Government services have a higher trust rating than financial advisers which might hold the key to bridging the advice gap according to research.
A survey conducted in partnership with the Conexus Institute (an independent entity philanthropically funded by the parent company of this publication) and CoreData Research found advisers scored a high level of trust (6.8 out of 10), but are less trusted than the Australian Taxation Office, MoneySmart and accountants.
The survey targeted 1,000 people who are at least “partially engaged” with their finances.
The most cited reasons for using an adviser is that it takes into account personal circumstances (54 per cent) and provided useful and relevant information (50 per cent). However, only 28 per cent stated it represented value for money.
When it came to not using an adviser, 44 per cent said they could not afford it and 29 per cent stated it did not represent value for money.
One in 10 respondents had previously used advisers but no longer did; 47 per cent stated it didn’t represent value for money and 40 per cent felt a reduction of trust in the service.
Conexus Institute director David Bell tells Professional Planner advice is highly regarded as a profession but is still out of reach for most Australians.
“That starts to paint this picture of advice as a luxury good and that’s the challenge the sector faces,” Bell says.
Two-headed solution
Bell says the Quality of Advice Review must achieve a significant cost reduction for advice as well as the ability to create scale in the industry.
“It can’t be one of those, it has to be both. Cost reduction would result in greater demand but that greater demand must be met by greater supply for this solution to work overall. That calls out the nuance of the problem.”
He added it seems unlikely advice from financial advisers will sufficiently fill the advice gap.
CoreData Research global chief executive Andrew Inwood says there are competing priorities with their own advocates and detractors.
“The Australian financial services system is complex, much more complex than other places around the world,” Inwood says. “This means it needs to be navigated and the navigation is probably done by a financial planner. Some people can do it themselves, but for a lot of people they need a navigator.”
Inwood says the nature of Australian financial services has been undergoing an evolution.
“We’re moving from an accumulation-based society to a decumulation society and that requires a lot more nuance. Accumulation is homogenous whereas retirement is heterogenous, and everyone’s needs aren’t the same.”
Get smart
The survey found Australians are not thinking about retirement planning until they hit their 60s, where it becomes the top priority, and are not using a financial adviser as a resource until their 50s.
Given that financial advice is not a necessity until retirement approaches, the research suggested five options that could be expanded to help financial literacy. These are the government’s MoneySmart website, online financial calculators, Centrelink, subscription-based digital advice services and general assistance provided by superannuation funds.
These solutions are not a replacement for holistic financial advice but would ease the burden on the advice industry so it would not need to service clients that do not have complex advice needs.
MoneySmart was cited as one of the best resources available but has low awareness and is only used by 10 per cent of Australians. However, those that use it say it is one of the most trusted resources and unlike other websites is specifically catered for Australians.
Centrelink is only used by 5 per cent of those surveyed for financial assistance, but in addition to being used just for government payments also offers resources regarding financial benefits for children, housing, ageing, work, education and health.
Bell says some of these candidates sit outside the remit of the Quality of Advice Review and it would be encouraging for the government to promote some of these solutions as initiatives.
“There are areas [in each of the five solutions] to be positive about as a candidate solution [to help reduce the advice gap] but also areas that would have to be elevated up to make them work,” Bell says.
This is a point well made. The time when people engage with advice is as they plan for retirement, 10 or so years out. The problem with this approach is that, apart from SG, there is no building retirement capital so the last 10 years become a mad dash, etc.
The idea of online resources is worth thinking through. The current calculators on superfund websites are a start but they need to be augmented with a tax calculator so that contribution decisions can be better made. Making contributions to super is a very long term decision, even at age 50, so trade-off decisions may be needed. But even before there is engagement with super, the fundamentals need to be learnt and applied. What is your current budget? Have you identified where you spend your money? Can there be some re-allocation etc. Basic financial literacy starts with understanding personal cashflow. Knowledge is power and having acute awareness of each line in your budget puts you in a prime spot to make more informed decisions. With all the clever tech there is, surely some thought could be put into advancing the complexity of (existing) applications that capture income and expenditure, to provide some form of digital advice. This may be, pay down debt, contribute to super or, some other strategy to capture surplus cashflow. Not financial product advice, just strategy. If there isn’t a buck in it, perhaps, as the article suggests, there is a role for a government provider such as MoneySmart here.
An individual with a level of financial literacy is likely to obtain better value from engagement with a planner down the track when the complexity of their financial situation warrants it. Basic education, delivered by professional planners, seems to be a costly way to go about it for both sides of the transaction.