Dougal Guild

Leading research firm Investment Trends has released its latest 2022 Financial Advice Report. The study explores the changing advice needs of Australian adults, their main concerns, and how advisers and super funds can best support clients. This year’s study also delves into Australians’ thoughts regarding digital advice solutions.

According to the 2022 report, 91% of Australian adults have concerns about their finances, with rising inflation front of mind (58%, up from 42% in 2021). Advice affordability, a key consideration of the Government’s current Quality of Advice Review, continues to be the main hurdle to seeking advice. Australians have significantly stepped up the amount they are willing to pay to plug their advice gaps (28% increase this year to $770 on average for limited advice), but still a far cry from advisers’ estimate of the cost to produce that advice ($2,070 on average).

“We are seeing unmet advice needs across many financial topics depending on demographics. Younger generations need support deciding where and how to invest their money, buying a home, as well as managing their cash flow whilst older generations are focused on retirement considerations and aged care,” said Dougal Guild, Research Director at Investment Trends.

The report highlighted that the advice gap is widest among younger adults with 81% of Australians aged between 18-34 years old indicating they have unmet advice needs, and only 18% have sought financial advice in the last twelve months. This younger cohort has fewer complex needs and willing to pay significantly less for advice than the cost to provide it. Many are open to digital advice as a solution, providing an opportunity to rethink delivery for this generation.

“Two in three Australians are open to using a digital advice tool to plug advice gaps, although most would prefer to use in conjunction with some form of human interaction,” added Guild. “We may also start to see super funds having a larger role to play in addressing the advice gaps with a large number of members surveyed open to seeking advice from their super fund but many unaware of services available. A sizeable portion of members are also unaware of intra-fund advice solutions available as part of their memberships, presenting an opportunity for education.”

The research further revealed that newly advised client numbers have outpaced client attrition for the first time in three years and while we are seeing this increase, a growing number are considering stopping using or switching advisers, citing unhelpfulness (31%), unclear fees (27%), and slow to respond (28%). Over four in five clients want advisers to proactively support them throughout the advice journey. Online portals have proven to be an effective means to demonstrate progress and keep clients engaged with the advice they are receiving.

“Advisers must sharpen their focus on key areas to shore up client loyalty and client acquisition. Understanding loyalty drivers is key to both curtail client attrition and maximise client acquisition,” said Guild.

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Confidence levels have plummeted to ten year low in pre-retirees feeling prepared for their next stage of life.

Leading research firm Investment Trends has released its latest 2022 Retirement Income Report, an in-depth study of Australians’ attitudes towards retirement and post-retirement issues.

The latest report highlights confidence levels have plummeted to ten year low in pre-retirees feeling prepared for their next stage of life. Only half cited they feel prepared for retirement, down from 75% in 2021. Non-retirees expect their income in retirement to be on average $3,200 per month and considering they perceive the income required for a comfortable retirement to be on average $4,300 per month, 47% expect to outlive their retirement savings. Concerns about the cost of medical treatment (43%, up from 32% in 2021) and inflation (42%, up from 28% in 2021) are the main drivers of this murky outlook.

“In addition to relying on the Government Age Pension, we are starting to see non-retirees making plans to reduce their spending and delay the start of their retirement in order to close this retirement adequacy gap,” said Dougal Guild, Research Director at Investment Trends. 

The study revealed that when the time comes to access the right retirement solution, many Australians are largely unaware of the retirement income products offered by their main super fund or are unconvinced those on offer are fit-for-purpose. Non-retirees recognise longevity protection (34%), a guaranteed minimum income (27%), and flexible access to funds (25%), as the most essential features to be offered. However, many who value these features do not know they exist in current offerings, for example only 7% of non-retirees are aware of a retirement income product that provides protection against market falls.

“Preference for retirement products varies significantly by age, super balance and evolves over time. We found that many members are unable to articulate their requirements, highlighting the importance of providing both education and advice at this life stage,” said Guild.

The research found that fear of not having enough money to retire is driving non-retirees to seek retirement-related information and wanting to be better prepared. The obligation for super funds to publish their Retirement Income strategy appears to be delivering positive outcomes with super funds remaining the most used source of retirement information (63%), followed by financial advisers (33%). Retirement calculators and financial advice have been found to elicit repeat engagement and can be great digital conversation starters. Non-retirees also shared that they are seeking enhancements around projections of the cost of living for different lifestyles, expected weekly income, and inflation adjustments.

“Providing this support and broader advice options is imperative as advice proves to bolster confidence in retirement,” added Guild.

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The latest Investment Trends Report highlights that rising inflation and interest rates, as well as other geopolitical events, have contributed to the steep drop in advisers’ stock market expectations for the next twelve months. Advisers expect an average of only 0.7% in capital growth, significantly down from 3.5% a year ago. Although diversification continues to be the top priority when selecting investments for clients (cited by 68% of advisers), advisers highly attuned to economic conditions are vastly more likely to prioritise liquidity, protection, and high-yield products. One in every two advisers cited the current economic conditions as having a significant impact on their client portfolio construction

“With interest rates on the rise, the proportion of new client money going into Cash, TDs and other fixed income products has increased by 43% this year, the highest it’s been for the past few years,” said Dougal Guild, Research Director at Investment Trends.

The research further revealed that advisers are starting to allocate more new client money to managed accounts and ETFs, both looking set to continue growing based on advisers’ intentions. The higher allocation to both these groups comes at the expense of managed funds, whose share of flows has reduced to 36% in 2022, a drop from 45% in 2021. One in four advisers say they intend to stop using a fund manager in the next twelve months. Of those contemplating leaving, performance and lack of confidence are the primary drivers, however, 43% mention shortcomings around customer service or communication.

“Although poor performance and a lack of confidence are key drivers of attrition for fund managers, advisers have indicated their preference for reliable customer service and impactful communication, making it an important priority for providers to pro-actively engage with their clients to help solidify user loyalty,” added Guild.

The study also found that advisers are increasingly dedicating significant time to researching and are calling for wide-ranging information from product providers, including content about market updates, outlook for the economy, and in recent years, information about the impact of regulatory changes. When it comes to collateral for client education, newsletters, infographics, and news articles are the preferred artefacts, however, demand for social media content is on the rise for end-client education.

“There are significant opportunities for providers to support advisers more by providing research and education to free up some of their time and increase engagement,” said Guild.

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Financial advisers’ resilience has been put to the test over the past twelve months. The ever-changing regulatory landscape has seen the population of advisers drop from 20,000 in 2021 to 16,500 in 2022. The latest report revealed that the move to self-licensing has eased over the past year as advisers begin to weigh up the benefits with the additional costs and compliance challenges associated with this model. Despite this, the movement of advisers around the industry will continue, as 70% looking to leave their licensee in the next 12 months intend to move to a self-licensed model.

“Decreasing NPS is in part driving the increasing number of advisers across both the ‘Aligned’ and ‘Majority independent’ segments intention to leave their current licensee to be part of a self-licensed practice,” said Dougal Guild, Research Director at Investment Trends.

As mentioned in our recently released 2022 Adviser Technology Needs Report, compliance burden (65%), providing affordable advice (41%), and regulatory change (40%) remain key challenges for advisers. The research revealed that the complexity of these impacts and the ongoing structural changes in the sector has considerably driven up the cost of providing advice. The total cost of providing full advice to the typical client (the breakeven point) has increased from A$2,850 in 2020 to A$3,280 in 2022.

“The more successful advisers appear to have better adapted to regulatory change and new technologies to address this cost/profitability issue. They primarily service wealthier clients and are prepared to pay for tech solutions to enhance their advice offering and bolster profitability,” added Guild.

Despite the regulatory burdens and increased industry attrition, we are seeing practice profitability increasing with 46% of financial advisers stating that they were more profitable this year, compared to 34% in 2021. This is encouraging as it indicates advisers are adapting to the ‘new world’. Contributing to improved practice profit margins is a continued move by advisers focusing their efforts on acquiring and retaining higher value clients.

“Overall, practices’ net profit margins are moving in the right direction,” said Guild. “Advisers are refocusing efforts on new business post the COVID and FASEA disruption. This, combined with an increasing focus on higher value clients has delivered record high levels of new inflows.”

Key points

• One in four advisers expect to leave industry within next five years
• Advisers challenged by regulatory environment as cost of providing advice continues to rise
• Nearly half of advisers report higher practice profitability than last year

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In the latest report, the percentage of new inflows by advisers through platforms decreased slightly to 71% on average, down from 76% in 2021, while the long-term trend remains stable with 73% expected in three years’ time. This year, the use of multiple platforms has reached a 10-year record high average of 3, with advisers increasing the proportion of new business directed to their secondary platform at the expense of their main platform.

The use of multiple platforms by advisers also means that platform integration with their planning software is also increasingly important. In choosing a platform, advisers have responded that they continue to prioritise providers based on fees and charges and increasingly those who can support their need for efficiency (45%, up from 34% in 2021) and provide reliable technology (43%, up from 30% in 2021).

“While the longer-term trend in net inflows is promising, the competition for adviser relationships is fierce in an already tightly contested platform space. It’s not surprising to see the increased average of the number of platforms used hitting a ten-year high given the prioritisation of efficiency and reliability by advisers now more than ever”, according to Dougal Guild, Research Director at Investment Trends.

Industry-wide, overall adviser satisfaction with platforms has fallen (67%, down from 72% in 2021), with advisers looking for more efficiency gains from their providers. Lack of support has become the leading reason for client attrition (34% of advisers stopped using a platform in the last 12 months) and advisers are calling for more focus on areas relating to administration accuracy and service, such as the contact centre staff’s technical knowledge, turnaround times for transactions, complaints handling and problem follow-up timeframes.

“In this highly competitive market, it is imperative that platforms are listening to the needs of advisers. With fees and capabilities becoming more consistent across providers, advisers are placing an increasing focus on platform reliability and quality of service support”, added Guild.

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