Is the traditional model of financial planning broken?
There’s consistently low levels of Australians using financial advisers – in 2011 the government estimated that 21 per cent of Australian adults had used a financial planner in the previous year. And there’s also many people saying they want a different model of advice. Young adults in particular are bailing out of the traditional financial planning format. Recent research showed that 65 per cent of young adults wanted more of a ‘financial coach’ to help them with investment decisions, yet 95 per cent did not have an adviser.
We know that young people generally reject financial advice the way the industry tends to serve it up. They don’t want advice with someone who does it all for them. They want to be taught how.
So if the customer wants something different, why does the model remain the same?
It’s a serious question. Our retirement savings system puts the burden on the individual to make good decisions. Quality of advice has a large bearing on how successful the retirement planning will be, especially when it comes to the tax system.
Yet people are wary of a planning industry that cannot provide them simple, affordable financial advice, regardless of income and assets.
Time and again Australians tell the financial services industry the same story: the financial planning model is too expensive, is skewed to wealthy folks and gives control to the adviser.
Traditional financial planning means handing over control to someone else – usually at high price. Control over decisions and assets is an issue for consumers. But cost is factor too.
Recent research from Investment Trends found that cost remained the biggest barrier to retaining a financial planner. When cost is taken into account, only a small proportion of Australians would still like to receive the traditional model of comprehensive advice delivered face-to-face.
Knowledge is power and the knowledge is currently held hostage by the adviser until money is exchanged. But considering the availability of financial data and online planning tools, this is an unsustainable position for advisers.
I propose a different model: give customers the knowledge they need upfront so they can take action themselves without obligation. And then ‘coach’ them into making good decisions, should they want it. The platforms already exist where people can use transaction tools for super, insurance, mortgages and shares. It’s just that these wrap accounts are controlled by planners.
Once people have the visibility of their own assets, they can use advisers who coach, allowing the customer to run their own finances without hefty adviser costs.
My own company has been trialling this idea and the model is likely to be far more attractive to customers and really shake things up. But one company can’t turn this around – the financial services industry and the government both have to step up and meet the customer halfway.
If people must be responsible for their own retirements, we can at least help them help themselves.