Clients are becoming more sensitive to the cost of advice and are more likely to consider changing financial planners in today’s market, new research on client perceptions of advisers has found.
The increase in price sensitivity and demise in the loyalty of existing clients are worrying trends, given that the tougher market environment is making it harder for planners to bring new clients on board.
The survey, which was conducted by Sydney- based consumer research firm CoreData and covered 864 consumers, each with more than $350,000 in investable assets, revealed some of the “churn indicators” – the factors that determine how likely a client is to change planner – are on the rise. Satisfaction with advisers’ charging method has fallen from nearly 75 per cent in 2007 to 55.2 per cent this year, and the proportion of people who believe their planner offers “fair value” has also declined.
According to Andrew Inwood, managing director of CoreData, only 30 per cent of people say their planner offers “fair value”, while 70 per cent say their planner “seems expensive”.
This compares to 44 per cent of people who said in 2006 that their planner offered “fair value”, and 46 per cent in 2007.
Furthermore, the results show client loyalty is weakening. Only 57 per cent of clients say they “absolutely wouldn’t consider changing advisers”, down from about 79 per cent in both 2006 and 2007.
Unsurprisingly, satisfaction with investment performance has plunged, with only half of the market currently satisfied with the performance of their portfolios, down from 80 per cent in 2007. But interestingly, clients’ perception of their own relevance has taken a hit at a time when it is vital for planners to make clients feel valued.
“We ask them to rate themselves on this scale: I am not important to my planner; I am somewhat important to my planner; I am very important to my planner,” Inwood explains.
“In 2006, 15 per cent said I am not important; 61 per cent said I am somewhat important and 24 per cent said I am very important to my planner. That tracked very much the same for 2007 but in 2008, 22 per cent said I am not important to my planner and the number of people who said I am somewhat important to my planner jumped 10 per cent, to 71 per cent. So the perception of relevance is on the decline.”
CoreData’s survey also discovered that the attitudes of those people who do not currently seek financial advice have changed. Last year, 55 per cent of those people surveyed who do not have a financial planner said they were “unlikely” to adopt one, 22.3 per cent were “neutral” on the matter and 22.3 per cent were “likely” to adopt a planner.
This year, the number of people who are unlikely to adopt a planner jumped substantially to 70 per cent, those who are neutral shrank to 10 per cent and those who are likely to seek advice also fell to 10 per cent.
“They can’t see a planner adding significant value in this marketplace and the reason for that is they don’t understand how they’re paid; they don’t need one in the circumstances; and, significantly, about half are saying ‘I can’t trust them with my lifetime savings’,” Inwood says.
“Almost no one thinks that they are too expensive – these aren’t price-based decisions.”
The findings have huge implications for financial planners, who will have to work harder going forward to hang onto existing clients and appeal to increasingly sceptical prospects. Inwood says it is up to planners to clearly demonstrate utility in the service they are providing.
“Planners will have to work really hard to explain what they do,” he says.
“If you drill into this, you find that most people don’t really understand the benefit in having a planner. All the work we’ve done tells us very clearly that having a financial plan makes people much happier, and even having only an OK financial planner probably means that you’re going to be better off. The reality is these people still can’t see the utility in having a planner.”
Unlike buying a car, Inwood says it is difficult to assess utility in financial planners.
“They can’t guarantee performance; if I buy a Mercedes, that guarantees me it’s got a V8 under the bonnet. [Planners] are going to have to work really hard at explaining how they do what they do, how they add value and how they deliver value to clients.”