Matt Walsh

The latest Consumer Price Index (CPI) figures show that education costs continue to outstrip inflation, maintaining the trend that has persisted for the past decade.

Parents’ concerns about the increasing cost of their children’s education are justified, warns Matt Walsh, head of Lifeplan.

For the 12 months ended September 2013, education costs rose by 5.7 per cent compared to the 2.2 per cent rise in the CPI.

“The increasing cost of education is outstripping rises in the CPI by a rate of more than two to one*,” Mr Walsh says.

“The cost of education has been steadily increasing for some time and there is no reason to expect this to change anytime soon.”

This is particularly relevant for parents seeking private schooling for their children.

“Parents should still consider starting to save in advance for their children’s education, even if it’s just a small amount each week, as this can add up to quite a lot over time,” Mr Walsh said.

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Parents need to plan for education costs.

Despite government plans to direct further funding to education, parents’ concerns about the increasing cost of their children’s education are not over, warns Matt Walsh, head of Lifeplan.

“The cost of education has been steadily increasing for some time now and there is no reason to expect this to change in the future,” Mr Walsh said.

“Increasing State and Territory acceptance of the Gonski model for school funding might suggest to parents that the cost of their children’s education will fall, but in my view this is unlikely to be the case.

“There are two major aspects to education costs to consider which indicate the burden of these costs will continue for parents.

“Firstly, there is the increasing cost of education as a whole, which is outstripping rises in the consumer price index (CPI) by a rate of more than two to one*.

“For the 12 months ending June 2013, education costs rose by 5.7 per cent whereas the CPI rose 2.3 per cent.

“This is a major trend that has been consistent for over a decade. The Gonski model is not designed to ameliorate this.

“Secondly, the main objective of the Gonski model is to improve the standard of education – particularly in disadvantaged schools – rather than evenly fund increases to all parts of the education system.

“Overall, despite the optimism being created by the Government putting more into education, parents with children at school shouldn’t expect to see much difference to their costs, and shouldn’t be complacent. This will be particularly acute for parents seeking private schooling for their children.

“Parents should still consider starting to save in advance for their children’s education, even if it’s just a small amount each week, as this can add up to quite a lot over time,” Mr Walsh said.

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The latest Lifeplan ICFS Financial Advice Satisfaction Index* has shown clients of financial advisers have become significantly less happy with the technical ability of their adviser over the past six months.
 
The latest in a series of surveys of financial advisers’ clients, undertaken in April, sought feedback about the performance; trust and reliability; and technical ability of their financial adviser.
 
Since the previous survey in October 2012, perceptions of financial advisers’ technical ability have dropped by 4 per cent, while the other two drivers – performance, and trust and reliability ­– have both improved, up 11.6 per cent and 5 per cent respectively.  The strong perceptions of performance helped pull the overall Index up by 3.1 per cent. 
 
Matt Walsh, head of Lifeplan, said one of the most likely reasons for the drop in perceived technical ability is the ongoing regulatory change affecting the financial planning sector, and overall loss of confidence in, and confusion about, the changes being made.
 
“Clients have been exposed to the significant changes taking place in financial planning, such as the impact of FOFA requirements including fee-for-service, which can easily be misinterpreted as critical of financial planners.
 
“There are two probable causes.  Firstly, clients could well be thinking ‘there must be an issue if the government is creating regulation to fix it’.
 
“Secondly, the effort of responding to the changes has distracted advisers from the very thing they’d prefer to be doing – working with their clients and giving quality advice.”
 
Mr Walsh said many clients could still be unfairly blaming their adviser because they have missed out on recent market gains or waited too long.
 
“The movements in the Lifeplan Index over time indicate client communication is a critical aspect of the relationship.
 
“There needs to be more individual contact to give advisers the opportunity to explain how they are dealing with the many issues around, and show they have the skills and knowledge to manage them.
 
“Education and information programs for clients will also enhance relationships and show the adviser has the technical knowledge required, and also helps reinforce the image of trust,” Mr Walsh said.
 
He pointed out that those who have had an adviser for only a short time are more likely to have a positive perception of their adviser’s technical ability than those who have had an adviser for a significant period of time.
 
“This is probably because advisers have spent more time with new clients than those they have had for some time.
 
“The perception of technical ability among those who have only had an adviser for two years or less has improved since the last survey, and it is those who have had an adviser for 10 years or more who have displayed a decline in their perception of their advisers’ technical ability.
 
“It would make sense for advisers to consider ways to remove themselves from the ongoing noise and distraction around legislation and market movements, and ensure they are maintaining a healthy range of advice strategies that are not dependent on market performance or superannuation alone, with a focus on communicating this to clients,” Mr Walsh said.

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“Advisers will be facing a challenging time convincing clients they should still treat superannuation as an important vehicle for retirement savings, but there is also the opportunity to develop alternative strategies for those who need them.
 
“There are essentially three issues confronting investors: those who are ‘maxed out’ due to reaching the contribution caps; those on higher incomes who, over time, will be taxed more and more on their higher balances and earnings in their funds; and those who have lost confidence in the superannuation system due to the constant tinkering.
 
“These issues create opportunities for planners to develop alternate investment strategies where superannuation is one component of retirement savings rather than the sole vehicle.
 
“For instance, one strategy investors are starting to consider is using family trusts; however these are now less attractive following changes to the low income tax offset.
 
“A better strategy for many is likely to be investment bonds.  These limit the tax on earnings to 30 per cent or less, with no cap, and offer investors a wide range of investment options to suit their needs.
 
“Furthermore, for advisers, there is the possibility of creating intergenerational wealth management opportunities in the way the investment bond is set up.”
 
Mr Walsh said the inclusion of tax advantaged vehicles that offer diversity and growth should be appealing as an alternative, or additional, strategy to people concerned about continual government interference with their super savings.
 
“Superannuation is a trillion dollar honey-pot that no government can resist tapping to fill in holes in the national budget. 
 
“Many investors are increasingly concerned that at some time in the future they will either be taxed more or have severe restrictions placed on their ability to freely access their retirement nest egg.
 
“Advisers therefore have an opportunity to develop other strategies.
 
“For example, while there is never a guarantee about what Governments will do in the future, there have been no material changes to legislations on investment bonds for 10 years, and even that last change was a positive one, granting official sanction to the ‘scholarship plan’ variations on the investment bond structure in 2003.
 
“Use of investment bonds can help planners build their client relationships and distance them from the negatives of super.”
 
Mr Walsh pointed to findings from the University of Adelaide’s International Centre of Financial Services* that showed clients are increasingly interested in areas such as tax minimisation strategies and alternative investments.
 
“This is particularly true of older, male clients – who continue to make up the bulk of most advisers’ client base.
 
“In addition, the wealthier the investor, the higher the emphasis on investment regulations and tax strategies,” Mr Walsh said.

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It is the first time since the survey started in 2007 that there has been a divergence in the satisfaction levels of men and women with their financial advisers. 

The latest survey was undertaken in October 2012 by University of Adelaide’s International Centre for Financial Services (ICFS) in conjunction with Lifeplan Funds Management. 

The survey is undertaken every six months and looks at investor attitudes towards their financial advisers. Three main drivers of client satisfaction are measured – perception of trust and reliability of financial advisers; perception of the technical ability of financial advisers; and perception of investment performance. 

Since the last survey in April 2012, the overall index has declined from 71.3 per cent to 70.44 per cent.  The fall was triggered by a drop in the overall perception of advisers’ trust and reliability, which decreased by 6.2 per cent.  Perception of performance declined slightly by 0.07 per cent, while perception of technical ability increased by 3.4 per cent. 

Matt Walsh, head of Lifeplan, said the satisfaction levels of male clients were the main trigger of the fall, cushioned slightly by the improving satisfaction levels of female clients. 

“Across all three drivers, the perceptions of female clients have increased in the latest survey, while male perceptions have dropped significantly. 

“One possible reason for the positive response from female clients could be that women are more attracted to the holistic services increasingly being offered by financial advisers. 

“Another interesting finding of the survey is that women tend to stay with their financial adviser for longer than their male counterparts. 

“This suggests financial advisers may find it worthwhile focussing on building their female client base, as women could be more likely to stay with their adviser over the long-term and gain value from the relationship. 

“However, financial advisers will need to find ways to address the concerns of male clients, who seem to be more critical of their advisers,” Mr Walsh said. 

He added that the decline in the index overall since the last survey is worrying as, based on previous surveys, it should be expected to go up. 

“The index has displayed a steady upwards trend over the last two years, and the April survey in particular showed a dramatic improvement, with the index rising from 67.46 per cent in October 2011 to 71.3 per cent, so a drop back is unexpected. 

“The fall is even more surprising because it has come at the same time that the overall sharemarket is improving. 

“Historically, the index has moved in the same general direction of the ASX200 but for the first time since the survey started in October 2007, it has shifted in the opposite direction. 

“The drop back to a lower level – although still higher than the previous few years – is cause for concern, particularly as there seems to be no single reason behind such a change in client perceptions. 

“The fall can be directly linked to the impact of the marked decline in perceptions of trust and reliability, as the other two drivers either increased, or dropped only slightly,” Mr Walsh said.

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The survey of 418 investors who use financial advisers was undertaken in September by the University of Adelaide’s International Centre for Financial Services (ICFS) for Lifeplan, and sought feedback about the performance, trust and reliability, and technical ability of their financial adviser.

Mr Matt Walsh, head of Lifeplan, said that, despite continued negative reports about the financial planning profession, it is clear that investors who use an adviser value the relationship, and have a high level of trust in their adviser.

“The level of trust in advisers amongst clients is much higher than trust amongst non-clients, as shown by the recent Roy Morgan survey*.  It highlights the value of satisfied clients in promoting the value of financial advice, and also in generating new business development through referrals and word-of-mouth.

“This is particularly true of those aged over 60, who show the most favourable view of their adviser in the survey.

“This group have seen for themselves their adviser’s technical ability over time and in different market conditions, and believe that the strategies they have implemented since the financial crisis have weathered the last downturn well (since April 2010).

“It shows that advisers have succeeded in establishing strategies that are appropriate for this group’s needs, and these clients make up the bulk of the industry’s client base and are the ones most likely to provide word-of-mouth recommendations about their adviser,” he said.

The survey also showed that those who have had a relationship with their adviser for longer than five years are amongst the most satisfied.

“Despite having experienced the global financial crisis and subsequent market downturn, this group remains happy with their financial adviser, suggesting that they recognise the value of financial advice and the role it plays in developing long-term strategies to withstand economic and market cycles,” Mr Walsh said.

He pointed out that a possible sign of future problems could be seen in the survey’s results on investors’ satisfaction with the performance of their investments.

“In past surveys, the level of satisfaction with performance has often been a leading indicator for satisfaction with trust and reliability, and technical ability. Therefore there could potentially be a decline in these areas over the short-term.

“The findings suggest that some investors believe their advisers should be able to predict market movements and investment performance and, when things go badly, they blame their adviser.

“This kind of investor behaviour is unfortunately quite common, where people look for someone else to blame rather than accepting that they have made a mistake, or that they can’t control investment outcomes or market performance.

“However, it is clearly a concern for advisers, who need to ensure they are managing their clients’ expectations of how markets perform, and how far their own advice can go,” Mr Walsh said.

The survey was conducted in late September, when the Australian equity market had fallen after the highs of April. The long drawn-out results of the Australian Federal Election, housing market downturns, higher interest rates and lower equity markets, would also have had an impact on investors and how they viewed their investments.

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