The future of financial advice
The financial advice sector needs to evolve, and adopt new technology and business models to help to improve the financial wellbeing of more Australians.
Quality financial advice has the power to enhance financial wellbeing, which in turn, can transform people’s lives. With uncertainty in the economy and many Australians reassessing their priorities due to the COVID-19 pandemic, the role of financial advisers has never been more important.
There are around 17,000 financial advisers listed on the Australian Securities and Investment Commission’s Financial Advisers Register. Regulatory upheaval over the past few years has seen many experienced practitioners leave the sector, while increased education requirements have lifted the bar but also created barriers to entry into the profession.
With a smaller pool of advisers and a growing need for advice in the community, many people are unable to access the service.
Only 27 per cent of Australians have received financial advice, according to the Australian Securities and Investments Commission’s report1, ‘Financial advice: what consumers really think’. Our own research, ‘The True Value of Advice’,2 shows that nearly half of people who are unadvised are open to seeking advice.
This gap presents both a challenge and opportunity for the financial advice industry.
Value of advice
Our goal at Insignia Financial is to help all Australians to improve their financial wellbeing. The role of financial advice in that process is clear.
Our research, ‘The True Value of Advice’3 report found 90 per cent of people who have a financial adviser feel that accessing advice has left them in a better position financially and 89 per cent report that receiving advice allowed them to live their desired lifestyle. Other research participants reported that advice had led to improved mental health, less worry and stress, and better relationships with family and friends.
It’s no bold claim to say there are few professions in which practitioners can have such a direct and measurable impact on improving people’s lives.
Australia needs more financial advisers to address the societal needs, however, consumer perceptions also act as a barrier to people seeking advice. Our research found nearly two thirds of people do not think they have enough assets or wealth to warrant advice and about half believe they cannot afford it.
Recent KPMG modelling4 for the Financial Services Council has demonstrated that the cost per client of the current advice process within the existing regulatory regime is $5,334. Compliance burdens, due diligence processes and time required to demonstrate satisfaction of best interest duty all feed into the price.
But not everyone needs a comprehensive service. Financial advice should span the spectrum from financial literacy, tips and hints, to episodic help and coaching, through to holistic advice.
Part of the challenge will be to break the nexus between product and advice.
Insignia Financial’s ClientFirst ethos is that financial advice is about understanding the needs of and designing the best solution for the client – not about product recommendations.
The future of advice will involve helping clients to experience financial wellbeing at all stages of life – not just at retirement. It will involve investing in and building business models that help improve people’s financial literacy through coaching, guidance and improving confidence and understanding of their financial affairs.
Technology has a role to play in reaching people at a reasonable cost, in an efficient and scalable way – while preserving the integrity and quality of advice.
Our extensive network of financial advisers, including Bridges and Shadforth groups, and self-employed advice businesses under licensees such as RI Advice, Millennium3, Lonsdale, Godfrey Pembroke and Consultum, means that clients from all walks of life can find within the Insignia Financial Group an advice proposition that will suit them.
As the financial advice sector enters a new phase, there will be opportunities to provide a wider range of advice to a larger number of people. This will bring us closer to the ultimate goal of helping to improve the financial wellbeing of all Australians.
This article first appeared in June 2022 issue of The Financial Adviser magazine, the official magazine for the members of the Association of Financial Advisers (AFA).1 https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-627-financial-advice-what-consumers-really-think/
2 IOOF The True Value of Advice December 2020
3 Available at: https://www.ioof.com.au/financial-advice/the-true-value-of-advice
4 Financial Services Council (FSC) 2021, White Paper on Financial Advice, p 3, https://www.fsc.org.au/policy/advice/white-paper-advice (FSC White Paper).