When demand is high and supply is constrained, prices go up. I learned that in Econ 101 at the Victoria University of Wellington.
However, the advice industry is attempting to reverse the law of supply and demand.
In the face of increasing demand for advice and diminishing supply (not to mention the rising cost to serve), it is pushing for improved affordability through simplification of processes and deregulation.
While other professionals relish the complexity and uncertainty in their chosen field because it enables them to charge more, advisers are desperate for greater simplicity, clarity and harmonisation of regulation.
This emphasis on affordability stems from the industry’s product distribution roots. Manufacturers want advice to be cheap because their products are primarily distributed through advisers. Since inception, they have tried to set the price of advice.
Admittedly, parts of current legislative framework are impractical and unnecessarily onerous, such as the need to produce lengthy, expensive SOAs for every client, irrespective of their needs. As an industry, we need to find a solution for Australians with relatively simple needs.
To that end, technology will play a role. So too will pragmatic legislative reform.
But when it comes to providing personal advice to affluent Australians with complex needs, affordability should not be an issue.
For many people, life is complex, therefore, advice is complex.
A growing number of us have a spouse, ex-spouse, children, step children, elderly parents, mortgages, trusts, an array of investments, and infinite needs competing for finite resources.
Add to the mix Australia’s intricate superannuation, tax and social security system, a hot property market and a deadly global pandemic, as well as a heaving intergenerational wealth transfer, and demand for advice is on a steep upward trajectory.
Even after COVID-19 has been bought under control, Australians will continue to seek advice as the nation’s economic growth ramps up.
Already the small to medium-sized enterprises (SMEs) inside AZ NGA are reporting a record level of client enquiries and strong new business numbers.
However, the most telling assessment of a sector’s health is not demand. It’s supply.
By that measure, the advice industry is in trouble.
Adviser numbers are falling for a myriad of well-known reasons, with few stepping up to fill the void.
According to Econ 101, if supply is reduced, those with a source of supply can demand a higher price.
As such, the current dynamic spells opportunity for businesses with the capability and capacity to see more clients.
Unfortunately, many of those with a source of supply, for example, experienced advisers in their 50s and beyond, plan to retire at the end of 2025.
Advisers who can look past the short-term pain of FASEA and heightened regulation, and push through the discomfort of asking to be paid more, will look back on this period and marvel at the stress they felt invoicing a client $5,000-$7,000.
The reality is that consumers with problems will pay for quality advice if they see value. They will pay much more than $7,000.
If doctors, lawyers and engineers can charge tens of thousands of dollars, why not financial advisers, given the services they offer are extremely valuable and impactful?
At a time when the industry is grappling with how to replenish the talent pool, positioning itself as a highly sought after, well paid profession is part of the solution.
Consider the large number of students and graduates who pursue careers in medicine and law. It’s not just because of television programs like Grey’s Anatomy and Suits (although there’s no denying Harvey Specter is smooth), it’s the money factor.
Industries and professions that can demand high fees and pay high salaries attract the best talent.
The law of supply says that at higher prices, more sellers will emerge.
The law of supply also says that at higher prices, sellers will offer more of that economic good, which is why advice businesses need to continuously expand their capability and capacity.
As life gets increasingly complex and more Australians inch closer to retirement, advisers will be in hot demand. Experienced advisers in their 50s and beyond will be especially popular, given many people like to deal with someone that resembles them.
Those who choose to stay will reap the rewards.
Notwithstanding the valid points made, our industry is very different from true professions. We are still regulated by bureaucrats rather than professionals, and this imposes unnecessary costs on advisers – which we pass onto clients. The battle to change this for the benefit of consumers and professional advisers still needs to be fought and won.
Finally someone acknowledging the fact that all my years of practice, education, skill, knowledge and care is worth more than the word ‘affordable’. If we want to be treated as a profession and considered with the same respect as doctors, solicitors and accountants why do we desire to cheapen what we offer. Who defines / determines the word ‘affordable’ anyway?
Well made point regarding supply demand and the ability of other professions to charge accordingly – to wit lawyers dentists accountants and so forth. However generally they don’t charge on an ongoing basis they tend to be transaction based and the key is to deliver a service that brings the client back – so it is a bit different to be fair.
The underlying dilemma with affordable advice is not with complex clients – it’s with the community need for simple direction and generally speaking transactional guidance to either pay down debt and manage affairs or, ( say) simply set up a diversified portfolio on a super payout ( which could mean just directing to a public offer fund ).
The challenge for advisers is real with this area. ( according to some it makes up more than 85% of the “guidance needed” market. ) The root of the compliance and paperwork problem is because the licensing ‘regime’ under ASIC ‘authorises’ advisers to deal and advise in product ie: deal and advise ie not advice.
However if there is no product involved ( novel ? ) then the advice could be discharged effectively quickly and without the absurd paperwork. The adviser would just need to keep a record ( like a doctor ) and why the direction was recommended without doing a host of silly alternative comparisons.
Technology to help this has been disappointing in the Robo field because that area has defaulted to selling investment based ETF portfolios dressed up under advice.
The good news is new technology players that enable non complex self guidance through a range of real life experience options are entering the field and it’s worth embracing this within a practice particularly with non complex ( maybe C&D clients . ) It results in working with technology to ‘retain’ clients in advance of future more complex needs and in the early stages gives greater control to the client more cost effectively – a win win for all perhaps.