Low income clients being priced out of advice market

Lower-income clients are being priced out of the market for financial advice, according to the Association of Superannuation Funds of Australia (ASFA).

The big superannuation industry body has used its submission to the Government’s Retirement Income Review to point to the fact that while the complexity of the retirement incomes system is increasing, the ability of consumers to access financial advice is diminishing.

“Decisions concerning retirement outcomes are complex, and most individuals lack the financial expertise required to self‐govern their retirement savings effectively. As members approach retirement, the financial decisions they need to make are significant – some of which may be irreversible,” it said. “As Australia’s population ages, the necessity for quality advice services will only increase.”

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In doing so, the ASFA pointed to increasing costs and the daunting impact of the regulatory environment.

“Cost is a barrier to the widespread take‐up of personal advice. And as new regulatory and structural changes flow through the industry, the costs of operating a financial advice business will rise. This is likely to price out lower‐income clients and lead to a decline in the number of advisers in the market,” it said,

Pointing to research undertaken by actuarial research house, Rice Warner, the ASFA said: “… even now many people are becoming increasingly unwilling, or unable, to pay for advice”.

“Overall, this means that financial advice models will need to continue to evolve to respond to cost pressures and offer much‐needed services,” it said.

“It is likely that digital forms of advice will become more widely available – facilitated by ongoing advancements in technology and data analytics (which is itself an emerging field).”

“That said, there are a number of major challenges for funds (and relevant service providers) in the development of non‐traditional forms of advice:

  • The quality of advice is a function of the information upon which it is based. Funds (or service providers) will need to improve the scope and quality of their data regarding members’ personal preferences and circumstances;
  • Funds (or service providers) will have to improve their data analytics capabilities to process member information and derive more sophisticated insights about their members; and
  • Funds will need to ensure advice services are well integrated into the fund’s broader retirement income solutions – that emphasise financial outcomes and income replacement.

“The nascent state of these services is reflected in the findings of a recent ASIC survey – which reported that only 1% of respondents had used digital advice, although 1% said they were open to it.”

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Yes, the digital advance will be a massive increase of Australian showing up at Centrelink being forced to use MyGov. This is the result of FASEA, FOFA & Commissioner Haynes. Allowing RC Lawyers to shape retirement policy, with little idea of how low to middle income people function, is fraught with danger. One of the biggest epic fails in history. No problem, there will be some big names disappear at the next round of Liberal Party Senate Preselections. Watch this space.

So 98% of consumers, according to an ASIC survey, are unwilling to use digital advice!!! Wow, talk about an own goal. What a waste of money ASIC has spent in this area. Their dream of replacing human financial advisers with robots is now in tatters.

Perhaps they should have spoken to consumers before regulating us out of existence. Oh that's right, they did speak to consumers and found they overwhelmingly trust financial advisers and are satisfied with the quality of advice (even bank planners), but no, ASIC wasn't satisfied with that result were they. They said consumers were too stupid to understand whether advice was any good. What an arrogant, ignorant attitude.

ASIC (and the RC lawyer clowns, with no experience in financial services) were so blinded by their ideologically driven hatred for financial advisers, they have caused a mass exodus which is unfolding before our eyes. With consumers (apart from the rich) not having a hope in hell of getting advice from someone qualified, Australia will now become Gotham City for financial criminals.

that's because no one can define exactly what digital advice is, if it exists at all!

The solution is obvious. Super funds can outsource work as needed. Let them outsource client service as required. "Please adviser this client needs a review/assistance with forms etc. WE will pay you $xxx for this service on our behalf" The client gets a decent service, the call centres are releived, and the excessive compliance costs is born by the fund on the client's behalf.

Been there done that RobinBris - it was called Commission. No longer legal.

Next suggestion - in-house product advisers? No conflict with that model I am being told - but I an slow to understand.

NO. Commisions were not for a specific job. I am talking about payment for a task. Exactly what ASIC want.

OK RobinBris, lets say Super Fund X refers you a client to "review/assistance with forms etc" and you recommend another Super Fund which is more appropriate - or you recommend less insurance.

Much easier for the Trustee to take a fee from all for Intra Fund advice and do little - if the client does call it will all be "related" advice anyway and little business risk of losing FUM etc.

Not so sure your "The solution is obvious" statement is really that simple - there is serious amounts money involved here you know?

I was asked to follow up a probate issue. Already offered to help the LPR for a modest fee. The issue it s now 6 months old and not resolved. I would act but as no one wants to pay and the LPR has not given me permission..... the super could pay and I would act to resolve things.

Sorry, do you mean Airtasker?

Good luck to any product providers who try this strategy. Independent advisers are leaving in droves and those remaining have so much work on, and are able to charge such high fees, that a set fee offered by a super fund for a specific 'task' would be laughed at. Besides, it violates Standard 3 and even though I find FASEA's Code of Ethics utterly offensive and unworkable, in this regard I agree it is a conflict that should be outlawed. Imagine doctors getting fees from a drug company for completing a specific 'task'! Ha.

The issue here is that advisers over the decades have been expected to complete admin service work under the term "advice". However this work is NOT advice and can be performed by anyone off the street. To now expect professional advisers to do such admin work is a joke. So it has zero relationship to the FASEA code (which only relates to advice).

Incorrect. Intra-Fund admin fees are fully approved and will always exist for fund servicing work. ASIC makes it very clear on their website that servicing work payments can be paid to anyone, providing that servicing is done. However they have made loud noises (aimed at the Union funds) that personal advice should not be given using intra-fund admin fees.

I love this fee - if only I could get some of it. Can I? Does the member have the option to opt out of this fee? If not, what service is delivered?

Address changes, completing application forms, Nominated Beneficiary updates, ID updates & notifications, Fund information, just to a name a few. All the things that keep your admin staff busy, that has next to nothing to do with providing recommendations to clients. We have worked out that our real business is providing a complete administration service, and we throw in financial advice for free.

What a complete mess this whole space has arrived at.
Not only do people need quality, professional, caring, face to face advice to explain the complexities surrounding superannuation, retirement and insurance, they need someone they can trust to be there for them and to work with them.
This industry will lose so many good people over the next 2 years, it will have a detrimental impact on the level of direction and ground level/plain english explanation that is delivered to people so they may make informed decisions.
Many of these good people have had 15,20,30 years plus experience in relating to people and adapting conversations and explanation to ensure a clear understanding of options, strategy and costs are provided.
The ridiculous legislative and regulatory overreach will in fact not achieve an objective of ensuring Australians can have access to quality, trusted and empathetic advice , because the cost of regulation will now be so high, it will remove a massive cohort of consumers from ever receiving it.

Retirement planning advice should only be provided by advisers that are not employed by product providers (like banks and super funds). This is the only way an adviser can truly act in the client's best interest. Only advisers who are not institutionally-aligned and who have access to a broad APL will be able to provide non-conflicted product and strategy advice. This, along with the ability for registered advisers to deduct their advice fee from ANY super fund, will remove alot of the conflict that still exists in the system and will lead to greater client outcomes. Financial advisers will recommend the best funds which will encourage market competition and improve the overall system. Reducing alot of the red-tape will also go along way to reducing the cost of advice.

Totally agree.

Well, someone has to pay for the outrageous ASIC fees, new FASEA regime, exams, more qualifications, CPD, PI insurance AFCA membership etc. In my experience, most people expect financial advice for free!

Of course most people have all their retirement wealth in super and have no issues outside of that product....not.

Under the FASEA rules I wouldn’t take a referral for a fee anyway. I do my charitable acts outside the business. Taking that fee would either cost us money or drive business risk through the roof, more likely both.

Regulatory incompetence.

I love the fact that after 32 years in the industry I need to complete a Kaplan course called "Client Engagement Skills FPC0078B. What an absolute slap in the face this is to us all. Yes 120 hours for me to comply with doing 6 Subjects and this is one of them. I can barely wait to have my weekends taken up with this absolute rubbish. The academics are having a field day with us.

Anne, have you completed ethics yet? Having studied that last year, oh my im thinking of putting a ip claim in from all my head shaking. You need to learn it to pass the exams but its very hard when you don't agree with most of the subject matter and inferences throughout. Talk about one of the worst cobbled together units of study ever.

Yes and one of the DFP subjects had at least a 50% Ethics component, so we have to restudy that. It is indeed a money gravy train and we are the butt of the in joke,

Anne, Perhaps they could use this article in the Ethics course to discuss.
Scott Morrison and Josh Frydenberg personally announced sports grants under the controversial $100m program overseen by Bridget McKenzie – with Morrison even boasting the program “isn’t about sport” but rather “community” while unveiling a $200,000 grant in his electorate.

Yes I have completed the Ethics course and passed! halleluja! will never get that 120 hours back either.
I must say it covered the standards very well and hopefully will be helpful for the FASEA exam.

Yes it will Anne, the exam is mostly ethical and legal stuff. Good luck with the exam, im sure you'll ace it

At conference last week, I was sitting next to my colleague X from a regional town, who announced he's meeting a prospective buyer of his business tomorrow. What, you're selling already! (After we both just bought from a big 4 parent who exited). Yeah mate, I'm done, had enough. He's 62, brilliant advisor and spends a lot of his time doing aged care work. What a loss to his community. What's going to happen to Y who works for you? (Young advisor who's amazing). Mate, she's out too. Leaving the industry and finding work in another field. She's had a gutfull. What a loss to industry, the regional town, and to their clients.

Lots of misinformed people out there re: advice provided by super funds - also obvious people haven’t read the explanatory notes re: conflicts which state that it is fine that an in-house adviser can recommend their employers product - it’s how staff are compensated which is the issue. It is what it is - the industry both banks and small operators created this mess. Transition won’t be easy but it’s the right way . Btw , the regulators appear very comfortable with advice evolving within super funds ...

No Dill it is not clear. Standard 3 says you must not act if you have a conflict, but may act ( inference it is not a conflict) if you are remunerated as an employee, PROVIDED you provide Best Interests advice - which circles back to - you must not act if you have a Conflict because you can't give Best interests advice. And yes the bonuses are a problem. And if you know that the admin fees are actually in part to pay for financial advice fees, then is this misleading or deceptive, another Standard? And is that then if all members pay for a few, not in the interests of some members? Hence they are providing further clarification in due course.

Dill, I understand that the view of an employee recommending an in-house product is not conflicted, but the reality is, the advice is conflicted and should be called what it is - product selling.
Essentially, independently owned Financial Planners can not provide conflicted advice - but the product manufacturers can and will recommend their own product all day, every day and in many cases, will charge a fee to all members for doing so regardless of the delivery of service. Did I miss something?

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