The Investment and Financial Services Association’s (IFSA) sponsorship of research by KPMG and Econotech that defines the value of financial advice was both necessary and highly timely.
The research was necessary to place a definable monetary value on what advice can deliver an ordinary consumer and it was timely because, right now, the Parliamentary Joint Committee on Corporations and Financial Services is putting the final touches to the report it will deliver to the Parliament.
It might also be said that the research and the manner in which it actually defines the monetary value of advice and its positive impact on the broader economy also acts as an effective foil to some of the data underlying the industry funds’ long-running ‘compare the pair’ advertising campaign.
The most important figure thrown up by the KPMG/ Econotech research is that those who received financial advice received over $2,400 more each year than those who had not received financial advice.
The research then found that if an extra 5 per cent of Australians received financial advice, the positive flow-throughs to the economy would be that national savings as a proportion of gross domestic product (GDP) would be 0.5 per cent higher, foreign liabilities would be about 1.5 per cent of GDP lower, and GDP itself would be 0.6 per cent higher.
Of course, nowhere in the research is there any discussion of how those providing the advice are actually paid — whether by fee for service or by commission.
Clearly it does not matter how the planners are paid. What matters is that they provide advice sufficient to ensure their clients are better off.
If the financial planning industry chose to, it could use the research to point to the differences in outcomes between those receiving advice and those not receiving advice over 20 years.
The industry might find some merit in suggesting that someone receiving advice stands to be better off to the tune of $48,000 over 20 years.
Perhaps, too, if the Federal Government were to closely examine the economic benefits suggested by the IFSA research it might willingly embrace the concept of making financial advice tax deductible.
Given the tenor of the submissions it received and the evidence it heard, it seems unlikely that the Parliamentary Joint Committee’s report will reflect the findings of the IFSA-sponsored research with respect to the overall benefits of financial advice.
Perhaps the best the industry can hope for is that the committee’s recommendations will not undermine the ability of planners to help their clients.
