averse than younger people. They’re more loss averse.”

This makes sense because if a young person makes a bad investment decision, it’s probably a smaller amount of money and they have time to recover. An older person is likely to lose more and have less time to recover.

Shachar also explains ambiguity aversion – which is an aversion to the unknown. People are not always averse to risk as much as to ambiguity.

“In investments, people sometimes say stocks in emerging markets are riskier than stocks in non-emerging markets,” he says.

“They’re not riskier. They’re more ambiguous because there is less information about these markets.”

The complexity of ESG preferences

Another area where a better understanding of client risk tolerance and preferences is important is in ESG. Bernard says clients can be uncertain themselves as it’s such a large area.

“Clients have varying levels of altruism. They think very differently about the level of friction they would be willing to absorb to achieve better values alignment,” he explains.

Shachar gives an analogy of a doctor telling a patient to eat more vegetables when they might like some vegetables but not others. In that case, to get the outcome, they need to be more specific about the type of vegetables on offer.

“If you understand the client, you’ll be able to get them to do the right thing, not only for themselves but also for society,” he says.

Advising the modern couple

Meanwhile, a better understanding of preferences can be very useful in another complex challenge – advising the modern couple.

“I think the most powerful moment for a couple’s trust factor with the adviser is when they both feel seen,” Bernard says.

“I personally hate when I go to any sort of interaction, and I feel like the person on the other side of the table isn’t quite being equitable in the balance of their attention or advice.”

The science can help both parties feel seen, ensure their risk preferences are understood, and find a compromise.

“If you understand the client, you’ll be able to get them to do the right thing, not only for themselves but also for society.”

Shachar Kariv, Co-founder, Capital Preferences

Discover a world of opportunity at netwealth.com.au/woo and see wealth differently

Future the of Firm

Building a culture for digital transformation

Building a digital-ready organisation

Digital transformation is a challenge for many advice firms, but some businesses do it better. Based on Netwealth’s 2024 AdviceTech research, we look at the attributes of leadership and culture that impact a firm’s digital maturity.

Key Takeaways

• Top-performing firms share common strategies for digital success.

• Leadership must align to drive digital transformation.

• Cultural traits, such as a willingness to experiment, impact digital maturity.

Recently, Chinese firm Alibaba developed an AI engine called Emote Portrait Alive, which crafts video clips with facial expressions and head movements from a single image of a person, blurring the lines between reality and AI like never before. This is just one of the many, many new technologies that are becoming available with the potential to change our lives, as well as our businesses.

As an industry, financial advice is finding it a challenge to keep up. While the majority of firms are using at least 15 pieces of technology in their practice, according to Netwealth’s 2024 AdviceTech Research, only one in 10 advice firms are able to maximise the benefits of integration.

The effect of this is double-handling of data, inefficiencies switching between software with different interfaces, inabilities to leverage the power of data for insights, and being unprepared for AI.

And with only one in 10 firms able to claim that their technology is pervasive in all client interactions, it’s clear that the industry as a whole is not meeting the expectations of clients, who use social media, search engines, mobile apps, and other online tools almost constantly. Many of the barriers for advice firms wanting to undergo digital transformation come back to the organisation itself, including lack of focus, cultural resistance and funding limitations. For many, prioritising digital transformation is a big challenge.

“When it comes to digital adoption, it’s not just about leaders supporting change, but actively creating a culture that drives this forward.”

From the findings of Netwealth’s 2024 AdviceTech Research, we have identified how leading advice firms which we call ‘AdviceTech Stars’, overcome these challenges and barriers. To help understand this, we developed the ‘Netwealth Digital Maturity Framework’, made up of 40 drivers of digital maturity, combined into four main pillars:

1. Leadership – having leaders who are invested, see the benefits of technology and digital transformation, and are willing to take reasonable risks.

2. Culture – having a culture that is flexible with empowered staff that experiment and use technology for the benefit of the business.

3. Digital Strategy – having a medium to long-term plan for digital transformation and allocating appropriate capital to it.

4. Process of Change – having an organisation that has processes and doesn’t assume technology deployment is easy but knows it takes work and resources to get right.

In this article, we look at how leadership and culture help build an organisation that is ready for digital transformation.

The leadership of the business I work in…

Starting with leadership

In 1957, the Soviet Union started the space race by launching the satellite Sputnik. Five years later, in 1962, President John F. Kennedy made an innovative declaration which inspired the nation, to “go to the moon in this decade”.

This highly ambitious vision was a powerful catalyst for innovation, and just seven years later, astronaut Neil Armstrong set foot on the Moon.

Just as JFK did for his country, leaders must be dedicated to innovation and establish ambitious, measurable goals for their organisation. They must define a guiding star for innovation and ensure their team is comfortable pursuing it.

A

This is a distinct trait of AdviceTech Star leaders, with approximately eight out of 10 (82 per cent) of them dedicated to continuous improvement and staying ahead of the curve. More importantly, eight out of 10 Stars (78 per cent) report that their leaders inspire the organisation to pursue innovation and also (81 per cent) effectively communicate its significance to the rest of the team.

Importantly, AdviceTech Star leaders also agree that there cannot be any conflict at the board table. In fact, 73 per cent of Stars say their leaders are aligned when it comes to IT and digital initiatives.

Fig

A culture of experimentation and risk

When it comes to digital adoption, it’s not just about leaders supporting change, but actively creating a culture that drives this forward.

A great example of how a company does this well is Adobe. The company’s Kickbox program, which it launched in early 2013, gave employees a bright red box with a $1,000 credit card to use to create what they want. After going through various stages including pitching ideas to leaders, successful ideas got rewarded with a mysterious blue box with more resources to help bring their innovation to life. Nowadays, Kickbox is one of the world’s most popular open-source innovation frameworks.

Netwealth’s 2024 AdviceTech research identified several characteristics of a culture of experimentation among AdviceTech Stars.

The first is genuine encouragement of experimentation, with almost three-quarters (72 per cent) of Stars believing this is a characteristic of their business.

Sharing ideas with teammates and throughout an organisation helps to encourage dialogue and investigation. This is the second attribute of experimentation, that is, sharing new ideas among staff (81 per cent of Stars exhibit this). Atlassian, one of Australia’s largest software companies, uses a concept called ‘respectful dissent’ when sharing ideas, which means people feel comfortable to voice thoughts, ask questions and engage in respectful disagreement, without fear of looking stupid or reprisal.

The third characteristic of experimentation is that staff candidly share feedback on the experiment itself, including both failed and successful experiments. This trait is adopted by 61 per cent of Stars.

And finally, it is critical that any experiment has a hypothesis to test, typically made up of a set of assumptions and tested against an outcome using data. Stars agree, with six in 10 stating that the business they work in typically makes decisions regularly using data.

Fig B

Case study: Aligning staff with a manifesto

Pharmaceutical company Moderna achieved what was previously thought impossible by delivering a Covid-19 vaccine for human clinical trials a mere 42 days after finalising its vaccine sequence.

When the Covid-19 pandemic was declared by the World Health Organisation in March 2020, Moderna had less than a thousand employees. That has since expanded over five times.

But this period of growth raised a big challenge for Moderna, as new talent from larger, more traditional pharmaceutical firms could potentially water down the innovative spirit upon which Moderna was built.

So Moderna collaborated with design firm IDEO to capture this innovative culture into a series of “Mindsets.” For example: “Opportunity is born from risk,” “Adaptation signifies progress,” and “Strive beyond the conceivable…”

These Mindsets have simplified the process of aligning with of the company’s ethos for new and longstanding employees alike.

https://www.ideo.com/works/moderna

In the business I work in…

Underpinning this is a culture accepting of some levels of risk in technology deployment. As Ed Catmull, co-founder of Pixar, a company that continually innovates and uses technology in novel ways, says: “It is not the manager’s job to prevent risks. It is the manager’s job to make it safe to take them”.

AdviceTech Star businesses recognise this, with almost seven in 10 (66 per cent) saying their leaders are open to taking risks on new technology, and six in 10 (58 per cent) encouraging staff to take risks with new ideas.

Diverse and empowered staff

Interestingly, our research indicated a common characteristic of digital maturity is having staff who are diverse in thought, skills, and background, with seven in 10 AdviceTech Stars indicating this as a success factor for their business.

Not surprisingly, eight in 10 (79 per cent) of Stars also have staff that are more open to adopting new technologies and innovation.

Atlassian, says “demographically diverse teams tend to generate more creative solutions and stronger outcomes...So their goal is to have people with a variety of identities, life experiences, and skills on each team”.

Also, digitally mature organisations empower their team with knowledge. This means continuously training staff on new technologies and digital skills and ensuring they feel they have the support and resources to adapt to digital changes.

Formal training for developing these skills is one approach, but cultivating an environment that allows on-the-job learning may be more effective – through practice and experience.

For example, one way to learn on the job is hackathons.

You don’t need to be an IT company to run a hackathon

Tech companies, like Netwealth, run regular hackathons. In a recent hackathon, Netwealth looked at the problem of how to improve processes, products or the advice ecosystem using artificial intelligence (AI). Over two days they built several prototypes, including an AI compliance-related system, a tool to help developers code better, a generative AI portfolio report, and an AI knowledge base for staff.

One of the defining successes of the day was that a substantial number of people got involved, and many were not from the IT team. Hackathons are not just for tech companies but can be used in advice practices too. To run a hackathon, try this simple formula:

• Get small teams together to create ideas and solve challenges

• Ask the teams to generate a prototype or test a hypothesis – the output doesn’t have to be a working solution

• Gather feedback on the project, ideally from the users themselves

• Ask teams to create an ‘elevator pitch’ on their project and present it to senior leaders.

There’s plenty of groundwork to lay when it comes to building an organisation that’s ready for digital transformation, and focusing on leadership and culture is a good place to start.

Designing your digital strategy

Most successful journeys start with a plan. A journey to digital maturity is no different, it needs a well-defined plan that is based on sound judgement and feedback. Using insights from Netwealth’s 2024 AdviceTech research, we provide some tips to help create a great plan.

Key Takeaways

• Understanding client needs and trends are an important input into your digital strategy.

• There are several tools, such as customer journey mapping, to identify client friction and improve their digital experiences.

• Prioritising technology projects by ease and business value will help ensure technology investments are impactful.

Digital transformation is critical for advice firms at a point in time where clients expect a seamless digital experience, and shareholders expect continued profitability and scale.

Because digital transformation affects so many parts of the business, having a clear strategy is critical. Without sufficient planning and alignment, a practice could end up wasting valuable resources and time.

Recently, Netwealth undertook substantial research into how firms are using AdviceTech in 2024. Out of this, we identified some firms as AdviceTech Stars because of their superior adoption of technology and business success.

In this article, we’ll take a closer look at the attributes needed to build a digital and IT strategy, based on Netwealth’s Digital Maturity Framework, a framework developed out of our proprietary 2024 AdviceTech research of 350 advice firms in Australia.

The Apple effect

One of the secrets to success for Apple is its customer-first attitude. Steve Jobs once said, “You’ve got to start with the customer experience and work back toward the technology, not the other way around.”

For advice firms, understanding client needs and spotting trends can deliver significant competitive advantage. Such trends could be the intergenerational wealth transfer, or that Gen Ys are the largest working segment, or that people are living longer.

Advice Tech Stars recognise this, and three-quarters (76 per cent) of their leaders spend time trying to understand the changing needs of their clients, whilst a further four in 10 collect feedback from clients regularly and use it to inform their digital strategy.

Keeping up with macro customer trends is important, but equally important is taking time to understand the nuances in how clients interact with the firm. This means gaining a thorough understanding of client motivations, attitudes, and points of frustration and using them to influence digital strategy.

Take, for example, Netwealth’s recent Advisable Australian research, which surveyed over 250 Australians aged 18 and above. It found that at least four in 10 of those considering advice expect a selection of digital experiences from their firm. These range from access to wealth management and self-service options, such as the ability to

run reports, access to portfolio information, and ability to track goals via online portals or mobile apps.

And they want this on a digital platform that is intuitive to use. In addition, they expect streamlined processes when it comes to document signing and complicated financial procedures – something digitalisation can absolutely help with.

Customer journey mapping

One way to understand the client, their frustrations and joys, is to use a process called ‘customer journey mapping’, such as the one developed by Netwealth which can be downloaded on our website here.

For example, one firm who used this tool identified their inability to marry the original advice or Statement of Advice (SOA) with the ongoing communications and annual review process. They saw a disconnect between what was said right at the beginning of the advice journey and what was being communicated during the year and then at the annual review.

Using a customer journey map will help identify all the client touchpoints along their journey, and uncover areas where technology can aid and improve the experience.

Netwealth IQ Customer Journey Workshop

Align digital strategy with business strategy

Stars understand the need for a digital strategy, and three-quarters (73 per cent) already have a technology roadmap or strategy.

They also recognise the need for a longerterm approach, with four in 10 Stars (43 per cent) having a strategy for at least the next two years or beyond, and almost half (49 per cent) saying they plan to invest more in technology in the coming year compared to the last. This translates to a spend of 10.7 per cent on technology by Stars as a percentage of their business revenue per annum.

When it comes to the strategy itself, most Advice Tech Stars align their digital and technology strategy with their business strategy. This seems obvious, but for some, it’s often easy to get sucked into the latest shiny new thing without properly thinking through whether it has a true business purpose.

Fig A

Advice Tech Stars have several businessrelated areas which are the focus for their technology initiatives. For a start, eight in 10 are looking to improve operational efficiency, and the same number are looking to improve their data capabilities or better integrate their systems.

Then, there are seven in 10 who are looking to improve client satisfaction, engagement, or enhance the quality of their advice. Also, just over half say they want to grow their client base through the use of technology.

Meanwhile, 65 per cent want to strengthen their IT security and protect client information and just over half want to improve their ability to manage compliance and governance.

And finally, six in 10 want to take advantage of emerging technologies like AI.

What is/are the focus(es) of your technology strategy?

(Top 8)

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.”

AdviceTech Stars

How to think about technology prioritisation

How does a firm prioritise business and technology imperatives when there are many? There are numerous prioritisation models, but firms might want to consider using a simple model like a prioritisation matrix.

Fig B

On one axis, list the ease of implementation – which can be calculated by considering the capital, resources and time needed. On the other axis, list the size of the business benefit, such as business efficiency, improved customer experience and new revenue streams. Then, plot the technology the firm wants to deploy against this.

Advice firms should then choose several IT projects that fit into Priority A (can be done easily) and B (will take longer but are worthwhile). A portfolio of IT projects allows them to gain quick wins while building out longer-term strategic business benefits.

Prioritisation Matrix Poster

Priority A

Impact is high and it can be done easily – focus on this immediately.

Priority B

It might take time but the benefits are large. This is a strategic focus for the business.

Maybe

You should probably do it, but don’t prioritise.

This issue significantly influences the ease of operation, profit generation, or the customer experience

Park it

The benefits don’t meet the effort required, so park this.

Requires significant time and investment to overcome or is wedded to the current industry infrastructure

Netwealth has another great tool that firms can use to learn about new technologies and prioritise them, called the Technology Adoption Framework. Through our AdviceTech research, we have identified how mature a technology is, ranging from niche to mass adoption. Of particular interest are technologies that fall into the high adoption potential group. These are technologies are on the up and are worth having a look at.

There are 14 technologies that fall into this high adoption potential group, and they can be organised into three buckets: those that are client related (such as a client portal for client engagement), those that provide advice-related benefits (such as technology to manage non-custodial or off-platform assets), and those that offer back-office efficiency benefits (such as integration tools).

Fig D

Netwealth’s Technology Adoption Framework

adoption NICHE ADOPTION <20% usage Low intention HIGH POTENTIAL ADOPTION  20 – 60% usage High intention

MATURE, AND NOT MASS ADOPTION  30 – 75% usage Low intention

Having a strategy is essential to building the digital capabilities clients and shareholders increasingly expect from their advice firms. That way, firms can avoid falling for the latest shiny object and instead ensure they pick technologies which will make the most difference to clients, and that will have the biggest impact on the firm.

ADOPTION  60 – 80% usage Medium intention MASS ADOPTION  75+% usage Low intention

Scaled advice (limited or one-off advice)

Cashflow, budgeting and account aggregation

Non-custodial (or off-platform assets) management

1. Integration and connection of data sets or internal systems 2. Business-related dashboards/reporting

Client-related dashboards/reporting

Standalone regtech solutions

“Having a strategy is essential to building the digital capabilities clients and shareholders increasingly expect... firms can avoid falling for the latest shiny object and instead ensure they pick technologies which will make the most difference to clients.”

The power of prototypes for digital change

When it comes to digital transformation, it’s important to dedicate appropriate planning and resources to implementation. In this article based on our 2024 AdviceTech research, we look at the steps involved in rolling out technology successfully.

“The best big idea is only going to be as good as its implementation”, says Jay Samit, author of the bestselling book Disrupt You!

Key Takeaways

• Digital transformation needs proper planning and resources for success.

• AdviceTech Stars excel in implementing new technologies effectively.

• Learn from IDEO and Dyson’s successful prototypes and pilots.

This is something advice firms should bear in mind when it comes to the rollout of any digital project. Firms need to build the right culture, have leadership and staff on board, and develop a solid strategy, which will mean nothing without a plan for implementation.

Netwealth’s 2024 AdviceTech Research identified a group of firms we classify as AdviceTech Stars due to their greater digital maturity. We found there are six attributes that these firms do better than others when it comes to rolling out new technology and executing IT projects.

The first is that some AdviceTech Stars have a formal change process in place for digital and IT initiatives. The second, and perhaps more important, is that they allocate adequate time and resources to implementing technology changes (six in 10 Stars do this).

The best idea is only going to be as good as its implementation.

Jay Samit, Author of Disrupt You!

Create prototypes and run pilots

The third characteristic of digitally mature organisations is that they run pilots of new technologies before rolling them out to the entire business (six in 10 Stars say they do this). Design and innovation firm IDEO is behind some of the world’s most famous inventions, such as the computer mouse. One of their secrets is running pilots and prototypes. The same goes for James Dyson, inventor of the Dyson vacuum cleaner, which reportedly had over 5,000 prototypes.

IDEO provides us some tips for creating a successful prototype or pilot:

1. Only prototype what matters. The point is to spend a little to learn a lot, so figure out what elements are necessary for potential users to test.

2. Use visual instructions to help people understand how the prototype works, and what is expected of the user.

3. Factor in the before and after. When designing a pilot or prototype service, consider the user experience not just at the moment, but before and after. It’s important to remember you’re not the only thing on a user’s mind. For example, a prototype for guests checking into a hotel, will consider everything that has happened before and will happen after, such as being jetlagged or weary from travel, and what activities they plan after.

4. Measure every step of the client journey For example, IDEO mentions a project they worked on to create a lobby for a hotel chain. To test their design, they used a network of cameras and sensors and used these metrics to gauge how well they were meeting needs at every stage of the journey.

5. Involve users and employees. Designing prototype or pilots should be done collaboratively, especially including the staff who will be delivering the service to clients. This helps not only give depth to ideas, but ensures staff buy into your vision.

Example:

Building a prototype for an online fact-find

It is very common for people to provide their data online to companies like Google, Uber or Menulog. Yet, according to Netwealth’s 2024 AdviceTech research, less than half of advice practices use online tools to collect fact-find information, to potentially reduce customer friction and improve efficiency.

Here’s one way to run a prototype and set up an experiment for an online fact-find and data collection tool:

1. Set up an account with an online survey tool such as Typeform or SurveyMonkey.

2. Create two fact-find surveys – one short and the other more detailed.

3. Send them out to 10 clients – half to each.

4. Prior to the initial meeting, review the responses and use this information in the meeting.

5. Ask the person how they felt about providing that information online, what they found easy or hard, and what other information they would have been willing to provide.

An online fact-find prototype like this would only take a day or so to set up – but it has great benefits and will help the firm make an informed decision on whether the long or short form is better before rolling it out to all prospects.

Measure and reward successful implementation

Goal clarity, measurement, and rewards are the final features of how a digitally mature organisation rolls out any IT project. Before a digital project begins, clearly communicate its goals to staff (six in 10 Stars do this). This might be the business drivers for the project, the time and cost expectations, how it is expected to impact clients, and so on.

Once a project is completed, measure the success of the technology changes, as well as recognise and reward staff when tech projects are successfully implemented (over 50 per cent of Stars do both of these steps). For example, when machinery manufacturer John Deere announced a new vision and operation model aimed integrating smart technology into its products, the company leveraged the John Deere fellows program to power implementation. This program recognises individual employees who contribute to its transformation efforts, and since 2020, twenty-five fellow awards have been handed out.

John Deere is a clear example of an organisation that understands the importance of rewarding its staff, and while advice firms do not necessarily have to go to these lengths, it should spark ideas about how to implement some form of recognition.

There’s plenty we can learn from AdviceTech Stars when it comes to implementing IT projects, from creating prototypes to measuring success (or failure), to rewarding implementation.

Sources:

1. https://www.goodreads.com/quotes/3224031-the-best-bigidea-is-only-going-to-be-as

2. https://www.ideo.com/journal/3-tips-to-help-you-prototypea-service

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Preparing for automation

So many processes can be automated to improve efficiency and client service, but the key is finding and documenting the ones that will make a real difference.

Key Takeaways

• Automation improves efficiency and client service by handling repetitive tasks.

• Successful automation requires understanding, selecting, and documenting processes.

• Automation can streamline booking appointments, creating accounts, and sending reminders.

• Identify frequent, time-consuming, and error-prone tasks for automation.

A typical day in financial advice involves numerous processes, whether they are for administrative tasks, client interactions, or regulatory compliance. As automation and artificial intelligence (AI) technology advances, process automation means leveraging these tools to take on some of the key steps in these activities. Automation technologies can perform many repetitive manual tasks, taking the burden off employees and freeing them to focus on client service, innovation, and to enjoy more meaningful work.

However, adopting automation is not just a matter of installing software and hoping it will deliver the outcomes you desire. To get the best results from process automation, it requires some preparation.

First, it helps to understand what could potentially be automated, then you need to decide which processes you’ll get the most benefit out of transforming. Finally, you need to make sure every step in those processes is documented so that you’re ready to implement automation tools. Here are some tips to get started.

See the potential

There are many ways process automation can streamline the workflow of an advice firm. For example, the multiple steps needed to book an appointment with a new client could be done without any manual intervention by using the following steps:

• A social media interaction encourages a prospect to contact the firm.

• The prospect books a slot through an online system.

• An automation tool creates an account for them in the CRM and sends a welcome email with a ‘service overview’ video.

• It also sends a first-meeting checklist to the adviser.

• Finally, it reminds the prospect of the meeting details a week prior via SMS.

Another example is making file notes after a client meeting. With automation, an adviser can have:

• An online meeting instantly transcribed, and edited into a preferred format with pre-determined headings using generative AI tools such as Microsoft CoPilot or FileNote.ai.*

“Adopting automation is not just a matter of installing software and hoping it will deliver the outcomes you desire. A key step in preparation is to focus on your processes…”

• This file note can be added to the client record, and a summary of the meeting emailed to the client.

• After a client meeting, you can capture a client satisfaction score or Net Promoter Score (NPS). You can set up a survey asking the client to complete a handful of questions, then, automatically send this survey link to each client after a meeting via SMS or email.

These examples are just the start of the potential of automation. Other areas where it could make a difference include data collection, document generation, compliance checks, portfolio rebalancing, and scenario modelling. Client communications, such as to share appointment reminders, follow-up emails, invoices, and portfolio reporting are also key uses. There is also the potential to use automation for marketing activities such as publishing social media posts.

Selecting processes for automation

With the potential for automating processes clear, you can identify which manual processes in your firm could be replaced by, or enhanced with, automation. As a rule, look for processes that could reduce workloads and improve client experiences by upholding service quality.

Workflows

To find the right processes, break down workflows that lead to key business outcomes. For example, break down the workflow of onboarding a new client. Consider:

• What is the sequence of tasks that you undertake to onboard a client?

• Does one task trigger another task seamlessly? For example, does document submission trigger compliance checks?

• Where are heavy manual interventions required, such as data entry, client communications, and document reviews?

• Where are delays or reduced operational efficiencies?

Frequency

Another way to find processes to automate is to consider which tasks are done most frequently, which are the most time consuming, and where there are repeated errors. Candidates could be data entry, report generation, and client communications. You can also consider if there are complicated tasks that could be broken down into smaller parts, with some of those smaller parts automated.

Performance metrics

Diving into business performance metrics can also reveal potential processes for automation. Ask:

• Where are metrics underperforming, and are there processes behind those metrics that could benefit from automation? For example, the NPS, Client Satisfaction Score (CSAT), or any poor compliance metrics.

• Are there delays in onboarding that could be improved, or in paraplanning due to financial advisers writing manual instructions? Could these processes have potential for automation support?

Cost benefits

Of course, another key place to look for automation potential is where there are cost reduction benefits. For example, are there processes that could be automated, saving an adviser just 15 minutes, multiplied across all advisers, leading to many thousands of dollars in value each year?

Documenting processes for automation

Once you have identified key processes for automation, it’s important to document those processes in preparation for implementing automation tools. Documenting processes means outlining every step that goes into making that process happen, who does each step, and how.

To make documentation easier, you’ll need the help of the aligned team members so that no action is missed. You can use a variety of approaches to understand all the steps, such as one-on-one sessions with the people that undertake the process; analysing and enhancing existing documentation; or direct observation.

Using a process documentation platform can make a big difference, helping you to map out every step, enhanced with diagrams, notes about the process, flow charts, colour codes, and even “how to” videos. Some documentation tools to consider include Lucidchart, Sweet Process, and MS Visio.* Highlight decision points in each process, demonstrating who makes what decisions and when, and where risk or compliance management steps are important.

Tapping into tools

When processes have been selected and documented, you are ready to implement the technology tools that can activate automation. With the right processes automated, you should gain efficiency, time, and cost savings, and enable advisers to undertake more meaningful work. This effort should also help you gain significant benefits for your overall business, and most importantly, your clients.

To learn more about this topic, check out our white paper, Preparing Your Advice Firm For Automation.

*Please note these mentions are not an endorsement by Netwealth.

“Machines don’t make errors in the same way humans do, so automating workflows could help with accuracy and reliability, and increase output consistency.”

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Being aware of your thoughts and feelings and accepting them without judgement can have significant positive effects on your life.

Mindfulness

The sheer pace of modern life and constant barrage of demands and distractions (particularly digital) can make people disconnect from their thoughts and feelings. This common experience is characterised as a lack of “mindfulness”. Over time, this state of being can have a detrimental effect on stress levels, health, and wellbeing. It can also have repercussions for relationships and careers. In positive news, there have been significant gains when it comes to understanding how to be more mindful and its benefits. Here is some insight into what mindfulness is, why it matters, and some simple strategies to help you put it into practice.

THE THEORY What is mindfulness?

Mindfulness, according to the American Psychological Association (APA), means having “awareness of one’s internal states and surroundings.” It’s about observing your thoughts, emotions and other “presentmoment experiences” while not judging or reacting to them. Psychology Today sums this up as cultivating “awareness and acceptance”.

How is mindfulness different to meditation?

Meditation is often linked to mindfulness, and meditation is certainly a tool you can use to be more mindful. However, there are some differences.

Meditation is described by APA as “profound and extended contemplation or reflection”. The goal is to achieve “focused attention” to “gain insight into oneself and the world.” Meditation is often done in a quiet place for a set time, drawing your attention to your breath, or repeating a mantra (a phrase or chant).

In comparison, mindfulness is a state of being that you can adopt at all times of the day, rather than being a separate exercise. Mindfulness can be concurrent with working, socialising, parenting, eating, exercising, and more. Being mindful in different situations helps you to focus on the present moment and have clearer thoughts.

What is the impact of mindfulness?

Psychology Today writes that people’s awareness of the present moment can be limited by thinking of the past and the future, and being in a subjective, emotional state. With awareness and acceptance of ourselves and situation, it’s possible to gain greater mental peace. APA adds that mindfulness helps “people avoid destructive or automatic habits and responses”. Adopted regularly, mindfulness can help control stress, anxiety, and pain, and can enable relaxation.

A key thing meditation and mindfulness share is that they are both understood to help the amygdala function more optimally. The amygdala is the small, almond-shaped part of the brain that controls the “fight or flight” response. Social Cognitive and Affective Neuroscience reports that there is some evidence that stress physically alters the amygdala, and that meditation and mindfulness help to reverse this.

THE HISTORY

Over 2600 years ago: Mindfulness has its roots in ancient Buddhist concepts (APA).

1970s: University of Massachusetts medical school professor Jon Kabat-Zinn studied mindfulness under Buddhist teachers. He developed Mindfulness-Based Stress Reduction (MBSR) to treat chronic pain.

1970s-2010s: Mindfulness was embraced in science, psychology, and medicine. It’s now used in therapeutic interventions such as Cognitive Behaviour Therapy (CBT), Dialectical Behaviour Therapy (DBT), and Acceptance and Commitment Therapy (Psychology Today).

2010s: Mindfulness hit the workplace. Levey and Levey write that “mindfulness generates a billion dollar [USD] per year industry around the globe” and that “by the beginning of 2018, 44% of all US companies had offered mindfulness training to employees.”

Today: Levey and Levey write that as humans operate in a state of continual “volatility, uncertainty, complexity, and ambiguity” (VUCA), people should prioritise mindfulness to grow resilience, the capacity for selfdevelopment, and for deeper wisdom.

“This small change in attitude can literally add years to your life and improve your productivity and achievements in the workplace.”

MINDFULNESS IN ACTION

Mindfulness involves cultivating in-the-moment awareness of thoughts and feelings, and practising non-judgment and acceptance. For example:

• Awareness of your thoughts: Everyone has positive and negative feelings, but Psychology Today says the key is to recognise them and be curious about them, rather than push them away. This “can help you understand yourself better and move forward.”

• Awareness of your body: If you can notice the sensations in your body, such as being warm, cold, or tense, Elizabeth Scott writes that you can better manage those sensations and be more present.

• Accepting your attitude: A key pillar of mindfulness is practising non-judgement of thoughts, feelings, and attitudes, as this can reduce stress. Kabat-Zinn says to recognise the automatic judgements you make, such as whether an experience will be “good or bad”. Aligned to non-judgement is acceptance, which is about “seeing things as they actually are in the present”. Kabat-Zinn says, for example, if you’re unhealthy, accept it as a fair description of your position at this moment in time, rather than waste time in denial. With acceptance, you can focus on improving the situation.

CULTIVATING MINDFULNESS

There are various ways to cultivate mindfulness. Some are more formal such as meditation and yoga, while others can be integrated into daily life.

To

get started, you could try:

• Breath work: Try guided breathing, focusing on breathing in and out, to direct your attention.

• Walking: As you walk, Beyond Blue says to “think about your senses while you’re walking. What can you see, hear, touch, smell or taste?”

• Eating: Be aware of what you’re eating and how.

• Listening: Apply all your attention to what people are saying to you.

• Body scan: Check in with how your body is feeling from head to toe (Tips above from Beyond Blue).

When you’re at work:

• Check your email less frequently (and messages and social media!): Disable notifications and set specific times of the day to look and respond.

• Take breaks: Headspace reports on a productivity study that found the most productive people spend 52 minutes working followed by a 17-minute mindfulness break. Try this to take advantage of the brain’s high and low activity rhythms.

• Use your commute: As you travel home from work, turn off your phone and music and notice what’s going on around you. (Tips above from Headspace)

• Slow down to speed up: Recognise that taking mini breaks can make you more productive and resilient in the long run (Mindful).

• Make friends with stress: If you perceive stress as “bad”, this perception can have negative health impacts, according to Mindful. Instead, be grateful for your body’s stress response and how it energises you to be productive. “This small change in attitude can literally add years to your life and improve your productivity and achievements in the workplace,” Mindful reports.

MINDFUL SITUATIONS

As you cultivate mindfulness, you can apply it to different parts of your life. For example:

• Breaking habits: Whether it be snacking, skipping exercise, or scrolling your phone, Headspace reports that mindfulness can help build awareness of what triggers the habit, and how you feel doing the habit. This awareness gives you the chance to break patterns.

• Improving relationships: Melanie Greenberg writes that mindfulness can improve relationships thanks to its impact on emotional regulation, impulse control, and empathy. Mindful parenting is a growing area of interest.

• Enhancing your career: In Forbes, Yolanda Lau writes that mindfulness at work “allows businesses to decrease stress, reduce turnover, improve productivity, recruit top talent and increase innovation.” In Positive Psychology, Heather Craig writes being mindful at work can help with job satisfaction and engagement, as well as resilience, task management, coping with change, and other benefits.

In summary

Mindfulness helps you to be more aware of your thoughts and feelings and be less judgemental about them and your situation. It offers a chance to be “in the moment” instead of ruminating on the past or worrying about the future. Practising mindfulness and bringing it into everyday situations is understood to reduce stress, anxiety, and promote better health and wellbeing. What can you do to be more mindful, today?

Helpful tools for mindfulness

As you aim to become more mindful, there are some apps that can help, such as:

Smiling Mind: This offers programs to help with stress, concentration, mindful relationships, mindful eating, improving performance, and more.

Calm: This app lets you track your moods and how much time you’ve spent on mindfulness.

Headspace: This has plenty of guided meditation and mindfulness exercises to help you feel less stress, focus more, and sleep better.

Mindfulness: For Apple Watch users, this built-in app offers Breathe and Reflect functions. These guide you through mini moments of mindfulness and record how long you do it, helping you stay on track.

Business lessons from a pro

Advice practices have the same challenges as any other –leadership, hiring the right staff and understanding the impact of AI. Here, we bring you some actionable ideas from a senior business leader.

Stephen Scheeler Founder, Omniscient Neurotechnology

Stephen Scheeler is the former CEO of Facebook for Asia-Pacific and has now cofounded Omniscient Neurotechnology, which uses AI to decode the human brain.

In the following edited Q&A, we share some of the highlights of his recent conversation with Matt Heine on a recent episode of Netwealth’s Between Meetings Podcast, where they discussed useful ideas for running your advice business better.

What is the role of a good leader in business?

Stephen says when he got to Facebook, he told his people his job was to make them successful.

“If I’m not making you successful, then I’m not doing my job and you have the right to call me out on that. At the same time, you have a responsibility to make yourself successful. It’s a joint responsibility,” he says.

He put two pieces of paper on the wall: one said ‘good boss’ and one said ‘bad boss’. His staff wrote in both columns, and he put them next to his desk.

“I said, ‘Thanks very much. You’ve given me my job description.’”

So what was the good boss list?

“Probably the most important was ‘cares about me as a person’. Puts people first and looks after their team, doesn’t just look after themselves.

“Second was ‘doesn’t play politics’. The third one was about how decisions get made…they wanted to be consulted, be part of the decision.”

What do you look for in a hire?

“There were two characteristics that we looked for at Facebook that I have looked for ever since in any employee we hire.

“The first is the ability to learn and learn quickly. Whether somebody’s good at this or good at that is secondary to whether they’re good at learning fast.

“The reason is things change so fast now. The nature of people’s roles, the tools they use, the technology… you’re going to ask people to do different kinds of roles and move around the company in unpredictable ways.

Key Takeaways

• A good leader’s role is to make their team successful by caring about team members, avoiding office politics, and involving the team in decision-making.

• When hiring, prioritise candidates who can learn quickly and make those around them better.

• Effective leaders need to take risks and sometimes “swing for the fences”.

“ Solving mental illness would have a massive economic impact… if you could cut the rate of mental illness in the world in half, it would probably give you the biggest increase in GDP in a hundred years.”

“The second characteristic is the ability to make people around them better.

“The question I ask everybody I interview is: ‘Why you over anybody else?’ And the answer I always want to hear is ‘I make other people better’. Obviously, I want them to prove that somehow.

“But if they can make others around them better and they learn fast, I don’t really care what their CV says. I’ll give them a shot.”

Tell us about the role of courage in being a leader

Stephen relates a story from his Facebook days, and how, when attending a charity auction, in response to what Google had auctioned, he offered a meeting with Mark Zuckerberg as a prize – without asking the man himself first. Afterwards, he emailed Mark directly to explain what had happened.

“The response I got was ‘I love that you lived our values of move fast and break things and I’d be happy to help. Signed Mark’.

“I never did that exact thing again. But the idea that sometimes you need to swing for the fences is ingrained in me.

“You have to get out there and take risks.”

What impact will AI have on businesses, including advice practices?

“On a macro level, what AI is going to do to the economy, to competition in different sectors, is a massive question.

“And I think everyone who’s investing or putting dollars into different markets needs to understand how AI is going to change the competitive landscape in that part of the world where we’re putting dollars.

“One example is mental health. If you read recent reports, like the Productivity Commission report that the Australian government did recently, they show the tragedy of mental illness. It’s obviously a human tragedy – one in five people in every country on earth will have a diagnosable mental illness every single year… but beyond that, there’s the economic impact.

“Different reports estimate that between 3 and 10 per cent of GDP is lost because of mental illness. And that’s not treatment costs, it’s lost productivity. It’s people who can’t work or aren’t effective at working because they’re depressed or they’re mentally ill.

“Solving mental illness would have a massive economic impact… if you could cut the rate of mental illness in the world in half, it would probably give you the biggest increase in GDP in a hundred years.”

To learn more about this topic, subscribe to Netwealth’s Between Meetings Podcast.

Stephen Scheeler

Family offices: 6 ways technology can enhance your value proposition

Financial advice firms offer a lot of value to family offices. It’s worth thinking about how technology can also be one of them.

Key Takeaways

• Advanced investment reporting technology helps family offices understand performance, track risks, and manage cash flow.

• Modern technology platforms improve efficiency, reduce reliance on spreadsheets, and enhance cyber security.

• Outsourcing technology and administration to advice firms lowers costs and provides regular software updates.

There’s a growing area for advisers to focus on to expand their client base: family offices.

Put simply, a family office is a corporate structure set up to manage the assets of a single family or multiple families. They come in all shapes and sizes, but all are aligned to a single purpose – to service the family.

There are a lot of services financial advisers can offer, like investment management, help with tax minimisation, estate planning services, philanthropic advice, family governance and education.

When it comes to investment management, advisers often will position their investment expertise, but should also think of an additional value proposition they can offer through their more advanced investment reporting technology.

That is, a key element of investment management is understanding how investments are performing, identifying and tracking risks in the portfolio, how investment opportunities fit within the portfolio, and how to manage cashflow. This makes for more timely portfolio rebalancing, and higher levels of conviction in the investment process. Investment reporting is also a critical tool in how family offices communicate with their members.

Family offices also have the complexity that investments might be held overseas, in complex instruments or real property, and held by different entities, which throws up challenges such as asset pricing accuracy or requires different types and frequencies of reporting.

Many of the things you do almost daily, you probably take for granted, however the benefits that your technology and their superior reporting and trading capabilities will help family offices in ways that cannot be underestimated. These may include:

1. Access to market information

Markets are always moving, and the investment portfolios of family offices are becoming more complex.

According to UBS’ Global Family Office Report 2022, 43 per cent of investments are in alternative asset classes, which are often even harder to manage.

Therefore, access to timely information and data can be a big factor in reducing a family office’s risk.

Investment technology platforms, like Netwealth, offer advanced data analytics capabilities, which advisers can use to generate crucial insights and identify investment opportunities or risk for family offices.

2. Less reliance on spreadsheets = improved efficiency and lower cyber risk

Poor technology can have a big impact on a family office, causing time-consuming workarounds and endless frustrations.

Spreadsheets are a great tool, but not necessarily for investment reporting. Unfortunately, this is what many family offices still rely upon. In the 2023 PWN Family Office Technology Report, 45 per cent of members reported that they use Microsoft Excel to generate reporting across their assets and entities.

As portfolios become more complex, reporting needs more demanding, data sources become more abundant and cyber security risks apparent, family offices need to become more aware of the limitations of a spreadsheet.

Financial advice firms are typically using cutting-edge technology, such as investment platforms and managed accounts, which can greatly benefit a family office and help reduce manual workarounds.

Modern technology platforms used by advice firms also tend to have better security features than the average system used by a family office. This can help protect sensitive data from cyber threats.

3. Lower costs and regular updates

For a family office, running its own technology and maintaining systems and processes can be time-consuming and costly.

By outsourcing their administration and technology to advice firms, family offices might be able to decrease their overall operating costs.

Not only this, but advice firms often receive regular software updates and enhancements, which they can then pass on to their family office clients. Examples include new reports, mobile functionality or AI tools.

4. Ability to deal with regulatory burdens

Tax reporting and ever-changing regulations are a big burden on family offices and their investment operations.

Advice firms with good audit functions can help them ease this burden and keep up with requirements.

5. Education and communication

Education and clear communication are vital parts of the value advisers offer to family offices.

Advisers must be skilled at communicating complex financial concepts in a way that is accessible and understandable to family members of all ages and levels of financial knowledge. They must also be able to tailor their communication and education efforts to the specific needs and preferences of each family member.

Technology such as client portals can help here. A client portal provides a centralised online place for family members and stakeholders to review investments, see performance, or understand cash positions.

6. Private market capabilities

Investing in private markets presents reporting challenges for family offices, such as the ability to track risk, assist with portfolio management, and interact with the finance department for capital call management and forecasting.

Also, they can have unique portfolio benchmarking and performance metrics such as MOIC and TVPI which their internal systems need to work with.

Here, a financial adviser can offer their advanced technology to help family offices with these investments, ensuring they do not miss this opportunity.

Advisers may have some idea of the value they can offer to family offices, but this should spark some additional inspiration around how technology can also be one of them.

Advice firms by their very nature are well adapted and have vast experience in investment management, and as such, are perfectly placed to help family offices overcome these challenges, and become better asset managers.

Gig work has shifted from the B2C world to the B2B world, presenting new opportunities for businesses.

The gig economy

In recent years, it’s highly possible that you’ve booked a driver with Uber, ordered dinner from DoorDash, or enlisted someone to move your couch via Airtasker. These businesses are all part of the gig economy –providing workers with a non-traditional way to earn a living.

Increasingly, the gig economy has filtered from these business-to-consumer (B2C) services through to delivering business-tobusiness (B2B) skills. Now, people from a vast array of professional fields have jumped on the gig economy bandwagon. This world of workers could help you run your business more efficiently and effectively. It might even be something you want to take part in yourself.

THE THEORY

What’s the gig economy?

According to Investopedia, the term “gig economy” comes from the music world, where performers go from venue to venue performing “gigs”. It refers to a way of working that’s flexible, casual, part time, or temporary, with the work done for various customers or businesses. The work is typically enabled via a digital platform, with the platform the facilitator between the customer in need, and a suitable, available worker.

In the B2C world, the gig economy is largely focused on meeting consumer needs, such as driving, food delivery, or household maintenance. The workers complete the task, then move onto the next.

In B2B, the gig economy is more oriented towards professional skills and is often called freelance or independent work. The skills could be general or highly specialised (see later section on talent clouds). Administration, copywriting, graphic design, web development, coding, accounting, consulting, and even legal work are just some examples. Again, a technology platform will often facilitate the connection between the talent and the customer, and the work will be task or project oriented.

Benefits of the gig economy

• For gig economy workers, one of the biggest attractions is independence, according to Nigel Wilson in Forbes. Many gig economy workers like to be free from corporate environments, to set their own work hours, their own rates, their terms of employment, and decide what work suits them. McKinsey points out that the gig economy has the potential to ease unemployment issues, and to increase transparency around the demand for skills, helping people see where they could focus future learning.

• For businesses, engaging with the gig economy offers plenty of potential benefits. AIG writes that it enables businesses to build a flexible and dynamic workforce, with access to the talent they need and when. AIG adds, “This augmented talent pool provides companies with hyper-specialised, exceptional talent that was previously inaccessible.” Deloitte says gig workers often update their skills frequently as their success depends on it. They can also be sourced and on a job within days rather than weeks.

THE HISTORY

2009: Then editor of Daily Beast Tina Brown coined the term “gig economy” to refer to how knowledge workers were increasingly turning towards freelance work, transacting in a digital marketplace. Freelancer.com launched in Australia, with the gig website shaking up traditional ways of working.

2015: McKinsey reported that professional skills started to become more prominent in the gig economy, with online talent platforms helping to ease labour-market dysfunctions. The firm predicted that by 2025, online talent platforms could add USD $2.7 trillion to global GDP.

2019: The COVID-19 pandemic saw working from home become mainstream. This both boosted the need for gig-economy services, and saw more people enter the gig economy with their professional skills (Investopedia).

2024: The Australian Government has updated its Fair Work Act workplace laws with new rules to benefit “employee-like workers” working through digital labour platforms. A Digital Labour Platform Consultative Committee will be established.

“This augmented talent pool provides companies with hyperspecialised, exceptional talent that was previously inaccessible.”

Booming economy

The gig economy has taken off thanks to the perfect storm of technology, the desire of many people to have more flexibility in when and how they work, and the desire of consumers and businesses to have fast, efficient, and cost-effective access to the services/skills they need. Investopedia says the gig economy has flourished in bigger cities (particularly for B2C services), where more people are able to deliver and engage with the services. Australian Industry Group (AIG) adds that globalisation has accelerated the gig economy’s growth, with people able to work online for customers anywhere in the world.

IN PRACTICE

How to engage with the gig economy

To access workers in the gig economy, here are some of the more popular examples of digital platforms that could help. (Please note, this is not an endorsement by Netwealth):

• Airtasker: This site enables you to post almost any task, and gig workers can bid for the job. You can access people to help with everything from courier services to building maintenance, copywriting to furniture assembling, IT maintenance to picture framing, and much more.

• Expert 360: This site focuses on highly specialised professional skills such as consulting, marketing, data analysis, project management and more. It can help you find one expert for a single task, or a team of experts for an ongoing project.

• Fiverr: Fiverr has a particular specialisation in web development, graphic design, digital marketing, animation, videography, and other tech-savvy skills.

• Freelancer: Freelancer helps connect customers to very specific needs in areas such as software development, writing, data entry, engineering, science, sales and marketing, accounting, and legal services.

• Mechanical Turk: This Amazon service offers access to a global workforce focused on business processes to help increase efficiency, flexibility, and reduce costs. Fields of work include data validation, research, survey participation or analysis, content moderation, and more.

THE STATS Gig economy in numbers

of all jobs in Australia are, nonstandard forms of work such as casual, labour hire, or part-time work in 2017.

people in the United States and Europe were doing some form of independent work in 2016. These comprised people doing gig work by choice, or reluctantly (preferring full-time employment), or to top up their incomes. (McKinsey 2016 survey).

55.6% 162m 42%

of gig economy workers have updated their skills within the last 6 months, compared to only 22% of traditional workers.

of Australians were working, or had sought to participate in, the gig economy in 2019. (Both stats from The University of Western Australia).

digital talent platforms are offering companies the services of millions of highly skilled freelance professionals from around the world.” (Harvard Business Review).

7.1% 800 77%

of gig economy workers looking for projects online are available to start work within a week.

Preparing to engage

If your business could benefit from the gig economy, AIG recommends implementing systems to manage gig economy workers, such as formalising how you will verify and manage the workers. Deloitte adds that you need to get your IT up to scratch to quickly accommodate new workers, and to be clear on what your internal staff are doing and what the gig workers are doing. It’s also important to update risk and compliance controls, for example, to prevent fraud exposure or sharing of sensitive information.

Consider building a “talent cloud”

Engaging with the gig economy is a good chance for your business to think about its approach to talent in general. John Winsor and Jin H. Paik write that making it a policy to hire gig workers as a matter of course, rather than just “in a pinch”, can be a beneficial strategy. It may help to build an “external talent cloud” in which you integrate several talent platforms into one. This “cloud” could feature a vetted curation of specialised freelancers that suit your needs. Winsor and Paik suggest some questions to ask before setting up a talent cloud include:

• What problems will the external talent solve?

• What skills will help our business, and which IT platforms give access to these people?

• Are we set up to enable access, compliance, and security?

• What type of legal agreements do we need in place?

• Can we run a pilot of hiring external talent to test and learn?

Gig economy downsides

While the gig economy has plenty of positive factors, there are some downsides. These include:

• The model has been criticised for giving workers fewer rights, less security, and benefits (such as sick leave or paid holidays) compared to full-time employees.

• Workers may have sporadic cash flow, and may fall behind when it comes to superannuation growth.

• Workers can experience some anxieties without the “cover and support of a traditional employer” (Harvard Business Review).

• Workers need to be more self-sufficient and able to educate themselves to be ready for the next assignment (Fast Company).

THE FUTURE

Globalisation and technology will continue to see companies face and respond to market changes, and need to secure labour quickly. In the future, it’s likely that the gig economy will only become more prominent. In the US, for example, Upwork reports survey results that show a notable increase in highly skilled freelancers. It found in 2021, 51% of workers with post graduate degrees were working in a freelance capacity. Upwork also found that 56% of non-freelancers say they’re likely to freelance in the future.

In summary

The gig economy has changed how B2C services operate, and is now changing how businesses engage skilled talent. It has concurrently altered how millions of people work, seeing them operate outside of traditional full-time structures. For businesses, the gig economy could mean reaching specialist skills from all over the world, efficiently and effectively. Are there some ways your business could benefit from this thriving pool of workers?

“For businesses, the gig economy could mean reaching specialist skills from all over the world, efficiently and effectively.”

Portfolio Construction Podcast

Portfolio Construction Podcast

Discover the investment trends shaping the industry

Discover the investment trends shaping the industry

In this podcast series, our investment research team pick the brains of key wealth management professionals to uncover unique insights on the investment areas they are most passionate about.

In this podcast series, our investment research team pick the brains of key wealth management professionals to uncover unique insights on the investment areas they are most passionate about.

Don’t miss an episode, listen on:

Don’t miss an episode, listen on:

Apple Podcasts

Apple Podcasts

Google Podcasts

YouTube Podcasts

Spotify

Spotify

netwealth.com.au

netwealth.com.au

Private credit: pockets of opportunity

As traditional banks retreat from commercial lending, private credit is booming. Here, we look at private credit as a high-income, capital-stable asset class and how it fits in a diverse portfolio.

Pete Robinson, Head of Strategy, Challenger Investment Management

As private credit booms, Pete Robinson, head of strategy at Challenger Investment Management, discussed the opportunity for investors on Netwealth’s Portfolio Construction Podcast.

Private credit is lending to companies by institutions other than banks and covers commercial property lending as well as corporate and asset backed lending. The lenders work directly with borrowers to negotiate and originate privately held loans that are not traded in public markets.

The reason it’s grown so significantly is largely to do with banks stepping back in certain areas post-GFC and Royal Commission, and private lenders coming in to fill the gaps.

“Banks have traditionally struggled with direct corporate lending. It’s capital intensive for them, and it’s typically sub-investment grade, so there is an element of credit risk to it,” Pete explains.

Furthermore, banks get “punitive capital treatment for mezzanine asset backed lending” which makes it difficult for them. It’s less efficient for them to hold auto and equipment loans on their balance sheet, relative to mortgages, Pete explains. It’s a similar story for commercial real estate.

“While banks still lend in the aggregate, there are pockets where the banks are stepping out which results in significant and meaningful opportunities for alternative lenders to step in,” Pete says.

Key Takeaways

• Private credit is booming as traditional banks retract from commercial lending.

• It offers high-income and capital-stable opportunities for investors.

• Private credit provides significant diversification benefits compared to public bond markets.

“ While banks still lend, there are pockets where the banks are stepping out. There are significant and meaningful opportunities to step in.”

Benefits of private credit for investors

Investing in private credit involves loans that are not publicly traded. For an investor, this can offer benefits in comparison to publicly traded credit such as bond markets.

According to Pete, the first benefit is an ‘illiquidity premium.’ While this illiquidity needs to be understood and considered by the investor, it can translate into higher returns for a given level of risk.

Then, Pete suggests there is the benefit that “private credit provides investors with significant diversification benefits.”

Pete explains that the public bond markets are dominated by financial issuers like banks. Australia doesn’t have an active and diverse sub-investment-grade bond market, so the opportunities to diversify in public credit are limited.

By contrast, in private credit markets, investors are typically getting exposure to names that are not in public bond markets, nor in the ASX 200 (equity markets).

“Private credit has minimal overlap in single name exposures with the public bond market, but there’s also not a lot of overlap with the listed equity markets, either,” he says.

There’s also diversification within the sectors that investors can access – sub-sectors like healthcare and tech that don’t feature as heavily in listed public credit markets.

Using private credit in a portfolio

In the podcast, Pete explains that private credit provides regular, high levels of income with capital stability. That’s because the assets are typically floating rate, so the capital value of the investment doesn’t vary with interest rates.

“Because it’s a fixed income asset class, a lot of people think of private credit as coming out of your fixed income allocation. But because of the high levels of income and low levels of interest rate risk we think you can draw from both your equities and your traditional fixed income allocation.”

“It’s effectively blending the two, to generate income and capital stability, with a lower correlation with more traditional markets.”

When using private credit in a portfolio, investors do need to consider it’s less liquid than what can be found in public bond markets. However, Pete says that the lending time frames for these are relatively short –typically one to three years – and so are not illiquid in the way that something like private equity might be.

“Many of the funds in the Australian market – including our funds – offer monthly or quarterly liquidity,” he says.

“There is the ability to access your money, so it’s just about making sure that you don’t need that money daily.”

Pete Robinson, Head of Strategy, Challenger Investment Management

To learn more about this topic, subscribe to Netwealth’s Portfolio Construction Podcast. Scan to listen

“In the more ‘vanilla’ part of the market, valuations have started to come in… but non-vanilla asset-backed finance is an emerging opportunity.”

Pete Robinson, Head of Strategy, Challenger Investment Management

Risks in private credit

There are some risks in private credit, Pete explains. Typically, private lending deals with credits that are not externally rated by a credit ratings agency.

“There is a lack of transparency in private markets, so governance is a critical factor,” Pete says.

“Ultimately, the question is whether that illiquidity premium that private credit offers is sufficient to justify the incremental governance risks.”

The Australian public credit market is largely investment grade while private lending strategies are typically sub-investment grade – that means a private lending strategy is generally higher credit risk than the public bond markets.

He adds that portfolios in private credit are often less granular – there are typically fewer issuers than the average public credit strategy.

Therefore, when picking a private credit manager, he says investors need to be aware of how resource-intensive the process is and make sure the manager has the capacity and experience to assess the borrower, their credit profile, strategy, business, and financials. They need to be able to underwrite the credit, negotiate the loan terms and manage documentation as well as finance the loan.

To conclude, Pete mentions the areas of private credit that they’re most interested in at the moment. The first is asset-backed finance, which he says has seen huge capital flows and new entrants.

“In the more ‘vanilla’ part of the market, valuations have started to come in … but nonvanilla asset-backed finance is an emerging opportunity,” he says.

They have also been watching commercial real estate closely given what’s happened in the office sector and valuation pressures in places like San Francisco.

“Our funds have started to allocate back into that space. That’s sort of a contrarian opportunity that we see emerging,” Pete says.

“It’s certainly an interesting time to be investing.”

Starting your innovation efforts by focusing on the market and “job” that needs to be done, rather than the end product or service, can open new opportunities.

Jobs to be done

The need to continually innovate products and services to stay a step ahead of customer demands and competitors, and to maximise profitability, is at the core of business. However, innovation can be costly and risky, so business strategists have long been striving to make outcomes more predictable. One popular approach is the Jobs to Be Done theory (JTBD). Here’s some insight into what JTBD is, how it works, and how you could apply it in your business.

THE THEORY What is JTBD?

JTBD, according to Strategyn, is best defined as a “perspective”, or a “powerful lens” that allows innovators to see the world of innovation differently. Innovators often think of the product or service first, then find a potential market for it. However, JTBD puts the innovator in the shoes of the customer first.

Clayton Christensen, Scott Cook and Taddy Hall explain in HBR that customers “just need to get things done”. Therefore, customers “essentially hire products to do that job for them.” Strategyn summarises that people engage products and services to accomplish tasks, achieve goals or objectives, resolve and avoid problems and make progress in their lives.

Christensen, Cook and Hall say that if you can take the customer perspective, understand the job that needs to be done, design a product or service to do that job, and deliver it in a way that reinforces its intended use, then, “When the customers find themselves needing to get that job done, they will hire that product.”

Defining a market in terms of JTBD, rather than demographics

A key difference with the JTBD approach is how markets are defined. Traditionally, customers are segmented into demographics (such as gender, age, etc.). With JTBD, the focus is on markets (groups of people) that need a given job done. Innovators can survey that market for specific details about how they need/want to get the job done, then innovate to help. Strategyn says this approach can create a stable, long term focal point “around which companies can create value.”

Some examples of markets and jobs from Strategyn’s JTBD playbook include:

The market (group of people) The job-to-be-done

Parents Pass on life lessons to children

Surgeons Repair a torn rotator cuff

Music enthusiasts Listen to music

What benefits does JTBD deliver?

• Deeper understanding: JTBD “transforms our understanding of customer choice in a way that no amount of data ever could, because it gets at the causal driver behind a purchase,” according to Christensen and Hall, along with Karen Dillon and David S. Duncan in HBR.

• Removes ambiguity: JTBD helps to make innovation less risky, as it’s clearer what the customer needs are, and who the customers are.

• New ideas and new markets: JTBD can support effective differentiation in crowded markets, and support brand expansion into new domains (New Markets Advisors).

• Break down company silos: With every team focusing on creating value for the customer, everyone aligns around that common goal (Strategyn).

• Uncover more uses for a product/service: Strategyn writes: “The Swiss army knife, for example, helps customers get dozens of jobs done, and the smartphone helps customers get thousands of jobs done.” With JTBD, you might see ways to enhance a product or service and make it even more valuable to the customer.

THE HISTORY

1960: Harvard marketing professor Theodore Levitt released a prominent HBR article “Marketing Myopia”, in which he gave the example that railroads “let others take customers away from them because they assumed themselves to be in the railroad business instead of the transportation business.” This was a seed of thinking for the customer (HBS).

1990: Strategyn reports that its CEO Tony Ulwick came up with the foundations of JTBD in 1990, and he worked on a method called Outcome Driven Innovation.

2000: Ulwick shared his theory with Harvard Business School Professor Clayton Christensen (YouTube).

2003: Christensen and co-author Michael E. Raynor popularised the idea of Jobs to Be Done in The Innovator’s Solution.

2003-2013: The JTBD framework started to catch on (Forbes).

2016: Ulwick publishes Jobs-to-be-Done Theory to Practice.

“Markets aren’t defined around products. They are defined as groups of people trying to get a job done.”

Strategyn

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IN ACTION

JTBD in businesses

JTBD can be applied by various parts of a business, for example product development and marketing, and across all manner of industries. Here are some examples of how it has been used successfully.

• Bosch: Strategyn reports that it was approached by Bosch, which wanted to make a premium circular saw. Ulwick’s team interviewed 30 saw users, asking what desired outcomes they wanted from the saw. The researchers uncovered 85 needs. Bosch then surveyed a further 270 saw users and found that many of the 85 needs were already met elsewhere. However, when the responses were segmented into “unmet needs” they found that very sophisticated carpenters were underserviced on 14 desired outcomes. With this knowledge, they focused their product development on delivering these 14 outcomes to this market. The result was reportedly a new, top-selling, and top-rated circular saw.

• McDonalds: Christensen tells of how he helped McDonalds to innovate in its milkshake category with JTBD. He asked, “What is the job that causes people to buy a milkshake?” To find out, his team observed people buying milkshakes, noting the time, their profile (such as solo or in a family), and what else they purchased, etc. They found that most milkshakes were sold to individuals before 8.30am for takeaway. When asked what else could do the “job” the milkshake was doing, the buyers responded “donuts”, “bagels” “Snickers bars”, or “bananas”. This revealed that the milkshake was performing the job of being easy-toconsume food on a long drive to work, it was thick so that it lasted, and would fill them up until mid-morning. This gave McDonalds insights into how they could improve their milkshakes for this “job”, and how they could better market them.

• NIKE: Harvard Business School reports that Nike started with “a product geared toward a specific job that needed to be done.” In the 1960s, Nike focused on helping people run faster with fewer injuries with its shock absorbing sneaker. In more recent years, the company has focused on improving race performance, adding carbon plates into some of its shoe models. HBS writes that runner Eliud Kipchoge broke the 2-hour marathon barrier wearing these shoes in 2019.

JTBD in wealth management

In wealth management, consumers have countless jobs to be done that your business could focus on servicing. The list is endless, but some potential jobs to get you started include:

• In personal finance: creating personal budgets, staying on track with budgets, keeping track of money stored in different places, reducing or managing loans, finding ways to make more money from savings and assets (Ryan Garner).

• In investing: generating alpha, exposure to targeted sectors, protection from tail risks, source/generate investment ideas.

• In administering investments: compliance with the law, and transferring wealth to heirs (Tech Crunch).

Tips to use JTBD thinking

Applying JTBD methodologies can be done with the help of people who specialise in this field. However, there are also some things you can do today. For example:

• Identify jobs: Harvard Business School suggests identifying jobs that need to be done by completing the following statements, in the “shoes (or perspective) of your customers”:

1. Help me…

2. Help me avoid…

3. I need to…

• Think of customer goals: Charlotte Rush writes in Marketing Mag that instead of asking questions about the customer profile, ask, ‘What kind of progress are our customers trying to achieve in a given circumstance?”

• Avoid confirmation bias: Rush says that it’s important not to make assumptions about customer needs around a job, but to be open minded. For example, she says asking, “‘is price important in your decision to purchase a coffee?’ will invariably see the customer reply: ‘yes!’”

• Triangulate lines of questioning: In Forbes, Stephen Wunker suggests asking more oblique lines of questioning, rather than putting questions into logical constructs. This might help people reveal more context about their decisions.

• Pay attention to workarounds: If you see consumers cobbling together a solution, they’re probably unhappy with what’s available. This could be “a promising base of new business,” according to Christensen, Hall, Dillon and Duncan.

• Observe how people use products: Christensen, Hall, Dillon and Duncan give the example that people were using a cold medicine as a sleeping aid, so the manufacturers tweaked the product for this purpose, rebranded it, and ended up with a whole new product line.

In summary

Innovating new products and services doesn’t need to be risky and unpredictable, especially if you start from the position of the customer and the job they need done, then aim to fulfil it. With this insight, you can gain a deeper understanding of their needs, reduce innovation ambiguity, and maybe reach into new markets, among other benefits. Could JTBD make a difference to how you innovate?

“People don’t want a quarter inch drill, they want a quarter inch hole.”

Theodore Levitt (HBR)

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Stephen Scheeler, Co-founder and CEO, Omniscient Neurotechnology

On hiring employees in business

There are two characteristics I look for in any employee we hire.

The first is the ability to learn quickly. Whether somebody’s good at this or good at that is secondary to whether they’re good at learning fast.

The reason is things change so fast now. The nature of people’s roles, the tools they use, the technology … you’re going to ask people to do different kinds of roles and move around the company in unpredictable ways.

The second characteristic is the ability to make people around them better.

Jean Oelwang, CEO, Virgin Unite

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I think the beauty for small businesses is sitting with their team members to figure out what makes them passionate – what makes their hearts sing, what builds that bonfire in their belly.

Talking to people in their direct community and their customers, then figuring out how to take that passion and use it to drive change that links back to their core business.

It doesn’t have to be something separate, but something that will help them build a better business. That will help them build better relationships with their customers and their team members and improve retention.

Shachar Kariv PhD, Co-founder, Capital Preferences

On the limitations of current client risk assessment techniques

The industry is doing two things wrong. One, we are only focusing on a slice of what we need to know about the client. It’s a slice about risk attitudes. While it’s a very important slice, it is not the only slice. The second is we’re measuring using questionnaires. The problem with these is they require an enormous amount of imagination.

If you ask me, what would I do [if my portfolio fell by 20 per cent], but I’ve never been in a downturn, how would I know?

Pete Robinson, Head of Strategy, Challenger Investment Management

On private credit in a portfolio

These assets are typically floating rate – what that means is the capital value of your investment doesn’t vary with interest rates.

So you’re getting high levels of income with capital stability.

Because it’s a fixed income asset class, a lot of people think of it as coming out of your fixed income allocation. But we think you can draw from both your equities and your traditional fixed income allocation.

It’s effectively blending the two to generate income and capital stability, with a lack of correlation with those more traditional markets.

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