Financial advice: What are the risks and benefits?

Financial advisers are supposed to act in the best interests of their clients. That’s not a vain hope or fluffy belief, it’s enshrined in law.

Confidence in financial advisers fell to all-time lows in the wake of the Hayne Royal Commission, which unearthed serious financial misconduct. Most notably, fees for no service and advice that left clients worse off.

Then COVID-19 hit, followed by cost-of-living pressures, market volatility and the tail end of the Baby Boomer cohort moving into retirement. All up, it’s been a game changer for advisers and their clients.

Demand for advice is growing

The most recent Financial Advice Report, Investment Trends, found 11.8 million Australians had unmet advice needs. The main areas people said they would like advice on were investment strategy, longevity risk (outliving their super and other investments) and growing their super.

The main barrier to getting the advice people said they needed was cost. The most that people said they were prepared to pay for advice, on average, was $580. Although this amount increased to $800 for help in starting a retirement income stream.

Compare this with the average annual cost of advice of $5,500, up 17% in one year according to the Investment Trends 2024 Adviser Business Models Report, and there’s clearly a huge unmet demand for financial advice in the community.

There are several reasons for the rising cost of advice, from higher professional training standards and compliance red tape to falling adviser numbers, down 47% to 15,600 in the past six years.