Among the world’s best advisers, but too few to go round

In case you missed it, it was World Financial Planning Day on Wednesday, the one day of the year when financial planning communities (this year in 22 countries) promote the value and benefit of advice to society and encourage as many people as possible to use the services of an adviser.

The day is co-ordinated from Denver, Colorado, in the US, where the Financial Planning Standards Board has its headquarters, led by Dante De Gori, well-known to Australian advisers as a former chief executive of the Financial Planning Association before it merged with the Association of Financial Advisers to create the Financial Advice Association Australia.

Technically it’s WFPD in Australia before it’s WFPD in many other countries because of how time zones work. But Australia is ahead of many countries in other ways besides chronologically, as home to one of the most sophisticated and certainly most highly regulated financial adviser cohorts in the world.

Financial advisers cop a lot of flak for perceived shortcomings in how their services are structured and delivered. Some criticisms are justified. The cost of advice has risen steadily over the past decade or so, reflecting the simple economics of a market where supply is short and demand is increasing. Supply has plunged in significant part because of new educational and professional standards imposed on advisers, but also because of the exit of major institutions from the advice space in the wake of the Hayne royal commission. 

This has been a double-edged sword. It dismantled many of the baked-in conflicts of interest inherent in structures where “advisers” were really product distributors and were paid for how much they could sell instead of how much advice they delivered.

But is has also driven up the cost of advice, bringing concerns that it’s now accessible only to the already-wealthy, even though the benefits of advice are regularly quantified and explained, across a wide swathe of the Australian population.

This came out again this week in research released by Colonial First State, The Empowered Australian Report, which shows that 88 per cent of Australians believe advice should be available to all, 72 per cent would be likely to consider it if it were available at a reasonable cost, and 36 per cent of Australians who do not have an adviser still think it’s unaffordable.

But there’s no serious case to counter the argument that advice could materially benefit far more than the estimated one in 10 Australians who currently use it.

That’s why, in part, it’s imperative that superannuation funds come to the advice party, in a big way, and as soon as possible. Almost three-quarters of Australians want their super fund to offer advice. And more than half (52 per cent) would like their fund to help them find an adviser close to where they are. Both these figures are higher than they were in the same research a year ago.

The proposed introduction of new class of adviser (NCA) might help, and so might reforms to education standards designed to encourage more “career changers”, who already meet the “university degree or equivalent, or higher” education standard, but who might need to do a few bridging courses before they can switch.

But in the meantime, a big chunk of the population goes through life unadvised and into the potentially murky waters of retirement, which leaves them prone to listening to inexpert and – worse – misleading sources of advice. 

The CFS research says most people first think about seeking advice then they start to think seriously about retirement. But, by then, many of the opportunities to make smart financial choices are already behind them. 

Other triggers include a change for the worse in their financial position (cost of living issues, for example) or an improvement in their financial position, which could come as kids leave school, or the mortgage becomes more manageable; buying a property; having a child; or getting married or divorced.

And so, without access to qualified financial advisers and financial planners, they turn to friends or family members; their superannuation provider; “another professional” who may or may not be legally allowed to even give advice; or their bank. This is less than ideal but is also an inevitable outcome of a lack of affordability and accessibility of advice.

Regulation is critically important to give consumers confidence in the quality and competence of the individuals who deliver financial advice, and in knowing there are compensation mechanisms in place if and when things go wrong. 

One day a year dedicated to promoting the benefits of financial advice and financial planning is a great idea, but in Australia, at least, it’s not advice demand that’s lacking, it’s the supply. And until that’s addressed in a meaningful way, Australian advisers might be among the best in the world, but too many people will continue to miss out on their services.