CoreData is working with the Joint Associations Working Group to uncover the true cost of advice across a range of business models and client scenarios.

How much does the true cost of advice actually cost to deliver? It’s the perennial question that has dogged the financial advice sector for decades, but it’s a question that market research consultancy firm, CoreData, is seeking to answer as part of a research initiative for the Quality of Advice Review.

The research is being conducted for the Joint Associations Working Group (JAWG), which was formed to provide a united industry response to Treasury on the Quality of Advice Review. JAWG consists of 12 industry groups – which among others include the FPA, FSC, AFA, and the Boutique Financial Planning Principals Association.

Speaking to Money & Life, the Global CEO of CoreData, Andrew Inwood, confirmed CoreData’s research was focused on identifying the true cost of advice, including the overall cost borne by financial planners to service their clients.

“The foundation of this research is set on uncovering three key elements: what are the costs of advice; what are the components of these costs; and how much of these costs are carried by the financial planner,” says Andrew.

According to Andrew, the costs of advice are many. These range from: the costs of licensing, including compliance and governance; fixed operational costs, such as staff salaries; technology costs, including platforms and software; through to a multitude of ancillary costs, like training, education, marketing, and the actual costs involved in servicing a client.

By looking at these costs separately, CoreData intends to build a detailed matrix of financial planning costs, and then map them to different advice models and client types.

“There’s a widely circulated view that puts the average cost of advice at $3,520, but that’s simply nonsense, as there are so many different types of advice models in the market, ranging from low touch options, through to highly detailed advice offerings,” says Andrew.

“And then you have different cohorts of clients seeking advice. You have young clients starting out on their wealth accumulation journey, through to couples with young families who are constrained by debt, to those who have sold their businesses or with an SMSF, right through to post-retirement. So, advice is very nuanced.

“Therefore, we want to use the data we collect to build a more detailed picture of the advice landscape, which will be highly refined in terms of cost structures for micro, small, medium and large advice businesses. We also want to understand the costs of actually providing advice to five different client groups.”

A clearer picture

As advice is highly customised for each individual client, Andrew concedes that coming up with a definitive model to determine the true cost of advice will never be perfect. However, he is confident the data collected will provide a much clearer picture of what it actually costs to provide advice.

“The research will provide the industry with an extremely good foundation on which to calculate the actual cost to deliver advice for financial planning practices. It will also provide some very strong guidance on what it costs to service different client types,” he says.

Although the research is still in its early days, Andrew confirms that a number of trends are already emerging. Some of these trends include the continuing rise in compliance costs, and the costs of advice not being evenly distributed across the industry. He explains that the research points to two types of advice businesses: those that are completely compliant with everything required of them; and those that are still not completely compliant.

“Previously, CoreData has done research into what people expect to pay for advice, including their expectations of what they should be paying for, particularly where the utility or service is easy to see – like assistance with selling a business or undertaking a family estate transfer.

“But for the first time, this research will provide JAWG with a series of data points that clearly elucidates what advice should cost. When it comes to the true cost of advice, we believe this will be the first time the industry will be able to work off quantifiable facts and not opinion.”

September survey

FPA members are encouraged to participate in the CoreData research. The Joint Associations Working Group, which includes the FPA, will be sending out a survey to all its members requesting information on their business costs.

“We really need financial planners to provide as much information as they possibly can. There are planners who understand their costs in fine detail, and there are other practitioners who have a looser understanding of what the costs of running their business are,” says Andrew.

“The more granular we can get with these costs, the more powerful we can be in explaining costs to Government and more importantly, to consumers who are looking to receive advice.”

According to Andrew, practitioners should expect to receive the survey around the first week of September, with final analysis and completion of the CoreData research slated for early October.