Empowering Financial Advisers to Provide Affordable Advice
Over the last few years, there has been a lot of hype about Robo Advice and AI in the delivery of advice in the field of financial planning. The aim has been to provide affordable advice.
None of these products have been a runaway success.
In general, it is conceded that an investment platform providing Robo Advice is an efficient means of getting started in choosing investment products. In recent years, Robo Advisers have also been using more complex AI to recommend a specific risk profile based on information provided by the client, their income, and current assets.
However, they do not offer a platform where a holistic approach can be taken where both lifestyle and investment goals can be considered in one space. The report is more likely to be a set of graphs showing the predicted growth over a period of time, based on long-term averages and uniform investing over that period of time.
Robo Advice is limited for either the DIY investor or the Financial Adviser who needs to include a much wider range of products and lifestyle considerations.
The Australian Government is committed to making financial advice affordable.
The consensus by the financial advice industry is that it costs the adviser $1,000 in compliance costs before any conversation can commence with a consumer. This cost immediately removes advice from a professional as a choice for any consumer.
Senator Hume has stated that the government is reviewing the current complexity of compliance requirements and the government plans to address this issue. The Government wants financial advice to be affordable for the average consumer. Unfortunately, the time frames seem to be listed in “years” rather than “months”.
Investment Trends recently stated that two in five Australians think financial advice is not affordable.
Financial Advice: What Consumers Really Think
In August 2019, ASIC released Report 627. The report summaries some preliminary research commissioned by ASIC to establish what consumers really think about financial advice.
Overall Demand for Advice
The survey found that
- 27% of Australians had received financial advice in the past
- 12% of Australians had received financial advice in the last 12 months (Group A)
- 41% of Australians intended to get financial advice in the future
- 25% of Australians intended to get financial advice in the next 12 months (Group B)
- 20% of Australians intended to get financial advice in the last 12 months but had not gone ahead. (Group C)
According to the Australian Bureau of Statistics, 2016 Census QuickStats there were approximately six million families. Assuming that four million of these families are in the target range of requiring financial advice this, equates to
- 1,000,000 families intend to get advice in the next 12 months (Group B)
- 800,000 families intended to get advice in the last 12 months but did not proceed (Group C)
Extrapolating from these figures some could assume that of the million families planning to seek advice only 200,000 families or 20% proceeded to get advice.
I believe there are many reasons why these 800,000 families did not proceed, with the cost of advice together with the format of the advice being major reasons for the failure of so many families to proceed with getting advice.
The survey found these are the key characteristics of consumers who intend to get advice in the next 12 months. However, the survey indicates that 80% of these people will not proceed with getting advice.
Seeking advice on Budgeting and Cash Flow Management
An interesting result was that of all Australians who want advice, 20% are seeking advice on Budgeting or Cash Flow Management.
200,000 families want this simple advice on budgeting and cash flow in the next 12 months – that’s a lot of new clients with very simple advice needs
Financial Mappers allows the provision of this affordable advice, together with Financial Literacy Program in a 5-year plan that should take less than one hour to create, where the consumer completed the digital Fact Find in Financial Mappers.
ASIC found these were the consumer perceptions of the benefits of receiving financial advice.
ASIC found the three top barriers to not getting advice were:
- Too expensive
- Financial circumstances are too small
- Like to manage their finances as DIY investors.
Simply “Not getting around to it” was quoted as 24% for Group B and 38% for Group C.
Young investors are going digital – Advisers need to adapt
Greg Iacurci published in October 2020, an article, Young investors are going digital. Financial advisors need to adapt with them.
The key points were:
- Millennials are twice as likely as some older investors to consider using a robo-advisor, according to a recent Vanguard survey.
- Millennials and Generation Z have largely grown up in a tech-laden world. They’re also more likely to want financial advice in the age of Covid-19
- Many want advice beyond investments and prefer coupling digital help with a human advisor.
This group of investors is now the largest demographic. Financial advisers who don’t adapt to provide the services these new clients demand are likely to be left behind.
There needs to be a cost-effective means of servicing the Millennial’s current financial needs in the digital format they demand and at a cost, they are willing to pay. This group are set to benefit from one of the largest intergenerational transference of wealth in history.
The Millennials will be the future full-service client with considerable wealth either generated by their personal desire to save or from inheritance.
Building trusted relationships with this group now is likely to protect the financial adviser’s future business.
How can Financial Mappers help?
Financial Mappers has recently undertaken a major upgrade in their software, with the introduction of a means of converting the creation of a financial plan into easy-to-read text that forms part of an automated report. A report called Simple Statement of Advice for 5-Years has been developed for advisers.
To achieve this result, care has been taken not to include complex advice which requires deep analysis of the client’s needs. There no advice is included that relates to insurance, superannuation, or specific products.
Following consultation with advisers, it was suggested that a more accurate term would be a report called Strategy Document for the next 5-years. While ASIC currently has no ruling on strategy papers, it was felt that providing a client with strategy options without recommending specific products was a much simpler and less rigorous process than a statement of advice. After the adviser has discussed the Strategy Document, the next step in the advice process will depend on the client and their needs. It would be hoped in due course, they would proceed to seek specific product advice.
Assyat David, of Aged Care Steps, has written a very informative article, The Value of a Strategy Paper as an Advice Document.
As the first step in providing affordable financial advice or financial strategies and delivering what the consumer wants Financial Mappers has the process to provide:
- Financial Advice or Strategy, during the Accumulation Phase, for the next 5-years that excludes insurance, superannuation, SMSF, and financial product advice.
- The 5-year Plan is shared within the Financial Mappers software for the client to review
- Financial Literacy Program that is built into the software and can be delivered in automated emails
- Access to Financial Mappers software for 12-months so the client can continue to explore their options as they work their way through the Financial Literacy Program and Tutorials relating to specific investment types, but not financial products.
- Seek Additional Specific Advice at any time, paying the appropriate advice fees. The client could share a self-generated report or plan with the advisor to commence the conversation.
- Seek an online meeting (for a fee) to discuss in more detail the recommended plan.
The client completes the Fact Find within Financial Mappers, the adviser imports this information into a plan and optimises the plan to give the solution to the client’s nominated objectives for the next five years. All the information is provided to the client within the plan that is shared.
Financial Mappers believes an adviser could complete this plan and SOA or Strategy Document in less than one hour.
This type of report is a precursor to Scaled or Full-Service advice. There are many people wanting to engage with a Financial Adviser where they are seeking guidance only and wanting to be placed in a position where they know that following some general guidelines, designed by a Financial Adviser, they will be on track to a sound financial future.
The adviser can now provide the strategies the client requires.
By engaging with the client through the Financial Literacy Program and offering more services such as short zoom meetings or additional advice on matters such as insurance, superannuation, and investment product recommendations, the adviser can commence a long and trusted relationship with this new client.
Financial Advisers can now expand their service offering with a new low-cost introduction to their practice. They could give this service a special name such as Adviser Guidance to your 5-Year Road Map or Strategic Advice to your 5-Year Road Map.
As part of the upgrade, a new report called Plan Map was designed. This allows the user to generate a report, detailing in easy-to-read text.
Click on the image to view the report in the Client Review Gateway by selecting the TAB, Report. Other TABS allow the adviser to upload supporting documents and educational content.
For further information Contact Financial Mappers.
Glenis Phillips SF FIN
Designer of Financial Mappers
Disclaimer: Financial Mappers does not have an Australian Financial Services License, does not offer financial planning advice and does not recommend financial products.