The Cost of Financial Advice and Consumer Expectations

Since the 2012 Future of Financial Advice (FOFA) reforms were enacted, the percentage of investors making decisions based on professional advice has fallen. This has caused uncertainty about the future of the financial planning industry, with consumers and Financial Advisers seemingly unable find a happy medium. Everyone wants good information but too few are willing to pay for it.

A recent study by the University of South Australia found that the current cost to provide financial advice was roughly double what the average consumer would happily pay for. According to the study, more than 95% of survey respondents wouldn’t pay more than $999 for advice, while a mere 4.55% considered a range between $3000 and $4999 to be acceptable. Notably, just 12% of Advisers reported their initial one-off advice coming in at less than $2000.

The unintended consequence of this disparity is that many Australians have ended up losing much of their wealth and living on a retirement nest egg that is a lot smaller than it could have been.

To make matters worse, some Australians invest directly into the market with little experience and no professional advice. The cryptocurrency space is an example of a market segment which the community has bought into en masse, and lost money in the process.

To enable Australians to grow their personal wealth and maintain good financial well-being in the current volatile economy, it’s more crucial than ever that they have access to a thriving financial planning industry. Unfortunately, the FOFA reforms, with their restrictive, excessive and cumbersome compliance requirements, have done anything but strengthen this vital industry. In fact, the number of Advisers in Australia has halved since FOFA came into force.