The future of financial services

3 mins

With demand for financial services increasing, the future appears promising for advisers.

Demand for financial advice grows

With the industry in its current state of flux, it’s only natural for advisers to feel uncertain, or even worried about the future.

Yet, 9.8 million Australians1 recognise a financial need in their life for which they would like advice, according to Michael Blomfield, CEO of Investment Trends.

What’s more, over the past 12 months, the number of people intending to use financial services has risen by 15 per cent to 60 per cent2 – in statistical terms, that is a significant change in just one year.

“People are ready to go - 2.1 million Australians say, ‘Yes, I would really like to get financial advice,’ and they’re no longer going to their bank to get it,” Michael says.

Michael says emphasis on these results is not to downplay the increasing regulation on the industry, but to celebrate the industry’s resilience and opportunities despite it.

Trust for financial advice not completely lost

According to Michael, although advisers rank below five out of 10 in consumers’ eyes3, when it comes to trust, he says that their situation has actually not worsened to any great extent. When those who already receive financial advice were asked about their confidence in the industry, they reported a net strong notion of confidence. “People who receive financial advice are not of the view that everything is going to hell. Advisers are doing a great job in supporting clients,” he says.

Value of financial advice remains strong for high net-worth investors

When asked how valuable the most recent advice session with their adviser was, 79 per cent of high net-worth individuals reported their advice was valuable, echoed in the opinions of 79 per cent of the core affluent, (assets of $250,000 - $500,000),4 84 per cent of the emerging affluent and even 48 per cent of lower-income earners.

Therefore, a lack of trust (cited by 33 per cent) is a significant, but not the main reason why people don’t seek financial advice. The largest reason (42 per cent) was the perceived cost and a lack of funds. Accessibility and a lack of perceived value came in at 30 per cent5.

Opportunities for financial advice professionals

Michael believes there are significant opportunities for those advisers who are able to navigate the changing landscape and understand prospective clients’ needs.

Encouragingly, the number of people who intend to use an adviser over the next two years has grown by a significant 31 per cent over the past 12 months6. So, what is it going to take to convert these prospects into clients?

One of the main roadblocks to seeking financial advice is not only the perceived cost but also the average Australian believing they need to have $240,000 in savings and super before they can walk through the door of an adviser’s office7.

Now, although these types of clients may be referred on for being too small by many advisers, Michael says that in an environment of declining profitability and increasing costs, where the vast majority of the money in the financial services system is ageing and moving into retirement, advisers should consider clients who are younger and in the accumulation stage of their life.  

Financial services industry needs better approach to pricing structure

While the number of people claiming they would like to receive financial advice is at near record highs8, the number of people who are actually receiving financial advice in Australia continues to decline.  

“What we have is 9.8 million people in Australia right now who tell us they want advice….But there aren’t enough people in the accumulation phase getting advice, because we haven’t found a way to service them properly at a price that works for them – and they know it. That’s the problem that advice faces,” says Michael.

“The two most important areas of need, budgeting and cash flow, are the least served elements of the financial services industry – the young who can’t afford financial advisers and the very old who are facing longevity risk with only X amount of dollars in the bank and this unknown period ahead.”

In the same way that big retailers now have multiple entrances and exits to entice shoppers in without fear of being embarrassed if they leave without buying, the financial services industry needs to become more transparent and upfront in its pricing structure and potential costs. Clients need a better idea of what advice might potentially cost before they step through the door. Michael says it’s a human problem that needs to be solved.

In summary

“I would encourage you within your business to really think about things, because the best way to grow the industry is to have more clients and do a better job. Consider how to work with people to both practically and emotionally mitigate longevity risk.

“Fundamentally, the future is two things: it’s you and it’s your clients, and if you can align those two beautifully then we will grow the industry….Get them on board with a small piece of advice and then over time build them up into a full service client.”

[1] Source: 2018 Investment Trends Financial Advice Report
[2] Source: 2018 Investment Trends Financial Advice Report
[3] Source: 2018 Investment Trends Financial Advice Report
[4] Source: 2018 Investment Trends High Net Worth Report
[5] Source: 2018 Investment Trends Financial Advice Report
[6] Source: 2018 Investment Trends Financial Advice Report
[7] Source: 2018 Investment Trends Financial Advice Report
[8] Source: 2018 Investment Trends Retirement Planner Report

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