Financial advice: We want it, but cost is an issue

Do you feel you could do with some financial advice but don’t know where to turn for the advice you need at a price you can afford? You’re not alone.

Over 12.4 million Australians have unmet advice needs, according to the Investment Trends 2022 Financial Advice Report. The main barrier is cost, as rising fees and falling adviser numbers put advice out of the reach of many Australians. 

This supports research by Adviser Ratings, which found almost 90% of Australians do not have a financial adviser. Even more troubling, its Australian Financial Advice Landscape 2022 report estimates around 60% of Australians probably don’t have the capacity to pay for advice.

Cost of advice on the rise

Ensuring Australians have access to financial advice that’s both affordable and of high quality was the key consideration of the government’s recent Quality of Advice Review. But reform won’t happen overnight.   

In the meantime, Investment Trends found a big gap in the amount people are prepared to pay for advice and how much it costs to provide the advice they need. While Australians have stepped up the amount they are prepared to pay for advice, up 28% to $770 in 2022, the rising cost of providing advice has pushed it further out of reach.

The Financial Planning Association of Australia (FPA) reported in 2020 that its members charged $3,251 to prepare a Statement of Advice for new clients (up 21.7% on the previous year), and $4,299 per year for ongoing advice for clients (up 14.4%). Various reports since then show fees have continued to rise.

Good intentions

Despite the barriers to getting good, affordable advice, it’s clear that there’s an unmet demand. Adviser Ratings found 29% of unadvised Australians were looking to get help from an adviser. Most (51%) were looking for help with super while 44% wanted help preparing for retirement.

Whether they follow through is another question, but they may take heart from the fact many people who have an active relationship with an adviser report they are not only better off financially, they also have more confidence in the future.

A study conducted for the FPA in 2022 found the key benefit reported by people who had an adviser was greater confidence in having a comfortable retirement (47% agreed with this), followed by improved financial wellbeing (40%).

But it seems not everyone is happy. Investment Trends found a growing number of advised clients are considering stopping or switching advisers citing unhelpfulness (31%), unclear fees (27%) and slow responsiveness (28%).

Once bitten, twice shy

It’s perhaps not surprising that Australians have reservations about the financial advice industry after revelations from the Hayne Royal Commission, including fees for no advice.

Despite reforms introduced under the Future of Financial Advice (FoFA) laws, the industry has a way to go to build trust with the community. It also faces new challenges. New adviser education standards and the uncoupling of advisers from product providers have prompted many advisers to leave the industry.

The number of advisers has plunged by a whopping 38% in recent years according to research by Rainmaker, from a peak of 26,500 in 2019 to just 16,671 in 2022. This structural shift has occurred at a time when Australians are facing cost-of-living pressures, first from COVID but more recently from rising inflation. Yet demand for advice is likely to increase as the Baby Boomers continue to swell the retirement ranks.

Reasons for wanting advice

Not surprisingly, the lead-up to retirement is a key trigger for people seeking financial advice. The Investment Trends research found older people are focused on retirement considerations and aged care. But younger people reported the biggest advice gap. While 81% of those aged 18–34 indicating they have unmet advice needs, only 18% had sought financial advice in the previous 12 months.

“Younger generations need support deciding where and how to invest their money, buying a home, as well as managing their cash flow,” says Investment Trends research director, Dougal Guild.

Given that cost is already a major turn-off for people who might otherwise get advice, super funds have been stepping into the breach with their own advice offerings.

What are super funds doing?

Super funds are learning that one way to attract and keep members is to offer free or low-cost advice services, but keeping costs down for comprehensive, personal advice remains a challenge.

Traditionally, financial advisers tend to recommend retail super funds to clients. Increasingly, public sector and industry funds have been offering advice services but numbers remain low. Adviser Ratings estimates only 4% of advisers are currently employed by industry super funds, with most advisers operating in private practices.

There’s also widespread confusion about the different types of financial advice on offer. ASIC research found many consumers believe, falsely, that general financial advice prioritised their financial interests.

The advice currently being offered by super funds is scaled, with three broad categories:

General advice

Free information on specific topics related to your account or the fund’s offerings, generally offered over the phone or online. As the name suggests, advice is general and cannot include personal advice or recommendations.

Single issue advice

Simple personal advice on a single issue. It generally begins with a free, no obligation phone consultation, followed by a Statement of Advice with recommendations for a fee.

Comprehensive advice

More complex financial advice that takes your full personal circumstances into account. Advice is provided by Certified Financial Planners either inside or outside the fund. Often face-to-face, advice also starts with a free, no obligation conversation with information about fees if you choose to proceed.

ASIC found that only 54% of consumers they surveyed correctly identified general advice. Perhaps more troubling, even when provided the general advice warning, nearly 40% wrongly believed the adviser had an obligation to take their personal circumstances into account.

A role for technology

While consumers wait for readily available, affordable advice, technology is already beginning to step into the breach. Super funds are investing heavily in their mobile platforms, digital solutions and interactive tools.

Investment Trends found the less complex needs of younger consumers means they are more open to digital advice as a solution. It found two in three Australians are open to using a digital advice tool to plug advice gaps, but most would prefer to use it in conjunction with some form of human interaction.

“We may also start to see super funds having a larger role to play in addressing the advice gaps with a large number of members surveyed open to seeking advice from their super fund but many unaware of services available,” says Guild.

While you wait for progress, if you would like advice on growing your super, retirement planning or investment strategies, see what your super fund has to offer. Costs vary enormously but it may be more cost effective and accessible than searching for an adviser on your own.