Showing the value of financial advice is key to willingness to pay for advice
It’s now more important than ever that the industry educates people about the benefits of financial advice and overcomes distrust
Recent research conducted in Australia shows that people who use or have made use of the services of a financial adviser are convinced of the benefits of advice – and are therefore willing to pay for advice. However, there are many individuals who have never used a financial adviser and who are reluctant to get advice, and to pay for it. Why? Because the industry has failed to convince them of the value of advice and to gain their trust. To ensure more people get financial advice – and thereby improve their future financial prospects – it’s critical that the industry addresses these two issues through education and communication.
There is a demand for financial advice, but paying for the value it provides is a challenge
Extensive scrutiny, research and regulatory changes have been dominating the financial services industry globally. Hamilton van Breda, Head of Retail Sales at Prudential, highlights recent research about the benefits of financial advice carried out by the Association of Financial Advisers (AFA). According to this research, more than 70% of the participants who don’t have a financial adviser will ‘possibly’ or ‘quite likely’ consider getting advice in future. “This suggests a substantial market desire to access the benefits of advice,” says Van Breda. “However, paying for advice is a barrier.”
To overcome the reluctance to pay, the industry must demonstrate value and overcome distrust
“Financial services have struggled to articulate the value of advice for many years, which makes it difficult for consumers to conclude that professional advice is something worth paying for,” explains Van Breda. He adds that many of the aspects that make advice so important can seem intangible and are not always visible, especially to investors who have not seen and benefited from advice first hand. Trust is also a crucial issue. While financial advisers are highly trusted by those who have an adviser, the unadvised has low levels of trust when it comes to financial advisers, and would rather trust healthcare professionals.
The conviction about the value of advice from those who have an adviser is encouraging
The AFA research results showed that people who have a financial adviser were convinced about the value of the service and were able to identify three key roles their advisers fulfil:
- Providing strategic advice – Coaching and guiding clients through the big long-term life decisions that could affect them throughout their lives.
- Providing tactical advice – Providing expertise on insurance, investments and retirement planning and creating a personalised financial plan. (This deals more with current and medium-term needs or goals and ways to optimise changes in investment markets and legislation.)
- Implement and adapt the financial plan – Put the plan into action and make adjustments where necessary to keep clients on track to reaching their goals (includes which investment products and managers are selected).
Those who get advice also enjoy intangible benefits like financial freedom and peace of mind
What’s even more encouraging is that investors who have an adviser also reported that the advice holds intangible benefits, above and beyond providing product and strategy solutions. These benefits include helping them make big financial decisions, consolidating their finances and financial plans, and facilitating the path to financial freedom. According to van Breda, participants without an adviser were significantly less aware of these benefits.
How investors pay their adviser is not a key issue
Investors’ preferences for how they pay their adviser are quite diverse. The research revealed that about 20% of the respondents’ preferred method of payment was a fee determined by the service provided. Approximately 20% would prefer to pay an annual retainer or flat fee for advice, while 14% would prefer to pay a fee based on investment performance goals. This illustrates that how people pay for advice is not necessarily a key issue, as these investors – irrespective of how they preferred to pay – were still convinced of the value of advice, and paying for it.
Advised investors have greater financial certainty – and this is ultimately what the industry must communicate to consumers
The Australian study clearly showed that individuals who use a financial adviser have a greater level of understanding of their finances, are happier with their investments and recognise that the benefits of advice that go beyond product and strategy expertise. “So it’s not about the cost of advice but really about the value of advice. By choosing to seek guidance from a professional, they now have certainty around their financial future and greater peace of mind,” explains van Breda. The challenge for the industry and advisers themselves is to find a way to communicate these benefits to the broader population, through the media, professional bodies and advertising.
