Breaking the shackles of advice

Advisers need to bring things back to basics for clients to address barriers and perceptions of advice like complexity, inflexibility, and lack of engagement, Tim Mitchell-Adams writes. 

Those of us in the industry understand the immense value of quality financial advice — how it can transform lives and set people up for later in life. But the fact remains that only 20 per cent of Australians currently use an adviser.

What can we do to further engage and educate the remaining 80 per cent of people of the value of advice?

Even though there are countless examples of how financial advice changes people's lives for the better, and instances of poor advice are in the extreme minority, we tend to hear more about when things go wrong rather than right.

One of the key obstacles in engaging people to understand the value of advice is the perceived complexity. Advice is often deemed to be inflexible and purposefully confusing.

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As a profession we need to bring things back to basics for our customers. The customer sets the agenda and the whole approach is far more collaborative between the adviser and customer, bringing the much needed transparency and engagement that some perceive to be missing from the advice experience.

In fact, if we are looking through the lens of a customer, there are three overarching things we know they are looking for — control, transparency, and flexibility.

If we think about removing complexity we need to consider how we engage people much more simply. What do people want from an adviser and how can an adviser help them achieve it?

People want to live a life of opportunity and wellbeing - and at the core of this is financial wellbeing, because without it, as individuals, we will never have the flexibility and freedom to pursue our goals in life.

And if we can help customers achieve their goals, as we do every day, not only do we keep them engaged over the different stages of their lives, we give them the financial wellbeing that allows them to live their best life.

Helping customers achieve their goals is already a pivotal part of the advice process. The goals may be as simple as paying off a credit card and getting out of debt, to the more comprehensive such as structuring their income and finances to allow for early retirement.

We already know helping customers understand what their goals are and how they can achieve them is the first step in the advice process.

And we know there are a few elements that underpin this. A goal needs to be realistically achievable. If the customer's objective is to retire early and buy a beach house but their projected income doesn't match up, then there needs to be an upfront conversation that sets them on the path to something more attainable.

GOALS NEED STRUCTURE

There needs to be structure to the goal. The adviser and client need to sit down and map out the goal to maximise the certainty of success and it needs to be tracked and monitored.

From these conversations with a customer about their personal circumstances we can have deeper conversations with them to explore their goals in more detail.

Developing good financial habits early on is key to building wealth across a lifetime. But the reality is we don't always spend enough time on what might be considered simple but is actually quite critical to overall financial wellbeing, such as managing debt.

A recent report by AMP and NATSEM shows the average Australian household has debt that is four times what it was 27 years ago, rising from $60,000 to $245,000. In 1988, the average Australian household could have paid off all its debt with the after-tax income it earned in eight months — today it would take almost two years.

Of course we know that debt can be a powerful strategy to help build wealth if managed appropriately, and the right kind of debt can actually help produce more income and assets.

But as we know, while good debt can create wealth, bad debt can just as quickly erode it. If we're helping clients achieve goals, including helping them develop positive financial habits from an early age, then the adviser and client relationship becomes a deeper and richer conversation, and the client's goals are more likely to be fulfilled.

There is a perception that in the current advice environment, some advisers are less focused on helping customers achieve these objectives, or what we might term ‘soft' goals.

One of the significant barriers to more people seeking advice is the perception that customers are advised on strategies that suit the adviser rather than focusing on the customer and their goals.

Customers don't want to be dealing with an adviser if they think they're only interested in selling them products, and while in my personal experience this is rare, consumer perceptions often suggest otherwise.

At its heart, good financial advice is about a shared journey between an adviser and client that sets the client on a path to building their individual wealth, and more importantly enhancing their overall wellbeing.

As people progress through the different stages of life, their goals will change. In the early years there might be a focus on managing and reducing debt, while the later years will focus on managing yourself into a position to live a fulfilling life as you transition to retirement and beyond, scaling back work or perhaps stopping it altogether.

As people move closer to retirement, we know their goals change, and their decisions are often strongly influenced by loss aversion — the concept that people prefer to minimise a loss rather than maximise a gain.

This happens because people place a very high level of importance on the money they have already accumulated for retirement over their lifetime. Understandably, people want security that they will be able to begin retirement with a level of financial confidence and security.

For any individual, having goals relevant to different parts of their life, gives life meaning and provides a sense of purpose and motivation.

While as individuals we might think about our goals in broad terms like having children, travel or living overseas, underpinning all of these is the achievement of our financial goals, which allows us a sense of financial wellbeing that ultimately translates into a happier, more fulfilled life.

We know the very real benefit advice can make in people's lives. By cutting through the complexity and engaging people at a simpler level earlier on, we will develop much deeper relationships between advisers and clients that will ultimately last a lifetime.

Tim Mitchell-Adams is the managing director of Charter and ipac, AMP.