Personal financial advice is valuable and delivers real benefits, but current advice propositions are seen as too expensive and can fail to deal with the most important and pressing needs of younger Australians.
That’s the overarching message Gen X (those born between 1966 and 1980) and Gen Y (those born between 1981 and 2000) are telling the wealth management industry, according to a new report launched by ING DIRECT.
“The Truth about Gen X and Gen Y” report found younger Australians recognise the importance of advice, and intend to seek advice in the future, yet the majority have never used a financial planner and less than 5 per cent currently have a dedicated adviser.
The key factors holding them back from seeking advice are high fees, complacency and not knowing where to start.
The report’s findings highlighted the need for affordable and scalable advice, designed to help young people achieve what’s important to them such as setting goals, saving, budgeting, cash-flow management, travel, buying a home and paying off the mortgage.
Investment, insurance and retirement advice – the bread and butter of traditional advice practices – while also important, rated much lower on their list of immediate priorities.
Very real opportunity
For advisers who are prepared to listen and be innovative and flexible, there’s a very real opportunity to reach Gen X and Gen Y, who have a combined net wealth of approximately $1.4 trillion. In doing so, advisers can diversify and grow their revenue, secure future income and de-risk their business in the face of an ageing population that’s set to start rapidly running down their retirement savings and investments.
One thing’s for certain, traditional advice models don’t appeal to younger Australians. The comprehensive, ongoing advice proposition isn’t what they want.
Gen X and Gen Y want help uncovering their true goals and developing healthy financial habits, like saving and budgeting, to maximise the probability of them achieving their goals faster. They’re concerned about managing their mortgage repayments, affording to start a family and saving enough for an overseas holiday.
While planning for retirement is critical to future financial health, for these generations it’s more about instant gratification and meeting the here-and-now needs before building out the financial journey for the longer term.
Start telling a story
Advisers may need to find their inner public relations officer and start telling their story, online and offline, in a relevant and compelling way if they hope to build relationships with Gen X and Gen Y.
They’ll certainly need to educate them about the real value and cost of delivering advice given Gen X largely expect to pay $250 to nothing for comprehensive, personal face-to-face advice and Gen Y only expect to pay $100 to $250.
Interestingly, almost a quarter also expected to pay $100 to $250 for personal, single-issue advice.
This may be an indication that many young people still see financial advice as a transaction-based service.
Fortunately, the majority of Gen X and Gen Y want to have a personal relationship with an adviser, and they’re more willing to pay for face-to-face advice than online or phone-based advice. Contrary to popular belief, only a small percentage of younger people prefer online-only or phone-only advice, while 13 per cent want a combination of all three.
Affordable, alternative options
To win over this demographic, the advice industry should look to develop a variety of affordable, alternative options. That may include a single-issue advice offer, or a “you’re on the right track” sounding-board service, or an automated budgeting and cash-flow management service which regularly updates a client on their financial position, how they’re tracking toward their short-term and longer-term goals, and what they need to do to stay on track.
This can form a launching pad to develop more substantial and sustainable relationships.
Practices should also embrace technology like videoconferencing, and automate processes to drive efficiencies and keep costs down.
Ideally, value and not price should be a person’s main consideration when determining whether or not to start, or continue, an advice relationship. However, for those with a myopic focus on fees, advisers increasingly have access to a range of high-quality but cheap investment strategies and solutions, including ETFs and low-cost superannuation options, to drive down the overall cost of delivering advice.
