The biggest barrier for financial planners to grow client numbers is cost rather than trust, according to a survey.
Fidelity International’s ‘The Value of Advice’ report in conjunction with CoreData found 37% of respondents that had never received advice had not seen one due to cost. Another 35.8% said they did not feel their circumstances justified the need.
Further down, only 16.2% said they had ‘difficulties finding someone they could trust’.
While many believed they could not afford an adviser, 45.7% of respondents who had received advice in the past or had never received advice said they ‘would seek help to invest their money’. Another 42.7% said they thought an adviser could held them to grow and manage their wealth’.
Speaking at the launch of the report, CoreData managing director, Jason Andriessen said people who needed advice were being priced out.
“There is an advice gap emerging over the last couple of years and we should all be concerned. Ultimately, people want a feeling of confidence and control,” he said.
“If advisers are able to do that without spending three appointments to write a statement of advice, that’s the key to reducing cost. Regardless of wealth, people benefit from the feeling of being confident and having control.”
The report noted that adviser faced the challenge of convincing individuals of the broad value of advice and that “seeking advice could address issues beyond the financial, having a positive impact on overall wellbeing”.
“Individuals can also be put off seeking advice by a perceived lack of transparency of cost. In the face of uncertainty, their questions are often left unanswered or worse, filled by misinformation,” the report said.
The report also found that 52.8% of those surveyed said financial issues had adversely affected their mental health, another 48% said financial issues had adversely affected relationships with family and friends, and 37.4% said financial issues had adversely affected their physical health.
Comments
There are several ways to reduce advice costs.
1. Eliminate annual Fee Disclosure Statements (as the product providers report this information annually now anyway)
2. Negotiate low cost on-going fee agreements, that are only renegotiated every 5 years or so.
3. Allow some retail clients to opt in to “Wholesale” status, which removes much of the unnecessary Statement of Advice obligations.
All other Haynes Royal Commission Recommendations & FOFA/FASEA requirements simply increase costs and reduce the advice. Being “professional” means nothing to a client who cannot afford your $4,000 pa to $20,000 pa advice fee.
Cost..... Good work ASIC. Maybe we get the percentage who cite cost as a factor up a bit more with some extra red tape.
There is a lot of inaccurate commentary that "trust" is directly related to ethical behaviour. But that is only a small part of the equation. Trust is highly influenced by marketing and the media. Some of the worst financial advisers were actually highly trusted by their clients, because they were great at marketing. Accountants market themselves as "highly trusted", yet accountants dispense much more bad financial advice than licensed financial advisers. Something which will become apparent when thousands of people wake up to the underperformance and over pricing of the SMSF their accountant recommended to them.
But the biggest influence on trust is the media. The media has the power to distort and exaggerate the bad behaviour of a few, into wholesale distrust of a broader group. If online momentum builds from such a vilification campaign, they will continually repeat it and distort it and exaggerate it to pander to the prejudices they have stoked. This has been the biggest influence on trust in financial services.
Witness a story in the Fairfax media today about a guy who stupidly set off some fireworks in a public park. The story shrieks the detail that he was a "CBA lawyer". Imagine the backlash if he was an Aborigine or a Muslim or an African refugee, and that detail was published. But Fairfax thinks it's fine to highlight the completely irrelevant detail that this guy was a CBA lawyer. It aligns with Fairfax's anti bank narrative and panders to the prejudices it has cultivated in its readers. It is ultimately the same principle as racial or religious vilification.
The people least deserving of trust in our society are actually the conniving, unethical, content writers at Fairfax. (They are no longer worthy of the title "journalist").
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