In a shrinking financial advice market, the cost of serving clients – and how much they are willing to pay – is a topic of frequent re-negotiation.
Unsurprisingly, a smaller workforce of financial advisers, increasing barriers to entry and ballooning demand have translated into higher fees for advice. Last year, the median annual client fee rose by 16 per cent, to $3,256, with most advisers favouring a fixed-fee model.
Meanwhile, many advisers have had to orphan their unprofitable clients to maintain or aspire to profitability amid rising professional costs. This can create a sense of discomfort for some advisers, who have had to reduce their books without finding a suitable new home for these clients.
The value of advice: consumer research
The rising cost of advice has priced many Australians who want advice out the market.
Recently, Adviser Ratings asked more than 1,200 Australians whether they see value in professional financial advice. A majority (63 per cent) said yes.
However, when those who saw value in professional financial advice were asked how much they would be willing to pay, most (61 per cent) said less than $500 a year. Just over one in five (22 per cent) said they’d pay up to $1,000 annually, while less than 10 per cent said they would pay up to $2,500 a year.
Only one in 20 said they would pay between $2,500 and $5,000 each year for professional financial advice, while just one in 40 said they would pay more than $5,000 a year.
Figure 1: Proportion of Australians who see the benefit of professional financial advice
Source: ARdata Consumer Survey of 1500 Australians, 2022.
Figure 2: How much Australians would pay for financial advice
Source: ARdata consumer survey of 1500 Australians, 2022.
Note: Only consumers who saw value in professional financial advice were asked how much they would pay. More than 75 per cent of this sample group were aged above 45.
Reaching more Australians
It’s clear many Australians see the benefit of financial advice. Matters like saving for retirement, superannuation, budgeting and investing a small amount of money topped the list of concerns our surveyed group would like to learn more about.
However, our consumer survey results indicate many Australians perceive the current cost of advice as out of reach, while our other research shows advisers are increasingly having to turn clients away. There are few places for these Australians to turn for professional advice at the right price point.
While there’s been much talk about scaled advice, a workable model in which advisers are correctly compensated and protected has yet to emerge. More work needs to be done on this front, urgently.