As financial advice fees continue to swell, almost one-in-three surveyed clients say they won’t continue to see an adviser in the future.
The alarming figure was revealed in an academic study led by University of South Australia (UniSA) financial planning lecturer Geoff Pacecca. The research looked at the impact of affordability challenges on consumers. It also assessed cost challenges for advisers.
Researchers asked advised clients whether they would continue to seek the help of an adviser; 29 per cent said no and 31 per cent said they were unsure.
In the past three years, most surveyed advisers estimated they had lost between zero and 10 per cent of their clients due to fee increases; however, one-in-five estimated they had lost between 11 and 20 per cent.
This comes as the Quality of Advice Review probes whether reforms have served their purpose of delivering access to affordable, high-quality advice.
A glaring problem
Adviser Ratings’ own research found most consumers would pay less than $500 for financial advice, which is a long way off what most advisers charge.
In fact, the median advice fee jumped from around $2500 to more than $3500 between 2018 and last year, Adviser Ratings data shows. In 2021 alone, it rose 8 per cent.
On the practice side, fee increases have helped cover costs amid greater compliance and education requirements, a shrinking workforce, and changes to the ways businesses receive revenue.
Compliance, Statement of Advice requirements and licensing and PI costs were listed as top reasons for practice fee increases. Most surveyed advisers in the UniSA study reported they now spend 50 per cent longer preparing advice than they did three years ago.
Our analysis also shows advice is pricing out a growing number of Australians. Indeed, almost 60 per cent have no capacity to pay for advice.
Figure 1 – Capacity to pay for advice
Source: Adviser Ratings
Unfortunately, as the UniSA research also reflected, those priced out include groups that could benefit greatly from advice, including Australians of lower socioeconomic status with little in super or savings. Some of these Australians are turning to unregulated solutions.
Our research also shows scaled or one-off advice – which may be beneficial to people who cannot afford ongoing advice – make up just a small proportion of advisers’ business. For every one-off client, the average adviser saw four recurring clients last year, we found.
Potential solutions
Given the stark need to address the affordability and cost challenges, the researchers from UniSA asked advisers and consumers about a number of solutions.
Two-in-three advisers said a government-funded rebate for initial fees could be effective, while more than half of the surveyed cohort saw short-form SoAs as potentially useful.
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