Levy missed a trick to rebuild a dynamic profession
As the industry awaits government action on Michelle Levy’s recommendations, one big question looms: Why are so few Australians getting financial advice?
For many people there is an easy answer: Financial advice is too expensive, inaccessible and there aren’t enough advisers to meet the market.
As Michelle Levy states in her final report, there are about 16,000 financial advisers in Australia and about 25 million Australians.
“There are too few financial advisers to provide financial advice to all who need it,” she said.
“Not all advice can be provided by financial advisers, and nor should it be. The 16,000 financial advisers are required to hold relevant degrees and to comply with professional standards. They are entitled to charge a fair fee for their advice.”
Levy believes this fee “will always be out of reach for some people and, even when it is not, not everyone will want to pay a financial adviser".
The crux of the issue is that the future of financial advice in Australia is being reshaped, and actual advisers will play a relatively small part role alongside super funds, banks and robots.
But it didn’t need to go this way. The Quality of Advice review could have considered professional financial advisers as the only qualified and experienced cohort to deliver advice to Australians, and then made recommendations around how they could attract and serve more people.
Levy chose to redefine what advice is rather than rebuilding a profession.
The UK market is a perfect example of a profession that is thriving despite increased compliance and regulatory reforms that have increased the cost of advice.
Over a quarter (26 per cent) of people in the UK seek professional advice, while only one in 10 do here in Australia. According to the FCA, customers who have £10,000 ($19,000) of investible assets may need some form of professional financial help.
A 2021 report by UK pensions giant Royal London provides some useful insights. It found that a financial adviser will take on a client who has, on average, £48,600 ($91,000) in investable assets.
If British advisers are taking on clients with $91,000 they have a large market to tap into. And while the cost of advice is still a deterrent, the bigger barrier is one of perception.
Royal London found that 29 per cent of non-advised customers believe advisers can only offer guidance and almost half (45 per cent) believe advisers are only interested in selling them something.
The report looked at four segments of the UK population who aren’t receiving advice and found the largest group, called the ‘Guidance Gap’ were 27 per cent of the adult population.
“Covering 14.2 million customers, this is the largest of the four advice gaps. This group is the most likely to feel anxious about their money. And they worry the most about being able to cope financially when they retire,” the report said.
This group has an average income of £34,000 ($64,000) and average investable assets of the same amount. They are relatively young, with 37 per cent falling between the ages of 18 to 34.
Their main barrier to seeking advice is that they think it’s too expensive. Yet 40 per cent have no idea or expectation as to what an adviser would charge for their services.
“Only 6 per cent of this group have sought support from a government guidance service – although as many as 24 per cent are open to receiving financial advice when they’re given some basic education about the benefits,” the report found.
“These customers feel the least prepared to cope with a life shock (14 per cent) – so they represent the highest risk of falling into a financial crisis.”
What these findings reveal is a fundamental issue with awareness about what financial advice is and the value it can provide to individuals, even those on lower incomes.
If the Australian government’s answer to more accessible advice is super funds, banks and digital solutions it has missed a trick.
The real solution is articulating the value of the advice already being provided by 16,000 professionals. Any new legislation introduced should support the growth of the profession, the creation of jobs in the advice industry and scalable options for those who need it.
AUTHOR
James Mitchell
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"...professional financial advisers as the only qualified and experienced cohort to deliver advice to Australians.." Please. 1. basic super stuff is a waste of a FP time and they cant make money on it. The compliance/paperwork time for FP to make money is high. The QAR will lower costs means higher margin for adviser. In any event, it is spot on various avenues can help people financially. It is garbage people with $20k, 40k 90k need financial advice. Most adviser I audited over the years just switched super funds and constructed a managed fund portfolio - which unlikely didn't outperform the index and had high ICRs. The reshaping should be they are there only for HNW client who they can charge properly and actually help. I say this outside of life insurance as that is a different game.