Consultancy Oliver Wyman has urged financial advisers to view the “evolving market structure” arising from increased regulatory scrutiny as a significant rebuilding opportunity for the industry.

The consultancy, in a report called Future of Financial Advice - The Australian Renaissance, outlined a blueprint for advisers to respond to the current challenges and become more resilient.

To achieve success, advisers should focus on achieving scale of economies; have clarity on target segments; invest in technology; and provide additional services that deliver customer value.

The report says the findings of the Hayne royal commission and its subsequent proposed reform measures have ramped up more pressure on the under-fire industry, which was already facing other challenges such as falling margins and new qualification requirements.

But it believes the experiences of the Australian general insurance broking sector, the UK and US advice professions offer an example for local advisers.

On general insurance brokers, the report says they have experienced significant success as a distribution channel despite some differences with the way financial advisers operate.

“The top five insurance brokers trade at a higher valuation premium and have delivered superior total shareholder returns compared to the main general insurers, signifying the value that can exist in the distribution segment of the value chain,” the report said.

“Rather than a threat, the evolving market structure should be seen as a significant opportunity for the financial advice sector to reposition itself as necessary and reliable for consumers’ financial wellbeing.

“As the market stabilises over the next five years, financial advisers will need to take decisive action to prioritise target customer segments, align the value proposition and offering, and make underlying investments in data and technology.

“We believe these actions are necessary to re-establish trust in an important sector in the wealth management landscape.”

In the UK, where reform measures such as a commission ban on investment products and higher educational requirements pushed a significant number of advisers to leave between 2007 and 2013, the numbers have since rebounded.

Adapting to the changes has allowed the sector to recover, the report says.

Oliver Wyman says advisers will need to strike the right balance between pursuing growth and profitability, and continuing to maintain their client focus and internal culture, all while not adding to their technology debt.

It says the financial advice sector will likely experience more change in the short-to-medium term but thinks the industry is currently in a unique position to transform and rebuild itself as a reliable and integral aspect of the future of financial services in Australia.

Click here for the report.