There are plenty of possible reasons, but consumer perceptions of the cost, usefulness and value of financial advice are consistent barriers.
A survey by the Australian Securities and Investments Commission revealed that 35 per cent of respondents who had not recently received financial advice perceived it as too expensive, 29 per cent thought their financial circumstances were too limited for it to be worth getting financial advice and 18 per cent did not see the value of consulting a financial adviser.
Many participants held broad notions of who could provide financial advice, with sources including family and friends (31 per cent) and information on the internet (23 per cent). This is consistent with earlier Roy Morgan research that identified many Australians are turning to friends and family instead of a professional adviser. More recently, online sources such as Reddit are emerging as platforms for people seeking financial advice.
When considering why people turn to alternate sources of advice, removing the perceived barriers to professional advice is one way to tackle the trend. This can be done by demonstrating value early, tangibly showing that good advisers have a client’s best interest at heart and making it simple to access advice from sources available at your fingertips. Such small, but significant, steps could help more people take action to improve their financial position.
Arguably, general information, or potentially unregulated advice, plays a role in generating interest and education. However, in the wrong context it could be financially damaging to someone’s individual circumstances and objectives. Prevalent themes in behavioural economics show that humans tend to overestimate our decision-making ability, discount the future and fear loss; all of which work against how we make decisions in the area of our own financial planning.
So, how can the advice sector win the hearts and minds of more Australians?
Education and action are key to change
The paradox of advice is that many people do not believe it’s for them; they believe financial advice is something only suitable for the very wealthy. Although the perception of advice is that it’s too expensive, the simple tenet is the earlier you start, the more you benefit from the additional time to build net wealth through a cumulative set of good financial decisions.
It’s easy to understand why consumers may be sceptical of financial advice. There are often large up-front fees required to engage an adviser and no perceived benefits gained for a long period of time. Even when the benefits do eventuate, the exact value added by the adviser is often subjective and hard to demonstrate.
This is compounded by low levels of financial literacy — almost half of Australian adults are considered financially illiterate.
An ANZ survey of adult financial literacy in Australia suggests programs seeking to improve financial literacy can be more effective if they look beyond information to ways of engaging people and building “self-efficacy”, and lessening the stress that many feel when dealing with money.
Simple and accessible digital tools can help people understand how the choices they make now can impact their long-term financial situation, and their ability to achieve the types of goals many Australians aspire to. These tools should aim to build confidence by engaging people in the financial planning process and demonstrating the impact of their actions today, on their financial situation in the future.
Learning by doing educates and builds trust. If consumers can access useful information and interactive digital tools that help them understand the need for financial advice, they are more likely to see the value in engaging an adviser. By providing that educational support, an advice practice can become the go-to for those consumers who are now ready to enter the advice market.
Such tools need to be more than generic calculators with simple assumptions. To be effective, they need to be readily accessible to users and consider the interplay and dependencies between multiple goals and objectives that a household has, and how they are helped or hindered by their financial decisions such a contributing to super, getting into and out of debt and ensuring protection in the event of unexpected circumstances such as disability or death.
Advice providers that see the power of such tools are testing a client’s willingness to use and pay for compelling digital advice experiences that automate the Statement of Advice while keeping them connected to a human adviser. Changes to legislation and regulation will likely provide increased confidence for more advice providers to follow.
For many consumers on the cusp of needing advice, taking the step to spend thousands of dollars to engage a financial adviser can seem very daunting.
With cost one of the big barriers to professional advice, offering a less cost-prohibitive service for clients with simple needs or who are just entering the financial advice market can be an effective way for an advice practice to grow their client base.
But this only works if advisers can deliver a valuable and compliant service at a low enough cost point.
That’s where technology can help.
In a recent report covering Australian adviser technology trends, only 20 per cent of respondents stated they currently use scaled advice technology, while almost 67 per cent stated they plan to use this by 2022.
A scaled advice offering should only require clients to pay for the services they consume, meaning they can start with a basic or limited service at a lower cost point and increase the scope — and advice fee — as their needs require.
By leveraging technology, advisers can offer more limited services to grow their client base in a profitable and sustainable way. Advice software should do a lot of the heavy lifting, leaving the adviser with more time to provide the important human aspects of financial advice and build strong relationships with their clients.
Technology is available today to digitally deliver scaled advice solutions, and progressive Australian businesses are leading the way in providing these types of services. As a result, acquiring new customers, and arguably starting more Australians on a positive financial journey. Greater clarity and guidance as to the application of legislation and regulation will only boost business confidence to offer these services.
By engaging prospective clients earlier with these types of services, advisers have an opportunity to start them on a lifelong advice journey and help them meet their financial goals and objectives through life’s twists and turns.
Technology will never replace the empathy, care and objectivity that advisers offer, but it can help support those elements by providing transparency, connectivity and efficiencies that allow advisers to spend more time with their clients.
Client-centric financial planning technology that proactively engages and continually delivers value where it counts will become a core part of the advice business of the future, providing a profitable service model for progressive advice businesses to engage and serve more Australians.
Steve Davison, chief commercial officer, Midwinter