Rising prices have captured headlines in the past few months, but for advisers, the theme is nothing new. As the cost to remain in the profession has risen – particularly with compliance and education – the median advice fee has gone up more than 40 per cent in four years, Adviser Ratings analysis shows.
In 2018, before the Hayne Royal Commission was tabled and when the adviser workforce was 28,000 strong, the median client fee was just above $2500. Last year, it was more than $3500. Meanwhile, at the top end of the scale, the maximum advice fee has hit $12,000, up from $10,500 four years ago.
Figure 1 – Client fees, 2018-21
Source: Adviser Ratings' 2022 Australian Financial Advice Landscape Report
Potential clients being priced out
Given the profitability pressures we discussed in last week’s article, lifting client fees has become a necessity for many practices. As the adviser workforce shrinks further and demand increases, advisers will no doubt be able to command higher fees in future. We’re told many clients don’t baulk at these fees, as they feel like they are receiving significant value in return.
The immediate problem, however, is Australians who don’t have an adviser, but want or need one. For many consumers, the cost of advice is simply too steep. An Adviser Ratings survey of more than 2000 Australians found 65 per cent of prospective clients would pay only $500 for financial advice.
As a result, there’s an urgent need for legislators to come up with a middle-ground solution for those who need and want advice but can’t afford it at the current price point.
Technology and the Afterpay model
Several models have been proposed to try to reduce the cost of providing advice and, in turn, bring down client fees. A paper from the Financial Services Council and KPMG suggested regulatory change and practice technology aimed at efficiencies could reduce the cost to advise by 40 per cent.
As we await that regulatory change, some practices have taken matters into their own hands. We’re starting to see the emergence of an Afterpay model of fees, whereby clients are charged in small increments. Other practices are increasing awareness of the capacity to use super in certain circumstances to pay for advice. Again though, we’re unlikely to see widespread availability of lower-cost options without legislative intervention.
Our research shows that more than 60 per cent of Australians see the benefit of financial advice, but less than 6 per cent would pay the median advice fee or more. Given the pre-election focus on the cost of living, this is something the new federal government could address.
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Comments10
"Every commission / review / inquiry in the past 12 years has had making advice more affordable and accessible as a core goal. Every one of them has failed completely. The fee's will continue to go up because they aren't profitable and the above levels. I would strongly request that someone in the new government actually listen to financial planners who sit in front of clients rather than lawyers and compliance staff as we have seen the result of Hayne, Trowbridge and their mates. Also in relation to the after pay model does spreading out the payment terms really make advice affordable? If this mess is not fixed the exit of planners will only continue."
Scott 09:05 on 03 Jun 22
"How do industry funds pay a handsome salary to their internal adviser network and charge a nominal fee (if any) to their members???? Commissions are alive and kicking, just under a different guise........ "
Michael 07:50 on 02 Jun 22
"@Di. It has been taken as an absolute given that decoupling advice from product is the holy grail. In some cases it is and in others not. When I had the choice several years ago I would mix and match as appropriate for each client. That way I made sure to optimise their value for money. Now we do not have that choice. Limiting things to stop the unethical had the unfortunate side effect of leading us to where we are currently. "
AL 22:21 on 01 Jun 22
"With fee range it would be value to see what the scope of advice is provided "
ad 18:04 on 01 Jun 22
"Pretty simple really. Make the SoA/strategic plan fee tax deductible, instead of being a capital expense, like it is currently. "
Peter Horsfield 16:24 on 01 Jun 22
"I believe the ship has unfortunately sailed. The compliance requirements that would need to be unwound to make ongoing fees of $2.5kpa or less, would take several years. It took us four-year post RC to be able to figure out how to be profitable again and now that everyone can see they got it wrong, they want to change the rules again. I think a better approach would be to push 'financial coaches' or similar that billed by the hour and provide cashflow general advice etc. All I know for sure is that our business model now no longer caters to low and middle-income earners due to the changes that were made due to the RC. It's ashame too as I focused on accumulators in their 30s, and 40s but we can usually no longer help these people due to cost. "
James 16:23 on 01 Jun 22
"Not really @AL - commissions are inherently tied to product, advice fees are not. Decoupling advice from product is somewhat at the heart of so much change in the last decade, is it not? "
Di 16:12 on 01 Jun 22
"The answer is not to try to provide cheaper or "affordable" Financial Advice but to educate consumers on the real and potential Value (monetary and non-monetary) that Financial advice can bring to them short, medium and long term. Most good advisors will also consider and find a funding solution for their client to pay for their valuable advice. "
Brian 16:01 on 01 Jun 22
"I have to laugh. About ten years ago I said, ‘when I’m about eighty some bright spark will say, - why don’t we have a payment method for financial planning a bit like a mortgage, where it’s spread out over time, affordable, giving the ability to contact an advisor whenever and no ongoing forms’. At which point I would smile and say, ‘that my dear is a commission, which worked well for hundreds of years across many businesses, but some people in Australia thought they were wiser’! "
AL 15:14 on 01 Jun 22
"This is true and the industry needs to think how can they help more people. innovative solutions like scientiam.com.au are a great way for advisers to help more people ."
Aimie 15:10 on 01 Jun 22