Fees loom as the big issue

Financial planning clients remain sceptical about their fees regardless of their wealth levels, according to research by the International Centre for Financial Services (ICFS).

The ICFS's Financial Advice Satisfaction Index, sponsored by Australian Unity fund manager Lifeplan, surveyed 406 clients of financial planners to gauge their levels of satisfaction regarding financial advice, as well as their attitudes on a range of financial advisory products and services.

ICFS head of research Dr Syed Zamin Ali, who is the director of undergraduate finance programs at Adelaide University, said the index is based on a 10-point scale where anything over an eight rates as 'very satisfied'.

The research found that satisfaction with the quality of advice rises from 7.8 for clients whose wealth is less than $50,000 to 8.4 for clients with over $250,000.

Similarly, satisfaction with the investment plan and the planner's choice of investment products rises from 7.6 to 8.4, according to the research. 

But the satisfaction level with fees sits at 7.4 for clients with under $50,000, dips to 7.1 for those with between $50,000 and $250,000, and returns to 7.4 for clients whose wealth is over $250,000.

"What we note from behavioural finance literature is this: when investors are given an explicit amount to pay and that payment happens before they observe the returns, then they experience 'pain' in paying that amount," said Ali.

"If it is deducted from the returns, they somehow don't see it as a significant aspect, because they're comparing it to the returns they're getting. So in the days of the trail, fees were not that big an issue. Now suddenly it's a big issue," he said.

Just as satisfaction increases with wealth, it also increases with age. One of the most significant aspects of the research was the link between retirement planning services and satisfaction for older clients, according to Ali.

Head of Lifeplan Matt Walsh pointed out that the advice relationship is complicated, and it often takes a client time to appreciate what their planner does for them.

"[It also takes a while to] adapt it to your life circumstances. The longer someone's been with a planner, the greater they understand the value of that advice relationship," Walsh said.

One of the more eyebrow-raising findings from the research was to do with wealth transfer.

According to Ali, there was almost no statistical difference between age groups when it came to attitudes toward the transfer of wealth to the next generation.

"The youngest age group put this as 6.83. Oldest puts it at 7.14. The difference is so minute that it doesn't come out as statistically significant," he said.

"The story I get out of this is: people are not really keen on passing on their wealth to the next generation," Ali said.

He was quick to point out that this measure was only "cut" on the age of clients, rather than the amount of wealth they have invested.

Halcyon Wealth Advisers financial adviser Phil Clinton specialises in estate planning and wealth transfer. While he accepted clients are often initially reluctant to talk about wealth transfer, a serious illness suffered by a friend or relative will often shock them into action.

"It is very confronting to have to do it and talk about your mortality, but it makes life so much easier for those left to look after you because they have the power to do it," he said.