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Financial Advice: What consumers really think

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ASIC recently released its research report that considers what consumers think about financial advice.  It’s an interesting read, at least for this financial adviser.

Some of the key findings were:

  • 27% of Australians had received financial advice in the past;
  • 12% of Australians had received financial advice in the last 12 months;
  • 41% of Australians intended to get financial advice in the future;
  • 25% of Australians intended to get financial advice in the next 12 months; and
  • 20% of Australians had considered getting financial advice in the last 12 months, but had not gone ahead.

The topics that the participants were either looking to get advice on, or had received advice on were:

  • Investments (e.g. shares and managed funds)                     45%
  • Retirement income planning                                                  37%
  • Growing superannuation                                                        31%
  • Budgeting or cash flow management                                    22%
  • Aged care planning                                                               18%

These are the statements the participants most commonly agreed with:

  • Financial advisers have expertise in financial matters that I do not                                                                 79%
  • Financial advisers can recommend products I would not normally find on my own                                        75%
  • It is the job of a financial adviser to read the fine print and notify their client of anything important                74%
  • Financial advisers can introduce me to good ideas I might not have thought of                                             73%
  • Financial advisers can educate me about financial matters                                                                            69%

The top attributes when selecting an adviser were:

  • Level of experience                                                                        41%
  • Reputation                                                                                      38%
  • The ability to talk to customers in a way they can understand       36%
  • Taking the time to understand the customer and their goals          32%
  • Low cost                                                                                         30%

When asked about the reasons they did not or might not get financial advice, the most commonly selected reasons were:

  • Financial advice is too expensive                                                                                         35%
  • My financial circumstances are too limited for it to be worth getting financial advice           29%
  • I like to manage my finances by myself                                                                                26%
  • I do not trust financial advisers                                                                                             19%
  • I do not see the value of consulting a financial adviser                                                        18%

Staggeringly, but not surprisingly given the industry was laid bare by the Hayne Royal Commission, 49% of online survey participants agreed financial advisers were more interested in making themselves rich than in helping their customers, and 37% agreed that financial advisers did not generally have the customer’s best interests at heart.

So, what does this financial planner think about all this, apart from the bleeding obvious – that the industry has a lot of work ahead of it to change the way it operates.

Well, firstly, there is a very strong connection between 35% of participants believing ‘financial advice is too expensive’, and 18% believing ‘I do not see the value of consulting a financial adviser’.  You see, we human beings buy things we can’t afford all the time.  Just look at how many fancy iPhones and luxury cars you see when you walk down the street.  But people value these things, and therefore they justify the cost.  So, it’s not the cost of financial advice that is the problem, it’s the value.  In other words, the reason participants believe the advice is too expensive, is because they do not see the value of the advice.  Let’s talk this through a bit more.  Basically, financial planners have never really had to explain the value of their advice in the past.  But those days are long gone and the industry is, generally speaking, ill-equipped for this new world.  As advisers, we need to get much better at articulating the value of financial advice.  In fact, for many advisers, they first need to look out how they provide much greater value in the first place.  The days of simply selling financial products is over.

Another aspect of the report that was interesting, but not surprising, was that participants had difficulty in assessing the quality of a financial adviser, as they did not feel equipped to judge the expertise of a financial adviser and instead relied heavily on factors that could be easily observed such as interpersonal skills.  So basically, clients were judging advisers on their rapport building skills.  Imagine if that was how you selected your brain surgeon!  So, how should consumers deal with this issue?  Well, a good start is to judge your adviser based on the quality of the questions they ask you, and how well they listen.  Good advisers will provide you with a clearly written proposal regarding how they can add value, what the advice will cost and how you pay for the advice.  This proposal should allow you to see how well they understand your specific needs and concerns.  Oh, and concerning how they are paid, make sure that the only money they make, is paid from you to them.  This alone will solve many of the conflicts that have plagued the industry over the years, and help to ensure that your interests are put first.

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