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.
A very successful planner told me in the early noughties that he charged $300 (by coincidence, plus GST) for the first interview. It didn’t seem to have damanged his business, quite the reverse, by removing clients’ suspcicions that he was trying to sell them something. His professional reputation was even enhanced. Until planners stop thinking like ‘lifies’ and presenting themselves as such, don’t blame the public for holding us in low esteem. A recent Roy Morgan poll puts planners in the lowest category with only 25% of the public rating planners’ ethics and honesty as good or very good. This is even worse than lawyers at 32%! How bad is that?
$300!!! If that figure were accurate we should all pack up and go home. But we know that it isn’t true. The problem is perception is reality.
Once upon a time our income (and therefore our value) was tied up with the actual execution of the investment. We were “order makers”. Just the link between the customers and the product; paid by our real boss – the Fund Manager to sell his product. We were effectively a sales force. That’s the way we were managed as employees – hell – we were given “sales targets” and had “sales managers”. It was in our own language – it was in our blood. Sales were a good.
We cannot blame the general public for not valuing us – when we did this to ourselves. But the question now is – how does the industry move forward? The change is already upon us – some of it is organic change and some has been thrust upon us. The biggest change though is for Planners to actually value their own time, expertise and advice. Once they can do that and confidently say, this is what we (as an industry) are worth, then we can start shifting the paradigm of our clients, potential clients and then the general public.
Hopefully this advertising can be effective but the main change will come at the coal face when all Financial Planners know that they are worth more than $300 – and charge accordingly.
Which other ‘profession’ has a week when they offer free advice? Which other ‘profession’ constantly contacts related professions to secure leads. Which other ‘profession’ allows product providers to license its practitioners? Which other ‘profession’ does not require a university degree as a pre-requisite? We are regarded as an industry and the public will continue to treat us accordingly, until we decide to act like professionals.
Many industry super funds are beginning to understand the need for advice in all forms – simple and complex and supporting it through quality advice providing by qualified professionals. This negates the issue of commissions and can reduce concern about product flogging if the right fund is approached. But I agree with the comments here, education of the general public is key as well as finding a viable and fair fee/ revenue model for advisers in all areas of the marketplace.
Well said, Lloyd. Most advisers concentrate on talking about stocks or why they’re switching one fund to another, with little reference to the client’s actual objectives.
But the issue is that the public actually thinks this is what financial advice is about – the stocks, the ‘tips’, rather than advice being a coaching tool to get clients to their financial objectives over an extended period.
Everyone wants an immediate pay off for the money they pay so advisers yield and play to that.
It’s a vicious circle that helps no one.
So for 25 years, the “advice” industry has sold products like superannuation, agribusiness, insurance, structured products including hedge funds, capital protected products, annuities, mezzanine debt, etc etc. And now it expects the public to put a higher value on this advice? Get real.
The public is right to value advice in its current state at $300. No disrespect meant to any adviser out there who is actually providing personal planning advice and using products to meet those objectives. Unfortunately, you are in the minority because most advisers I have come across sell products to make money. Planning strategy is only something that happens in theory.
For example, how many advisers actually sit down with their clients every year to do a proper budget and reconcile it each year to help clients save money? I suspect not many.