Mercedes

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Churn in the financial advice industry

Staff reporter |  23 March 2015  |  Super

exitThe financial advice sector is heating up. The 2014 Advice & Limited Advice Report Investment Trends study of Australian adults’ usage and appetite for financial advice, which is based on a survey of 6,256 Australian adults, has found that investors are looking for assistance, and do not necessarily think they have it now. The financial advice sector has started coming back, but there is a great deal of churn:

 

"After declining from 3.0 million to 2.4 million over the four years to 2013, the number of active financial planner clients began recovering again, reaching 2.5 million in 2014.

“Not only are clients rating their planners better overall in 2014 than in 2013, they feel they’re getting significantly more value out of their relationships,” said Investment Trends Analyst King Loong Choi. “This has driven a natural uplift in client referrals.”

Mercedes

Looking forward, there is increasing demand for financial advice, with 1.9 million Australian adults saying they intend to look for a (new) financial planner within the next 2 years, up from 1.5 million in 2013. This is partly driven by Australians becoming more concerned about their finances.

“The increase in demand for financial advice is partly driven by Australians becoming more concerned about their finances,” said Choi. “In particular, Australians are more worried about the adequacy of their retirement savings, the impact of inflation, and managing their cash flow.”

 

The big issue is the sales culture that exists in financial advice. The extreme excesses have been exposed, most notably by the peerless investigative work of Adele Ferguson, who has recently been revealing abuses in the National Australia Bank's financial arms. But there is also a bigger systemic issue, as Alan Kohler points out:

 

"The issue that needs to be addressed is the distribution and marketing of wealth products.

Banks these days have two sets of products: loans and investments. They used to have just loans and life was simple, but then along came superannuation and a new world of profit and complexity opened up.

Loans were, and are, sold by mortgage brokers and salaried sales people working on commissions and KPIs, and they sell them hard, urged on by managers who are in turn urged on by managers, while being restrained by credit committees whose job it is to protect the bank’s money.

Occasionally they sell them too hard and the money goes missing, but the loser in that event is the bank, not the customer (sometimes systemically so -- witness the credit crisis of 2008, when the hard selling of mortgages in the US brought down the global financial system.

Banks are large, complicated bureaucracies that need cascading incentives to sell things, so naturally the selling of wealth and investment products involves a system of commissions and KPIs, like mortgages.

Two differences:

1. The sales people are called advisers and planners, not brokers or account managers;

2. When an investment product goes wrong the loser is the client not the bank."

 

While financial advice is just a front for the selling of bank or insurance products, the problems will persist. But there is another, more responsible, option.

 

 

 

Mercedes


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Mercedes