In a rapidly changing world fraught with economic uncertainties, individuals are increasingly seeking guidance on how to manage their income, and hopefully, available savings. Consequently, there has been a growing trend in consulting financial advisers for their services. According to the latest consumer survey, 79% of respondents do not have a financial adviser, yet 30% of those are contemplating acquiring one in the future, indicating a significant upward trajectory compared to previous years. However, while the trend of recognising the benefits of financial advisers continues to rise compared to previous years, the significant number of people currently not receiving any type of advice raises the question: what is the underlying cause?
Figure 1 – Current and future use of financial advisers among consumers
Source: Adviser Ratings
Note: 24% of consumers are unadvised and looking for an adviser they can afford.
When analysing this cohort, attention must be directed towards those who are contemplating acquiring financial advice and whether they have the financial means to afford the associated fees. Despite recognising the benefits of having a financial adviser, only 40% of consumers are willing to bear the additional expense to cover adviser fees. The average amount consumers who seek advice are willing to pay for financial advice stands at approximately $900, indicating a slight decrease from previous years. However, significant differences emerge when examining the figures between advised individuals, who are willing to pay over $1,700, and unadvised consumers, whose payment intention drops to $550 (a 15% decrease compared to last year) for those without a financial adviser. This underscores the financial constraints faced by the latter demographic.
Figure 2 – Amount advised vs. unadvised consumers are willing to spend on financial advice
Source: Adviser Ratings
Note: There are significant differences in the capacity to pay between advised and unadvised.
Examining the perspective of advisers reveals a differentiation in fees for both existing and new clients, with only a minority (6%) charging fees below $1,500 for new clients. The median fee at the moment is close to $4,000. This stark contrast in fee structures creates a significant barrier to entry for consumers, as more than 70% of them cannot afford the average fees charged by advisers for new clients. Consequently, it is for this reason that unadvised consumers remaining in this gap replace the figure of the financial adviser with recommendations from friends or family, based on what they see or hear in the news. Others turn to social media or seek assistance from other professionals such as accountants or lawyers.
This disparity persists despite a decline in AFSL license fees on average year over year. While practices are paying less for licenses per adviser, this reduction has not translated into decreased fees for attracting new clients. As a result, the gap between advised and unadvised consumers continues to widen, leaving a substantial portion of the market untapped.
In conclusion, addressing the fee barrier between consumers and financial advisers requires collaboration and innovation. Advisers need to reconsider their fee structures to make services more affordable, while regulatory bodies should advocate for policies promoting transparency and consumer interests. By working together, we can create a more accessible and equitable financial landscape where everyone can receive quality advice tailored to their needs.
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Comments4
"Thanks Callum. The decline in AFSL license fees was revealed based on data analysis from our survey of Australian practice heads. This trend has been observed primarily among advisers who choose to set up their own AFSLs, which tends to be less costly compared to operating under a third-party license. This approach not only reduces fees but also offers greater autonomy. However, we acknowledge that experiences can vary, and we are interested in hearing more about different perspectives in the industry."
Adviser Ratings 12:20 on 13 May 24
"16,000 financial advisers today may be less than one quarter what the numbers were before the 2008 Global Financial Crisis. If Politicians asked the Government Actuary to calculate the number of advisers needed for financial advice efficacy in the Australian population, the demographic may be 10,000 advisers per 10 million population. This may suggest that Australian society needs 260,000 independent advisers for productive efficacy. An obvious failing was the loss of around $300 million a year to Internet scammers. If those Australians had a licensed financial advisers-relevant provider, they would have picked up the phone and asked their adviser before they did the scam transactions. Therefore, it appears that scammer profited from Politician's dearth in adviser levies, CSLR levies from July 2024 and Delivering Better Financial Outcomes reforms, which will require advisers to prove costs to super Trustees. All we have to do is post a copy of our 29 January 2023 ASIC invoices financial adviser levy to super Trustees. Mine was $33,500 and $16,400 which will need to be passed onto clients and increase their Ongoing Adviser Services fees. It's Politicians’ myopic madness ... we have to justify ASIC's levies to super fund trustees, doesn't the left hand know what the right hand is doing?"
Ross Smith 15:50 on 08 May 24
"'a decline in AFSL license fees on average year over year'. This has not been my experience nor have I heard of any adviser's licensee fees reducing. Are you able to comment on what research has led you to make this statement? "
Callum Glasby 13:56 on 08 May 24
"While it is heartening to see that advised clients have a higher expectation of the fees involved, even they are a long way from what we need to charge to provide profitable advice. Even with legislative assistance, we could never deliver advice that cheaply and make a profit."
Wayne 13:54 on 08 May 24