Jason Andriessen is consulting partner at financial services research boutique MYMAVINS and chair and co-founder of Catalpa, a community of independent financial planners.
Upward pressure on financial advice fees could put the benefits of expert professional help out of reach for more Australians who need it most. Jason Andriessen CFP® Managing Director of CoreData discusses this challenge facing the financial planning profession.
Every day financial planners get to see the positive impact of financial advice in their clients’ lives. But recent research undertaken by CoreData, the Adviser Pulse Check survey, shows margin pressure is forcing financial planners to materially increase client fees. Advice fees are already perceived by consumers as much too high, so these fee hikes could price advice out of reach for people who stand to benefit most.
The positive impact of financial advice
Australians worry about money to the extent that it impacts their mental and physical health. When people suffer from financial stress they drink more, sleep less and have more conflict in their personal relationships. The good news is they can do something about it and professional financial advice has been proven to help.
Research1 shows that Australians who have an active relationship with a financial planner report improved mental and physical health, more peace of mind and better personal relationships. They are wealthier and can achieve more in life, all with less risk along the way.
Fees are already a barrier to accessing advice
Most prospective clients perceive their financial planning needs to be simple and expect to pay less than $1,000 for initial advice. In reality, financial planning advice can cost much more to deliver. The median annual fee charged by financial planners to their clients currently sits in the $3,000 to $5,000 range.1
However, financial advice should not be undervalued. But prospective clients could be more open to paying for professional advice from a financial planner if their fees were in the same ballpark as other professions.
Changing economics of advice
Since the Hayne Royal Commission, the cost base of financial planning practices has been steadily increasing. Financial planners have endured year-on-year fee increases by licensees, rising professional indemnity insurance costs, and now the ASIC levy has been raised again, representing a 160% increase over just two years.
All the while practice efficiency is decreasing because the compliance demands of licensees are tightening, work practices are becoming even more complicated and while technology transformations are in progress the benefits of these may take some time to be seen.
Fee increases across the board
According to CoreData’s most recent quarterly Adviser Pulse Check survey, more than half (52%) of financial planners have increased their client fees in the past six months. And those fee increases have been material. Around two in five of planners who increased their fees did so by more than 10%.
Unfortunately for clients, this appears to be just the start. The research1 also shows that around seven in eight financial planners already have plans to increase fees again. And half of them expect to do so within the next six months.
Déjà vu all over again
If you think you’ve seen this all before, you’re right. In the words of the late American baseballer, Yogi Berra, “It’s like déjà vu all over again.”
This is exactly what happened in the UK after the Retail Distribution Review changes were implemented. The experience in the UK was milder than the Australian experience. The number of financial planners in the UK decreased by 18% between 2009 and 2013, but it still impacted negatively on consumer access to advice2. In Australia, financial planner numbers are already down by more than 25%3, and the higher education transition period still has years to run. In the UK, client fees increased by an average of 15%2. In Australia, that figure could be much higher.
Most financial planners don’t want to price their services out of reach for potential clients, but circumstances are forcing their hand. Something has to give. With rising education requirements and new professional standards, now is the time for a regulatory paradigm shift to enable more affordable advice.