Financial planners count the costs of client engagement

New research confirms consumers who use financial planners are generally happy with the service they receive but, as Mike Taylor reports, it also points to how many clients become disengaged from the planning process.

The degree to which the Government’s Future of Financial Advice (FOFA) ‘opt-in’ arrangements will impact financial planners, and run counter to consumer habits in Australia, has been revealed in a new study conducted by Roy Morgan Research.

The research, released last week, focused in large part on how consumers perceived financial planners and financial planning brands. However, it also revealed the degree to which the same consumers who appear to be disengaged with their superannuation are also likely to be disengaged with their financial planners.

While opt-in is all about requiring financial planners to proactively contact their clients at least once every two years, the Roy Morgan research has revealed just how much of a challenge this is likely to be.

The report showed that 39.7 per cent of Australians with superannuation had used a financial planner for their superannuation or investment needs at some point, and that the usage of financial planning increased with age. It also showed that many consumers were far from proactive in maintaining contact with their planners.

The report said that of those that had used a financial planner, only 52.4 per cent were in contact at least on a yearly basis.

“This suggests the remainder are not in an active relationship with their adviser,” the Roy Morgan report said.

The report, suggesting that more than 47 per cent of financial planning clients don’t proactively stay in touch with their planners, appears to confirm concerns that opt-in represents a much more significant hurdle than is being portrayed by either the Government or the industry superannuation funds.

In circumstances where recent research sponsored by the industry funds has suggested relatively low costs associated with opt-in, the Roy Morgan research points to some planning practices facing significant costs in trying to actively re-engage and draw positive responses from nearly half their clients.

It also tends to confirm the findings of a recent Money Management survey suggesting the cost of opt-in might run to more than $100 per client, and that it would actually result in the loss of many clients unless planners were prepared to expend significant amounts on re-establishing and maintaining contact.

Also running somewhat counter to the direction of the Government’s FOFA changes was the report’s findings with respect to planner remuneration. It found that the most popular method of payment for financial advice was “via ongoing commission, or as a percentage of investments, with 42.3 per cent of respondents who used financial advice reporting this method”.

It said the next most popular method was paying per visit, with 39.6 per cent, “which is not surprising given that the major licensee groups have already transitioned across to fee for service arrangements for clients since 1 July 2010”.

The Roy Morgan report will also surprise many critics of the financial planning industry with its finding that “while almost half of respondents who use financial advice are not in an active relationship with their adviser (ie, no contact for over 12 months), and a large proportion are paying via ongoing commission, the majority of Australians still feel that they are getting either good or fair value from their advisers”.

Confirming the outcome of other research, the Roy Morgan Research Retirement Planning Report found that “73.9 per cent of Australians who had used an adviser felt they received good or fair value, suggesting that most were happy with the overall service and outcomes they achieved from the service”.

The Roy Morgan research also confirms that it will be the major institutions and the industry funds who are the major beneficiaries of the Government’s proposals with respect to the provision of graduated advice, pointing to the fact that those most likely to use a financial adviser for holistic advice are both wealthier and older.

It found that people who used a financial planner (either aligned or independent) or an accountant to establish their wealth management product were more likely to be in the top two quintiles than those who rely on another source, such as an employer or through the institution directly.

“This suggests that there exists a need in the market for financial planning for the lower quintiles, for people who are in the wealth accumulation stage. However, as these consumers have a lower income and fewer funds under management, cost and how to pay for the advice would be a bigger consideration for this group compared to the more affluent,” the report analysis said.

It said initiatives such as the Financial Planning Association’s ‘Ask An Expert’ program, which offered free general advice for a little over a month each year to coincide with Financial Planning Week (held in May each year), and the growth in intra-fund advice being offered represented a step in the right direction, “but it remains to be seen if these programmes will be used by those who need it, or if they will simply be utilised by those who would have already used a financial planning".