Typically, Australians worry about money more than they worry about anything else and this can have many negative impacts on our lives. The good news is that financial advice has been shown to help reduce these high levels of anxiety around money. Time and time again, CoreData research has demonstrated the tangible and intangible benefits of financial advice. The evidence shows that our retirement system is working pretty effectively and that advice is a significant contributor to the average Australian’s retirement wellbeing.
In CoreData’s most recent project, our ‘Best Possible Retirement’ research, we unpick the statistical drivers of wellbeing in retirement. What we uncovered is that even though the retirement system is generally performing well for retirees, the compulsory super system is only one of the factors driving successful retirements. The research shows home ownership and access to financial advice have far more significant impacts on quality of life in retirement than how much super we’ve saved.
Advice improves lives
CoreData has recently undertaken research for Fidelity International on ‘The Value of Advice’. The research is based on an extensive survey of 2,228 adult Australians collected during November 2019.
What becomes clear from this survey is that Australians regularly worry about money. Around two-thirds of us worry about money at least monthly and money worries are not restricted to those who might be regarded as financially disadvantaged. Around two in five Australians with at least $1 million of investable assets say they worry about money at least monthly.
There’s a strong link between these money worries and our broader wellbeing. Most of us believe that financial stress has affected our mental health, and many of us think it has impacted our physical health as well. Unsurprisingly, money worries lead to relationship issues, with half of us saying that financial concerns have affected how we get on with family and friends.
The Fidelity International study also shows that advice is an effective solution to money worries. People who have an active relationship with a financial planner feel more financial peace of mind (nine in 10) and feel more in control of their financial situation (nine in 10).
It seems that advised Australians can expect to be better off as a result of the financial planning process. More than seven in 10 Australians currently receiving advice believe it has generated more value to them than it has cost them in fees. But the benefits of financial advice go well beyond wealth accumulation. Around half of Australians receiving financial advice say their mental health has benefited. Similarly, four in 10 people say their family life is better since receiving advice, and one in five say their physical health has improved.
The advice gap is growing
Given these benefits for Australians receiving advice, it’s troubling that so few people are seeking out a financial planner. And for those that are, they may be missing out due to a growing gap between the demand for advice and the supply of services.
On the supply side, the number of practicing advisers has fallen significantly during the past year. As at the end of February 2020, there were just 23,226 active financial planners listed on the ASIC register. That’s a reduction of 5,339, or around 19%, from the peak of registered advisers in December 2018.
There are many reasons for this fall in the number of practicing financial planners. Education standards have become more demanding, with FASEA requirements for new entrants now including a relevant degree and completion of a professional year.
Simultaneously, many major financial institutions are exiting traditional advice models and licensees and advisers are being challenged by the rising costs of running their businesses and delivering advice. The increasing cost of compliance isn’t helping either and it’s driving the cost to serve higher still. Given that cost is already a significant barrier for many potential advice clients, the uncomfortable reality is that those who need advice most may not be able to afford it.
Time for a new conversation
The Federal Treasury’s Retirement Income Review is in full swing. Its terms of reference are focused on the three pillars of retirement income: the Age Pension; compulsory super and voluntary savings. But by focusing only on the income, we miss the bigger picture.
The BPR Index is grounded in two large quantitative consumer studies: the Retirement Expectations Survey of 1,267 pre-retirees; and the Retirement Satisfaction Survey of 882 people living in retirement. The two surveys are directly comparable, so we are able to establish pre-retiree expectations of retirement and compare them to the lived experience of people in retirement.
The first insight from the research is that the retirement system seems to be serving retirees pretty well. This is evidenced by the BPR Index score of retirees being five points higher than for pre-retirees. And the index score doesn’t seem to change much with higher levels of wealth, suggesting that wealth is not a key driver of retirement satisfaction. If you do happen to have accumulated more than $5 million in personal wealth, then you can expect to be very pleased with your retirement.
So, what are the main drivers of wellbeing in retirement? Well, there are two that emerge from this research and they have nothing to do with super balances or the level of mandated super contributions: they are property ownership and access to financial advice.
Whether or not we own our home at retirement is a key driver of retirement outcomes. Retirees who own their home have a BPR Index score more than 25 points higher than those who don’t. And accessing advice clearly drives better retirement outcomes too. Retirees who have an active relationship with a financial planner achieve a BPR score more than 15 points higher than those who don’t have a planner.
If we are serious about improving the retirement system for the benefit of as many people as possible, then we should be keenly focused on improving access to effective, affordable advice.
Discussions about whether the Superannuation Guarantee should be increased to 12 per cent or 15 per cent or to some other figure are important but they’re missing this important point. We need to broaden our perspective to consider the non-financial aspects of retirement as well, and understand the role good financial planners play.