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Do you feel you could do with some financial advice but don’t know where to turn or who to trust? You’re not alone.
A recent ASIC report titled Financial Advice: What consumers really think found that many people are put off seeking financial advice because of factors such as, cost (35%), a perception that they’re not wealthy enough (26%) and a lack of trust in the industry (19%).
Many thought advisers were more interested in making money for themselves (49%) and did not have their customer’s best interests at heart (37%).
There was also a common view that good advisers were hard to find and difficult to assess. So are these fears warranted?
Despite these misgivings, it’s clear that there’s an unmet demand for good advice with 41% of Australians saying they intend getting financial advice in future.
Whether they follow through is another question, but they may take heart from the fact that those who had sought advice were more likely to agree that it made them feel secure. They were also more likely to be wealthy, university educated and nearing retirement.
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Once bitten, twice shy
It’s perhaps not surprising that Australians have such negative views of 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 long 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 are prompting many advisers to leave the industry.
The number of advisers is set to shrink from 21,500 to an estimated 15,000 in 2024, at a time when 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 ASIC research found people were most likely to want advice about growing their super, retirement income planning, investment advice and budgeting or cash flow management.
Rice Warner argues in its report Funds fail on advice outcomes that the fall in supply and increase in demand is likely to push up the price of advice. Given that cost is already a major turn-off for people who would otherwise get advice, super funds are beginning to step 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.
In 2018, the Financial Planning Association of Australia found that its members charged $2,435 on average to prepare a Statement of Advice for new clients and $3,354 a year for ongoing advice.
To read more on fees read the SuperGuide article Retirement Planning: How much does financial advice cost?
There’s also widespread confusion about the difference between general and comprehensive advice. Further ASIC research has 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:
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.
More complex financial advice which 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
Rice Warner believes there’s potential for technology to bridge the gap between the growing demand for advice and cost concerns.
Digital advice (also called robo-advice) is still in its infancy in Australia. ASIC’s Financial advice: What consumers really think report found only 1% of those surveyed had used it. But 19% said they were open to getting digital advice, once it was explained to them.
As data analytics becomes more sophisticated there’s potential to use digital advice tailored to a member’s personal circumstances and needs. But innovation is happening at a snail’s pace.
Rice Warner points out that a third of super funds still don’t have a superannuation projection calculator on their website, despite research showing this simple measure can increase the proportion of members making voluntary contributions and the value of those contributions.
While you wait for progress, if you would like advice on growing your super, retirement planning or investment strategies, see what your fund has to offer. Costs vary enormously but it may be more cost-effective and accessible than searching for an adviser on your own.