With the spotlight firmly on the future of Australia’s financial advice sector following the hearings in the royal commission, one of the most important mistakes we should avoid is forgetting the value of advice.
Time and again, real financial advice has added value to the life of everyday Australians by helping them be better off and more financially secure. According to ASIC, consumers who access financial advice benefit greatly from doing so, even after the cost of the advice is taken into account.
As research by Vanguard has shown, advised clients receive an additional 3 per cent net annual gains for their investments than those who don’t get professional help. Despite this, around 14.5 million Australian adults remain unadvised. We need to make sure that a few bad apples don’t tarnish the whole industry and lead most Australians to avoid seeking advice, particularly at a time when access to digital advice tools and efficient mechanisms for advice delivery are only expanding.
The ‘fee for no service’ problem, highlighted by the royal commission, is one that goes to the heart of advice accessibility in this country and the resulting levels of confidence in the profession. Many advisers are struggling with the economics of a rapidly evolving industry, particularly providing the ongoing servicing to customers in a cost-effective manner. While some were found to have charged for services not delivered many others are being forced to divest themselves of lower value clients. The reality is that this is not a good outcome for Australians or the advice industry as a whole because those same customers are the ones who most need help and advice. More emphasis needs to be placed on helping advisers realise their roles as life coaches. They can help everyday Australians focus on making the small changes that will make an enormous difference to their financial wellbeing today and realise a greater sense of financial security later in life.
The most harmful aspect of distrust and lack of confidence in financial advisers is that it could act as a deterrent to others seeking advice for the first time.
Figures from the Australian Securities and Investments Commission (ASIC) show that 60 to 80 per cent of the adult Australian population have never used a financial adviser, despite 84 per cent confirming they wanted to. Clearly, there is a strong case to be made for a new wave of intelligent digital advice solutions.
Time is ripe for digital advice
The sad truth is that in the next two years, over 3 million Australians are expected to conduct financial activity without the help of an adviser. Digital advice solutions can help fill the gap for those who are limited by financial circumstances or weary of traditional advice.
Digital advice offerings can be both standalone but also an integral part of a traditional adviser’s service model, enabling simple issues and communications to be handled online. More complex issues can be triaged and face-to-face services available for those willing to pay the premium required. This is why digital remains the most cost-effective means for expanding advice accessibility rapidly and at scale.
The need for quality scaled advice
Although Millennials are the biggest adopters of digital advice, we’ve seen first-hand at SuperEd the potential for taking advice to broader demographics. In fact, 39 per cent of online share investors aged over 64 say they would consider using digital advice and 40 per cent of those aged 55-65 would like to do so, according to the Investment Trends’ 2018 Robo-advice Report.
With over 20,000 active financial planner professionals in Australia, and many burgeoning fintech start-ups emerging, there’s an incredible opportunity for those in this country to take control of their financial futures.
New players and fintechs in this space should see the recent banking royal commission as an opportunity to fill the void the big banks have left and act as a trustworthy and improved alternative.
Australians are facing more financial decisions than ever before in an increasingly complex financial environment and good financial advice is paramount in making the right decisions.
James Coyle is the chief customer officer at digital advice provider SuperEd.
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