Financial planning practices face client exodus

The outlook for some participants in the financial planning industry is increasingly bleak, with many clients losing faith in their advisers’ ability to return value to their investment portfolios.

Research conducted by CoreData shows that Australian financial planners have lost approximately 215,000 clients over the past 12 months. But perhaps even more disturbing for the financial planning industry is the fact that more than 28 per cent of respondents who currently have a relationship with a financial planner are ‘very likely’ to consider not using a planner at all in the future. This figure has leapt from only 3.6 per cent in November last year.

CoreData head of market intelligence Craig Phillips said since that time people have lost faith their “investments will bounce back soon or their adviser can add value during this period”.

“Some clients exited the market soon after the downturn began, but the unfortunate thing we’re now seeing is that large numbers of [clients] who decided to ‘wait and see’ have lost faith in the upside they can expect over the foreseeable future,” Phillips said.

In November last year, CoreData found 22.3 per cent of clients said they were ‘likely’ to consider dumping their planner. That figure now sits at 18.4 per cent, and while it represents a reduction for this particular category, when added to those who feel they are ‘very likely’ to end their planner relationship, it amounts to more than 46 per cent of clients who feel so disconnected or disenchanted with the financial planning industry they are considering exiting it altogether.

This is likely to be disturbing but of little surprise to an industry that has struggled to find an effective way of servicing large client bases and often focused on higher revenue generating clients while paying relatively little attention to the ‘long tail’ of the remaining clients.

Some of the criticisms from unhappy survey respondents were targeted directly at the adviser and their way of conducting business, such as: “Unless I contacted the planner, there was no sign that our account was actually being managed.”

Another complained: “He didn’t even know his own company website – [he] seemed aloof and that irked me.”

While another said: “[I] wasn’t able to develop a comfortable relationship with him.”

Another client pointed to a perceived lack of value, saying: “I was paying large fees and receiving poor advice – who can I trust?”

Meanwhile, some advisers are being criticised or questioned for factors that may be out of their control, for example: “Locked-up fund as result of [global financial crisis] – unable to access funds, not directly the planner’s fault, but still made me think twice.”

While the research details a significant risk to some planning practices, Phillips points out that “dissatisfaction is not necessarily a driver of what [clients are] going to do”.

And some planners may benefit from the disaffection of some clients by attracting new business. Phillips said the percentage of clients who are considering switching planners remains consistent at around 18 per cent.