Younger Australians demand ‘more progressive’ fee models: Report

In intelliflo’s latest white paper report, Advice, evolved: A new era in Australian financial services, the tech firm suggested that, after years of regulatory upheaval, the advice profession has now reached a pivotal moment in its evolution. However, advisers now need to shift their focus somewhat to create businesses of the future.

With cost often cited as the biggest hurdle for clients, the report argued that advisers should consider moving away from the traditional annual fee structure and instead should look to offer “more progressive ways to pay” as a means of opening up advice to more Australians.

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Faced with persistent cost-of-living pressures, the report suggested that implementing instalment-based payment plans, partnering with institutions to offer scaled advice or utilising a combination of human expertise and digital offerings, could allow advisers to offer services at a lower price point.

According to intelliflo, while some high-net-worth (HNW) clients are still willing to pay the upfront costs of financial advice, younger clients will demand more flexible and transparent fees-for-service that allow them to “test the waters” of financial advice.

“To engage more clients in the advice process, the profession will need to shift away from its traditional reliance on upfront and annual fees and adopt a more consumer-centric approach,” the report said.

Notably, despite excessive red tape and high operational costs usually being noted as the primary drivers of the cost of service, the report argued that efforts to address this don’t appear to have had the desired effect for clients’ wallets.

“On the adviser side, new innovations are continuing to bring down the cost of doing business, but despite that, we don’t expect to see the average fee drop on the retail side,” the report said.

Bridging the generational divide

As the intergenerational wealth transfer comes underway, intelliflo argued that the profession needs to make a conscious effort to seek out the next generation of clients, rather than solely focusing on pre-retirees.

Citing data from Adviser Ratings, the report stated that the average advice client is 58 years old, with clients in their early 30s and 40s often left to fend for themselves.

While cost is a primary factor, both clients’ inability to afford advice and them being less profitable clients for advisers, the report suggested that Millennials have never been actively targeted as potential advice clients and perceive financial advice as a service for those in or approaching retirement.

In order to correct this, the report recommended the advice profession, along with other industry stakeholders, need to develop a “whole-of-life pathway” that engages Australians earlier in life, creating touch points with advice throughout adulthood.

“The whole-of-life pathway will likely involve the emergence of more Millennial-focused advice practices, gateway-to-advice technology offerings, and strong inter-profession partnerships to ensure Australians are captured and catered for through each life stage,” the report said.

Although the advice profession will play a crucial role in getting younger Australians engaged with their finances, the report suggested that superannuation funds are also a key player in this space.

With tranche two of the Delivering Better Financial Outcomes reforms set to allow super funds to nudge their clients into action at key life stages, the report suggested that this will improve the affordability and accessibility of financial advice.

While institutions being welcomed back into the advice space has been met with varying levels of indignation from the advice profession, the report suggested that the capabilities set to be awarded to super funds “could open a new gateway to the full advice experience”.