Only a few years ago, the average client was in their mid-50s, paying about $2500 a year and likely to be one of almost 100 in their adviser’s book.
Fast-forward to the end of 2021 and, in that short period of time, the situation has changed. The cost of financial advice has increased – largely due to compliance costs, profitability pressures and lower supply – and the age of the average client has jumped five years, to 60. Similarly, the median fee has risen almost 40 per cent in four years, to more than $3500.
At the same time, advisers are rationalising their client bases but growing their funds under advice (FUA). The average adviser now has fewer than 90 clients, with average FUA per adviser sitting at $79 million, compared with $66 million in 2018.
Figure 1 – Mean and median client fees: 2018-21
Source: Adviser Ratings' 2022 Australian Financial Advice Landscape Report
Cost pressures and the client mix
There are a few parallel processes at play that are changing the typical client mix.
First, the amount it costs to provide advice has increased, which has made it unviable for some practices to continue to serve their lower-value clients. Second, the number of advisers in the industry has fallen by more than 10,000 in four years. Together, these two things have resulted in many orphaned clients, despite the unfaltering demand for advice.
We’ve seen an increasing number of one-off clients in the past couple of years. In fact, last year, almost one-in-four clients fell into the one-off category (versus recurring). The trend is partly attributed to the complexity around COVID-19 support packages, which may mean we’ll see some rebalancing when we revisit the data next year.
Figure 2 – One-off vs. recurring clients (2020 and 2021)
Source: Adviser Ratings' 2022 Australian Financial Advice Landscape Report
Unmet advice needs and accessibility
While we have seen some orphaned clients move across to super funds for advice, our research indicates that many Australians are still likely to have unmet advice needs.
The problem is squarely in the crosshairs of the Quality of Advice Review, which has already recommended several potential avenues for addressing affordability. Its final report is expected before the end of the year.
If the cost to advise decreases, we expect a series of ripple effects, including an increase in the number of advisers in the profession and, in turn, the availability of advice at a lower price point. This could increase access for demographics such as younger Australians and those who want more piecemeal advice. The average client may change again.
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Comments1
"Interesting point about the average client was 55 and now has gone to 60, which reinforces what I have been saying for over a decade, in that the foundation of ALL Financial Planning has always been Wealth Protection and that demographic is aged from mid twenties to mid fifties, at which point, they are looking to reduce or cancel their Insurance protection, due to their increased wealth and family responsibilities now decreasing, which leads to them seeking out the wealth accumulation / Investment Advice they need and desire. What this clearly shows is that the Insurance / wealth protection advice and product model, is a totally different Business to the Investment / wealth accumulation advice model, yet there is, even today, a reluctance for this blindingly obvious situation to be recognised and appropriate training and purpose built education requirements established to allow these different Business models to work efficiently, with less red tape and blockages that has nearly killed the Wealth protection Industry, with most risk advisers being forced out by idealism and vested interest groups who talk much, with little sense and less care for what they have done."
Jeremy Wright 16:28 on 28 Sep 22