REVEALED The value of advice: $300

Australian adults believe financial advice is worth, on average, $300 upfront, according to Investment Trends’ 2010 Planner Business Model Report, to be released later this month.

Its preliminary results found that on average, clients believe financial advice should cost $300 for the initial consultation, then $300 for each ongoing visit.

For most financial planning businesses, $300 for providing advice is nowhere close to break-even, as the report showed advisers estimated they should be charging $2,700 for full advice and $1,200 for simple advice.

Investment Trends analyst Recep Peker says that the low value placed on financial services depends on whether advice has been used previously.

“It is more of an expectation gap,” Peker says. “Those that have not received advice before think that it will be a lot cheaper, whereas those that have had their first-hand experience with an adviser are prepared to pay more for advice.”

Peker says the survey demonstrates many clients are still “unaware of the true cost of advice, under existing asset-based fee models”.

The report revealed clients are willing to pay different amounts for financial services, depending on the type of advice they require, such as investment property loans, investing in shares, home loans and consolidating personal loans.

Clients are willing to pay more for retirement advice – on average, $540 for the initial consultation then $660 for ongoing consultations – suggesting advice is recognised as most valuable when reviewing retirement plans.

The proportions of clients who would seek advice for reviewing their plan for retirement were:

• 65 years old and over – 24 per cent;
• Baby boomers – 23 per cent;
• Generation X – 6 to 7 per cent; and
• Generation Y – 0 per cent.

“This shows why retirement came out as the highest amount, as with the younger generations this is not in their time horizon yet,” Peker says.

Investment Trends also conducted the April 2010 SMSF Investor Report, revealing how attitudes towards fees have changed in the past 12 months.

“Essentially, we saw a greater aversion to fees,” Peker says.

“Those that have had their first-hand experience with an adviser are prepared to pay more for advice”

“Overall, 25 per cent of those that responded said they were reluctant to pay fees for financial advice in the future, which is up from 21 per cent last year. A further 15 per cent said they expect to pay lower fees for advice in the future and 15 per cent said they expect to pay [higher] fees for financial advice in the future, provided that it was good advice.”

Mark Rantall, chief executive of the Financial Planning Association of Australia (FPA), says that consumers don’t want to pay more for advice than they perceive it is worth.

“Those people that are paying have received comprehensive advice and therefore recognise its value, whereas those that have not experienced financial advice don’t really understand what’s involved,” Rantall says.

“This is about the complexity of advice – and $300 is probably not going to get you far.

“There is a disconnect of the time taken to give advice and the value that it’s actually worth. It surprises me that there’s such a big gap but with the lack of education for clients about the financial planning industry; the result [of the report] doesn’t surprise me.”

Paul Barrett, general manager of Colonial First State Advice Business, says the challenge advisers need to overcome concerns trust.

“Ultimately we have to translate trust into value and that will happen through the education of clients,” Barrett says.

“Another challenge for financial planners is that they have to give discipline, coaching and commitment to the advice to prevent clients reaching retirement without enough funds.

“When you really think about why advice is not valued, one of the key conclusions you can come to is the fact that the benefits of advice manifest over many years so you don’t actually get the instant gratification from advice that most consumers seek.”

Richard Klipin, chief executive of the Association of Financial Advisers (AFA), says that a large number of people perceive financial advisers as “opaque and self-motivated and worse, untrustworthy”.

The AFA has launched “Make a Plan”, a multi-media advertising, public relations and online campaign to tackle these negative beliefs and also to communicate and validate the value of advice to clients.

“Now is the time for advisers to show their commitment to their own profession and put their money where their mouths are,” Klipin said in a statement.

“In return, we believe they will reap the benefits. At a big picture level, the campaign will help them win back the respect of consumers and at a practice level, they will secure new leads and re-kindle greater respect from any disaffected current clients.”

The Investment Trends 2010 Planner Business Model Report surveyed more than 1300 financial planners between August and October 2010 online. It also draws on a study of 1100 Australian investors carried out in December 2009.

The Investment Trends April 2010 SMSF Investor Report was based on a survey of more than 1900 SMSF investors.