In a contracting financial advice market, the expense of serving clients and the amount they're prepared to pay is a subject of regular 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 been forced to abandon their unprofitable clients to sustain or strive for profitability in the face of escalating professional expenses. This situation can lead to unease 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 evident that many Australians recognise the value of financial advice. Issues such as saving for retirement, superannuation, budgeting, and investing a small sum of money were the top topics our surveyed group expressed interest in learning 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.
Article by:
Comments18
"Simple fact is that it takes too much time to provide advice in Australia and that this flows into the pricing. Most advice could be provided in less than 50% of the time it currently takes with some simple changes in legislation and oversight by the regulators. This however will not happen so advisers will just keep turning people away until we reach an adviser level where those remaining can be profitable. The human consequences of those losing their businesses and mental health will remain extreme but realistically no one in power cares. The position with ongoing fees is even more ridiculous with at least 50% of my ongoing fee being charged to satisfy unwieldy and inefficient compliance requirements when realistically the majority of my client reviews should be "has anything major changed?". If no lets just sit and forget with maybe some minor changes and if yes lets adjust as applicable. These clients are however charged a fee so they can call me when they want to do so -- it should be a minor fee but at present it is more than what 92.5% of clients are prepared to pay because I need to complete forms to keep the compliance area happy. These forms however have no value to the client and they usually end up ignored or thrown out. The client always wins in the end and from the research 92.5% are not prepared to pay what an adviser needs to charge to remain profitable and until that changes adviser exits will continue."
Scott 12:21 on 20 Jan 22
"The problem here is the people doing the surveys. Survey and statistics are the same, ask questions that will give the answer you want. In the current environment, why would you start with $500?? If you started at $2500 as the lowest cost the majority of respondents would pick that also. Further, as noted by others, asking what people would pay when they don’t know the value or context is a waste of time. If they don’t know what value it will provide of course they won’t. Value it!"
Wayne 10:28 on 20 Jan 22
"Yes, but how many of these respondents were actually shown the value of advice before they answered? An educated Australian values Financial Advice much higher than these amounts. Just a little bit of awareness and time is what they require to appreciate the value we bring. #GreatAdviceChangesLives "
Jodie 23:50 on 19 Jan 22
"Unfortunately due to the complete and utter over-compliance of our industry, we have to charge too much for financial advice. We have to produce a 30+ page SoA with extensive file notes on our 2+ hour ‘interrogation’, more often than not requiring a further 2+ hour meeting before the SoA is produced. Time is money and to be profitable we need to charge significant fees that far exceed those charged by Accountants. Most people just want basic advice and to go through options that may be appropriate. Legally though we are not allowed to do this. Clients don’t want a complex SoA. Simple guidance and education as well as assistance filling out forms is what most clients want. When we say the full advice fee will be $3,000 - $6,000 most people are not interested. Unless your client base earns $150k+ the ‘average Aussie’ is simply not willing to pay these high fees for advice. And of course must financial planning businesses charge annual review fees of $2k+ when in my opinion it is simply not warranted. Every 3 years or when there is a change to circumstances is all that’s required. Soon seeing a Financial Adviser will be like seeing a Lawyer - it will only be for the wealthy and that flies directly in the face of what the Government wants but this is what the Government has created! It’s sad!"
Simon 19:34 on 19 Jan 22
"The average Aussie has no problem paying 2-3% to sell their most important asset - their home - every 5-10 years. If advisers can demonstrate value for money, good judgement & an enduring focus on putting their clients' best interest first, they will have no problem attracting suitable clients who don't require it to be tax deductible ie. just like doctors & lawyers. I simply focus on the top 1%, where clients have no problem paying $10-100,000pa for quality advice, unattainable from the vast majority of advisers. Find a niche & price accordingly according to your level of expertise is my recommendation. For the rest, robo-advice is probably the best they can look forward to. O"
James Waggett 18:20 on 19 Jan 22
"Maybe it's just me... but I have never been in the "financial planning" business. I have always been in the "getting paid for financial advice" business. There has been this unrealistic notion that financial advice should be available for the masses. But here's the thing: the "masses" can't afford $500 pa and I have no desire to take my service offering anywhere down to that level (regardless of how much "red tape" is removed). Does it bother me that these people are missing out? Not really. Plenty of people miss out on plenty of nice-to-have things, and to be honest the masses probably have more pressing things to spend their money on than Financial Advice (or any professional service). And besides, if I look at the survey numbers above, there are about 18 people out of the 1,200 who are willing to pay more than $5,000 and they probably have the wherewithal to actually pay it. Just build a profitable business around the 1.5% of people willing to pay $5,000 + you will be able to provide advice on a pro-brono or subsidised basis for the occasional person who can't afford advice but really "needs" it. "
Darren 17:58 on 19 Jan 22
"Advisers should be their own licensees, and SOA costs reduced by being no longer than ten pages. If we are considered professionals, why can't we practice in a similar vein to doctors, where a simple script is the written record of their advice."
Nick 17:28 on 19 Jan 22
"I can remember a similar survey when adviser still received commissions and then even after they removed commissions the expected cost of financial advice was still $500. I thought it was just that people were used to commissions and didn't take into account the redaction of commissions. Obviously expectation is that it can all be covered in 2 hour meeting."
Andrew Perkins 17:07 on 19 Jan 22
"I have been noting down the costs my business currently has. In the last 4 months I've spent $12k in paraplanning costs, I have an associate adviser which minimum is $80k salary and an administration staff of around $50k (who is brand new to the industry as I was unable to find anyone experienced who wasn't asking for an $80k salary). In my eyes, I need to have these staff members to be able to do the work properly. I also have to be able to cover my salary, as well as licensee costs. Unfortunately, $500 - $1500 for ongoing fee or up front fee is not viable. I have yet to meet an adviser who can charge less than $3,300, show me a compliant file, as well as provide quality advice. I don't necessarily believe we have a lack of ethics in charging, we're still a business, this isn't a not for profit service. In saying that I have also seen advice firms in the market that do charge $10k advice fees for a balance of $60k, these are the ones that need to be weeded out. Unfortunately, the rest of the ethical advisers and Australians who cannot afford current day advice are the ones suffering, and due to the compliance burden it just makes it harder and harder for ethical advisers to remain. "
The disgruntled adviser 17:06 on 19 Jan 22
"Fat chance of Treasury telling Frydenberg that it's a good idea to make financial advice tax-deductible. That ideas been round since the time life insurance premiums ceased to be tax-deductible. Treasury will merely say to the Minister "brave decision, Treasurer, but such a decision by you will cost us a $xxx billions- please tell us which of your favourite government program you want to cancel, now that you have given away the all that revenue." Works every time!"
Bill Brown 17:04 on 19 Jan 22
"How can one blame the public. If the average salary is somewhere between about $60 and $80k, after tax to then spend over 5% of what they earn each year to obtain advice which is 20% advice and 80% compliance is a rip off. The advisor is also aggrieved because they are doing an enormous amount of work and why should they have to subsidise the cost of all the bumph that goes around advice. In trying to make the industry an ethical profession and weed out the few who weren’t doing the right thing, we now have a guaranteed lack of ethics when it comes to the fees needing to be charged. Yes, some people will make the costs back by using a few more tax effective strategies, or being educated not to make silly investments. But those tax savings come out of the tax payers pocket ultimately. "
Anna 16:46 on 19 Jan 22
"The reason we have this problem... Ministers have a 1990's perspective of what we do. I've even heard a minister say "what's wrong with giving a broad section of the community the same advice and scaling that up" when referring to robo advice as the answer for the problems we face. The government doesn't care that less clients can access good advice from us. They certainly don't care enough to try and understand what a modern adviser actually does. Thus, very soon we will be providing advice exclusively to wealthy retirees. The rest will listen to finfluencers and cashed up Industry Super Megafunds. "
This Bloke 16:39 on 19 Jan 22
"I am actually disengaging clients that don't generate at least a minimum of $1,500 a year. I know a Professional photographer that won't take his lens cover off for less than $1,000, so its a disconnect between the consumer's expectations and the cost of delivering professional advice. I totally concur with the 'disgruntled adviser' above."
Anon 16:35 on 19 Jan 22
"Clients will pay whatever the fee is if they see value in the Advice and relationship, we have to demonstrate this to them and if we can we will be able to charge appropriate profitable fees for our services."
Jonathan Kermode 16:25 on 19 Jan 22
"It is a shame that majority of Australians cannot see the full value of financial advice. People can justify a call out fee of $180 for a plumber who may spend 10-30 minutes diagnosing a problem with extra charge on top, but cannot understand the hours of work advisers need to put in to be able to provide a Statement of advice. It is almost as if Australians just expect advisers to provide it for free even though advisers had to pay for a degree, a diploma, extra curricular education and other costs on top of that. On average, for a very simple statement of advice, it takes around 5-10 hours from start to finish, including spending 2-3+ hours with a client discussing their goals, ensuring they understand the in's and out's of the possible strategies, products and what may be suitable for them. If advisers do not do this, it often results in complaints from clients saying they never understood what was recommended. I also often have clients who will tell me rather than me spend the time understanding what they want to want to achieve as well as their preferences, that they "trust" me and can I go away and just recommend what I think. The answer is no. You may be a client who is a low risk taker but telling an adviser not to do their due diligence and spend the time with you and they may possibly invest you into high risk investments because you use the word "trust" for your own convenience. If you are aware of the Royal commission into banking, super and financial services, you'll understand that by advisers doing their due diligence with clients properly, it takes time and will result in a better understanding of what is recommended and a better outcome for the client. The amount of work it takes now is making it hard for advisers to make a living by charging lower fees and more and more are exiting the industry. More time, less advisers = higher cost. Perhaps some onus should be put to Commissioner Hayne and the Royal commission for destroying the industry, making it harder for people to afford advice."
The disgruntled adviser 16:22 on 19 Jan 22
"The highlight in this survey result is not the potential clients willing to pay a small amount for professional service. It is rather baffling and poor read on Industry bodies such as FPA, AFA, AIOFP and other who have failed to connect with people outlining the process of financial advice form marketing cost to initial meeting cost and from Statement of Advice cost to Review Service. These bodies have left the 'educating the clients' role solely with the advisers when they meeting clients. A first time client has no idea how the advice process works and what are the associated costs with running a practice. From education requirements, staffing matters, regulatory obligations to supporting one's own household; the cost has ballooned manifolds in recent years. Of course, an everyday consumer wishes to avail a professional service but is out of touch from reality on cost associated with it due to lack of interaction from the Industry as a whole with the public. The onus is certainly on the advisers to educate the clients, not only on their goals, objectives and future but to bring them to understand how the advice process works and how the cost has been increasing steadily due to the above mentioned issues. The Industry groups are certainly lacking in that ability. "
Imran 16:19 on 19 Jan 22
"making it fully tax deductible would be a good place to start"
richard cameron 16:15 on 19 Jan 22
"The government could consider subsiding the cost of advice to bridge the gap between what clients want to pay and what advisers need charge to remain commercially viable"
David 16:09 on 19 Jan 22