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Five charts show predicaments facing financial advice

There has never been a greater need for personal financial advice and advisers, but much of the industry is in turmoil. Although ‘digital’ advice aspires to replace person-to-person contact, it is a long way from meeting all but simple investment needs. Full service financial advice involves not only investing but budgeting, retirement planning (including superannuation), insurance, taxation, social security, estate planning, mortgages, even lifestyle coaching. Nearly all of the 700 Australians who retire every day, the majority with a pension account from a superannuation fund, would benefit from obtaining financial advice.

The Financial Services Royal Commission of 2017 to 2019 was a disaster zone for the reputation of financial advice. Advisers and licensees were exposed day after day by the Commission’s legal team, with little attempt by witnesses to defend their businesses. Subsequently, the major banks ran up the white flag and substantially exited personal advice, paying billions of dollars in compensation on the way out. Their dreams of vertically-integrated wealth management delivering multiple products to clients were in tatters.

Demand for advice services

Why is an industry with such obvious consumer demand in trouble? Government enquiries and trade publications have devoted millions of words to this question, and we can only scratch the surface here. In its 2021 Financial Advice Report, Investment Trends estimates that although 1.8 million people receive advice each year, that represents only about 10% of adults. A further 12.6 million have unmet advice needs and 3.2 million want advice but are discouraged by the perception of high costs and inadequate investible funds.

Consider the need in superannuation advice. Retirees have a vast array of alternative ways to make contributions, withdraw money to live on and invest their retirement savings. Superannuation is expected to reach almost 250% of GDP by 2060, according to the 2021 Intergenerational Report, with annual withdrawals rising from the current 2.3% of GDP to 6%. With annual super inflows of $120 billion and a total pool of $3.4 trillion, even if we ignore all the other aspects of personal financial advice, the need to maximise the efficiency of this pool to fund retirement is obvious.

The table below shows that every quarter in recent years, Australians withdrew about $20 billion from super, offset by $30 billion in contributions, a net addition of $10 billion every three months. While these flows will switch with an ageing population drawing large pensions, the balance in super will depend substantially on market movements. Superannuation is expected to exceed $10 trillion by 2040 according to Deloitte, making the shortage of financial advisers an even greater unmet need.

Quarterly Benefit Payments and Contributions from Superannuation

Source: APRA Quarterly Superannuation Highlights, March 2022 (released 4 May 2022).

Let’s consider four more charts that show the current state of financial advice.

1. Financial advisers leaving the industry

In less than five years, the number of financial advisers has almost halved and is expected to fall below 15,000 by the end of 2022. There are weekly announcements in the trade media of advisers leaving firms of all sizes, particularly from large dealer groups. For example, Wealth Data reported last week: “A lot of movement this week across several licensees indicating that the adviser market is still volatile. Net change of advisers (-24)."

Here is the latest data from Investment Trends, reproduced with permission.

2. Reasons for financial adviser exodus

A new client cannot drop into a financial adviser’s office and ask a single question that should take half an hour. The initial discovery required to accept a client is more onerous than visiting a new doctor.

When asked about the main challenges facing a financial advice business, the ‘compliance burden’ is identified by two-thirds of advisers. This is despite many years of attempts to streamline operations, such as automated Statements of Advice (SOA) and developments in the sophistication of software designed to make an adviser’s administration burden easier.

Other areas of concern relating to the work burden, as shown in the chart below, include:

  • Regulatory change and uncertainty
  • Administering fee disclosure requirements and client opt-in
  • Technology adoption
  • Transitioning to new education and professional standards

It is also worrying that ‘My/staff mental health and wellbeing” ranks highly.

3. Adviser focus on wealthier clients

A major concern above is the inability to provide affordable advice to those who need it, as the administrative and cost burdens force advisers to focus on wealthier clients.

The chart below shows the top category of clients with funds under advice (FUA), sometimes called investible assets, with more than $500,000 has risen from 9% of clients in 2011 to 15% in 2017 to 35% in 2022. The ‘mass market focus’ with less than $150,000 in FUA has fallen from a high of 71% in 2009, 28% as recently as 2021 and only 19% in 2022. Financial advice revenue models vary but some firms that specialise in high value advice will not take a new client for annual fees of less than $30,000. In some businesses, 1% of FUA is a common model, so a client with $1 million pays $10,000 a year plus extra in the first year of establishment. Others agree a flat fee for ongoing advice.

4. The cost of providing financial advice

Related to the need to find high value clients is the rising cost of providing financial advice, which is estimated to have increased from $2,500 per client to $3,280 over five years. Financial advisers and their staff are professionals, and while not quite in the league of most lawyers and architects, expect to charge their services at around $250 an hour or more. That makes an initial 10 hours of SOA work and reporting to a new client at least $2,500.

What are some other issues facing the industry?

Financial advisers face a continuous onslaught from changing regulations, such as FoFA, DDO, LIF and the RC (don’t worry what these all stand for), and now there’s QAR.

a) Quality of Advice Review

The new Government is continuing the Quality of Advice Review (QAR) started by Senator Jane Hume in the previous administration, to assess how the regulatory framework can deliver better outcomes for consumers. Michelle Levy is the main reviewer, and her report is due to Treasury by 16 December 2022. She recently told an SMSF Association Technical Summit that she was surprised by the level of adviser fear relating to the regulators, ASIC and AFCA.

“I am actually taken somewhat aback and, maybe I shouldn’t be, but there’s a real concern that very minor breaches or very minor things are going to lead to very serious consequences. If you look at the cases that ASIC has actually brought, they are in the main quite serious issues so that surprises me and that’s a hard one to solve. How do you address fear? It’s obviously having a big effect on what people do.”

At the same forum, the Financial Planning Association’s CEO, Sarah Abood, also said that an “environment of fear” exists in the financial advice industry.

“It's very much the case that advisers are literally terrified of forgetting a page of the SOA or something of that nature. Advisers and dealer groups have a genuine fear that their businesses will be destroyed and that their PI insurance will be broken because of something like that.”

Advisers are responding by designing their systems in case they need to defend their advice in a courtroom. Everyone must interpret regulations and AFCA decisions and decide how to respond, when they would rather focus on serving clients. 

Future advice availability will be further limited as many financial advisers are close to retirement, and the training grounds provided for young advisers at major banks no longer exist. Many older advisers could not be bothered with the new exams, standards and regulations and there are not enough younger people coming into the other end of the pipeline.

b) Digital, online and robo-advice

Many have come and few have succeeded in providing some form of online financial advice. Names that have left the industry include GigSuper, Brightday, Zuper, Super Prophets, Human Super, FairVine, BigFuture, Clover and McMahon Super. There has been some success in what is better called ‘digital investing’ than ‘digital financial advice’ because it is far from full service. The offer asks a few simple questions to identify a basic risk appetite, then clients are placed into a suitable portfolio with competitive fees. This article is not the place for a full review of these stuctures but Stockspot, Raiz, Spaceship and Pearler among others are finding enough support to sustain their businesses.

With the major banks showing no aspirations in this space, it is left to the likes of Vanguard to bring institutional capabilities. Vanguard’s submission to the QAR calls for a “scale of regulatory compliance” to enable more Australians to afford advice, ranging from lightly-regulated protection for limited advice through to full service comprehensive advice based on current safeguards. Vanguard hopes to fit its model into these scales, including digital advice allowing technology to deliver advice to the masses. 

c) Mandatory education and standards

Faced with the challenge of making financial advice more of a 'profession' with standards and qualifications beyond obtaining a simple diploma, the Morrison Government introduced mandatory education standards. Now in Opposition, former ministers admit the rules were poorly executed and contributed to the increase in the price of advice and thousands of advisers leaving the industry. There was a requirement for an approved university degree by 2026, but the new Albanese Government will exempt advisers with 10 years of experience and a good regulatory record. There is also a controversial code of ethics where many advisers dispute the wording.  

The new Government has promised to remove the regulatory burden on advisers, but is likely to wait for the results of the Levy Review before major changes. Exams and standards will remain but how difficult they will be and who needs to pass them is yet to be decided. 

Cries from the heart

The daily reporting of dire problems facing financial advice plagues their trade media, with a steady stream of comments showing ongoing frustrations. Consider this post to the Professional Planner newsletter by a financial adviser responding to an article about 100,000 fewer Australians receiving advice every year:

“What an absolute mess! This is what happens when you have people at the wheel who have no idea what they are doing. They should hang their heads in shame instead of gloating over the size of their RC payday.

The regulator has focused so much on what doesn’t matter (product) and nothing on what really matters (advice and people). They’ve listened too much to the noise and not enough to the professionals. If the money they spent decimating the industry had been spent on the conduct of the minority then the right people would have been targeted.

Now a large number of good advisers have left this industry and a lot more will go when the retrospective education standards are enforced.

Advice costs have spiraled, people have been pushed into products based on price and the net benefit to the naïve end user is confusion, disengagement and asking the trusted adviser to please explain what the hell has happened.

Soon, they will have no one to ask other some dimwitted actor on an escalator.”

Sums it up. People need financial advice, and better to go to a qualified, experienced professional than a finfluencer (there’s another story!) who is more skilled at gathering an online audience than covering the complexities of a seasoned adviser.

Let's finish on a more optimistic note. There are thousands of good financial advisers helping millions of Australians. Most who remain in the industry have moved with the times, are dedicated to better outcomes for their clients and have invested in their businesses and systems to make them sustainable. After too many difficult years, it's time to stop the denunciations.


Graham Hand is Editor-At-Large for Firstlinks. This article is general information and does not consider the circumstances of any person. The charts provided by Investment Trends are republished with permission from their vast database available to subscribers.


August 24, 2022

You can always opt out of ongoing advice and stop paying fees if you don't think you are getting value for money. That is one of the positive outcomes of FoFA in 2013.

Graham Hand
August 23, 2022

ASIC release on 24 August: $3.6 billion paid in compensation.

Six of Australia's largest banking and financial services institutions have paid or offered a total of $3.6 billion in compensation, as at 30 June 2022, to customers who suffered loss or detriment because of fees for no service misconduct or non-compliant advice.

Julian Constable
August 20, 2022

It’s simple. Politicians are to blame. Many years ago the stat was one piece of legislation for every week that Super had been around (1985?). It must be much worse now. A financial minefield to negotiate for Superannuants and as we have recently been told, advisors fear for not ticking a box, dotting the i and then loosing their license. Too many politicians in our society have spoiled a lot of things.

August 20, 2022

I do not use a financial advisor. My biggest issue is the value proposition. As stated in the article, "Full service financial advice involves not only investing but budgeting, retirement planning (including superannuation), insurance, taxation, social security, estate planning, mortgages, even lifestyle coaching." This sounds grand but in practice much of this redundant. As stated earlier you can get will kits from the post office - most people have very simple wills leaving assets to surviving spouse, then children. Job done. Once retired with no mortgage, one doesn't need life insurance for example as well (many advisors were keen to peddle insurance as another income stream which straight away has red lights flashing re "independence"). For those with an SMSF most would have an accountant so that's taxes covered as well. The concept of paying 1% of assets is also a big problem. And of course the obvious, why would two clients with similar needs, expectation, situations (and therefore receive similar advice) get charged different amounts simply because one has more assets? Further, the 1% of assets means minimal skin in the game; if assets fall 10% the client has lost money, the advisor still still makes money, just 90% of the original commission. The client bears all the risk. Tying fees to actual performance might help? Also if one has a good, longer timeframe plan, why get slugged annually for basically the initial set up? Of course trailing commissions tend to be hidden from the client.....
I also find articles like this in a publication owned by Morningstar interesting. As Morningstar provides a great deal of investment education and has such offerings as a suite of ETF model portfolios for cautious through to aggressive investors, the need to use advisors (with their secret sources of information) has dropped substantially.
At the end of the day a financial advisor is (and always was) a source of information. What used to be in-house knowledge that the general public didn't have access to is now often widely available to most of us. Big gamechanger. Until financial advisors can show a genuine value proposition, they will be forever in trouble and will end up serving only those whose situations are complex enough to truly add value. Clearly too many potential customers don't see the value proposition and having an echo chamber of advisors saying how valuable they are won't change that. It is totally ironic that an industry whose purpose is to guide people through financial affairs as a collective entity can't show their own value to the market.

On will kits
August 21, 2022

"As stated earlier you can get will kits from the post office - most people have very simple wills leaving assets to surviving spouse, then children. Job done." Lawyers make many, many more times the income from fees relating to legal challenges on Will kits than they ever do from drawing up Wills. This attitude will keep them in a job for many years to come. It's also a reason, despite everything that you have written, that you would get value from seeing an adviser.

August 29, 2022

Steve it must be many years since you engaged with an adviser. 1% on assets no longer exists, it is mainly fee for service negotiated annually based on agreed needs for each client over that period. Everything you have written suggests you believe the value is in investment management/performance. Actual financial planners provide services that see the Investment outcome as only a minor part of their value offering. Decent performance is a given, almost a commodity i.e. you can get base benchmark performance for very low costs. The real value lies in strategy and technical knowledge and behavioural management. But many many clients, and there is no one holding a gun at their heads to go and get advice, believe they can DIY - that's ok, they are entitled to do so and take both the potential reward and risk with that approach. I can also say this, after many interviews with clients who have DIY'd. They don't like having their historical results properly analysed and will almost always be worse off than the index, but won't acknowledge it - or will offer an excuse like, ' at least I was in control', or ' It kept me busy mentally'etc - both good reasons to DIY, but not good reasons to bag genuine advisers who in most events these days do a professional, effective job.

August 30, 2022

I guess it's like anything Steve, in that you can look up just about anything on the internet and find a cure/solution without engaging any specialists.

The adviser's skill is helping you uncover your goal's, what is truly important in your life and aligning your finances, wealth and strategy to your objectives.

In an environment where the government has changed contribution ages, provided the ability for catch up contributions, re-introduced estate tax on superannuation through the removal of anti-deteriment, linked the sale of your home to contributing to super, provided concessional treatment of annuities for those that might be eligible for aged pension not to mention the complexities of the aged care environment.

It is one thing to be able to google "anything" as a source of information, I guess the value comes in being able to effectively apply it to your situation to maximise your outcome.

On a closing note you would find in today's advice landscape the majority of "advisers" are not into peddling insurance as it once was due to the product complexities, the level of work and the lack of remuneration.

If you are talking about trailing commissions it must be a while since you've engaged with anyone as these have been banned for a few years now - might be worth sitting down to see if you aren't missing anything

Sincerely yours,

An adviser trying to help the average Australia achieve their retirement goals

August 20, 2022

And as the article is saying that many financial advisers are exiting the industry with one reason being they won’t have the necessary qualifications. Would this mean that it would be a great opportunity for present uni Commerce students deciding on what to major in, that Financial Advising might / would be a good career choice ?

September 02, 2022

Even with a Masters in Financial Planning completed in 2019, and 20 years experience in investing, superannuation management and property investments, no Financial Planning Practice was interested in employing me, even on minimum wage or as an Intern. Over 100 job applications and 50+ interviews but no position offered, and no reason why. I can only surmise it was due to my honesty, passion to help those less fortunate, my age (50), and me not wanting to ‘sell a product’. I truely feel for all those ‘average’ Australians who really need help but can’t get any due to a combination of compliance issues, and down right greed by some advisors. During my interviews I even offered to work for free for 3-6 months just to get my foot in the door. I think this astounded some, I guess they didn’t understand the idea of a vocation or passion to help others. Well at least I am financially independent now through my investments and don’t, myself need an advisor. I hope there are real changes in the profession so that advice is available to those that have low levels of financial literacy and also don’t have the time to make good money decisions.

Big Mike
December 18, 2022

Why didn't you start up from Scratch if you thought you were good and knocked existing planners ... like most other small business people??? You would have a model that would have collapsed due to Financial services Minister Jane Hume and her political Know how ( not ) .. she wants an enquiry now why her system didnt work !! The blind leading the blind ,

August 20, 2022

So now I am confused and even more cautious. I am retiring and need advice on moving my Super from accumulation to pension and implications of maximising the cap. Where do I go to get half a dozen questions answered or is there no longer such advice given without paying an AUM fee?

August 20, 2022

Mick super is a tax issue so you could try an accountant who charge a simple fee for service. No AUM problem there.

David M
August 20, 2022

Your Super fund will be able to give you some general idea. Also Centrelink have a Financial Officer (I think that is the title).

David Lunn
August 20, 2022

We have had more new clients in the last 18 months than the previous 4 years or so. Despite this we have fired more clients than we have taken on. The reason wasn't some "power grab" of wealthy clients so we could toss the proletariat, it wasn't because they were by and large unprofitable, it was purely down to business risk management. The inept regulatory approach drives between $200k-$250k in costs into my business for ZERO beneficial outcome for my business or my clients. BTW we are only two advisers and four support staff! ASIC don't have a clue about how advice should be provided to clients. Murder has been illegal for thousands of years but it still happens, simply by making more and more laws and regulations does not fix the 1-2% bad apples that exist in EVERY basket.

Some of the clients had very simple needs, some for example had complying annuities (remember those?) and the pensioner couldn't make head nor toe of the Centrelink forms. We did not conduct reviews for them, we administered no funds, we receive no ongoing fee but we had done business with them to set up the annuity they are still benefiting from in the early 2000's. These ones in particular broke my heart when we had to fire them. The fact they cost me money every year doesn't bother me as I don't mind helping and they were always polite and appreciative of what we do and out of respect that I dealt with them when my business was much smaller and trying to grow. We had copped the the rapid increase in compliance over the years but we could not cop the liability associated with FASEA which goes above and beyond the law as it stands. Our business could not tolerate the risk of an aggressive litigant (probably a son or daughter with a PoA as the client would never do this). They may do this in the knowledge that if they could find an ambulance chasing lawyer we would settle rather than fight such as the lack of justice if claim is brought in the current regime. The litigant PoA would also clearly understands that once the client passes they would get the benefit of the settlement.

I have worked too hard and too long to have sword of Damocles hanging over my head. I am a life member of a volunteer local sporting club for my service, I do physical charity work plus donate more than the average person but I will not mortgage my retirement with the threat that the current system provides. Ms Levy may be "taken aback", which I heard live at that conference, by the fear but she is wrong, it is not ASIC we are afraid of, it's the ambulance chasing lawyers.

The problem that is still missed by most people, including Hayne, was that a vast majority of the problems were not dodgy advisers, they were large financial institutions treating financial advice as a channel to funnel product. That's why they campaigned for lower education standards so they could keep funneling barely educated people into a job that said "financial adviser" so more insto product could be flogged. Real financial advisers were just cannon fodder stuck between commercial insto's, industry funds and an inept regulatory response and a refusal by all to acknowledge the elephant in the room - vertical integration of product and advice. Now the Insto's can't do this anymore, although industry funds are still angling for it, they have sold off all the advice businesses they hoovered up and real and genuine advisers are left to clean up the mess. Can no one connect these dots???

The solution to this ungodly mess that we are stuck with is very simple. Remove Chapter 7 of the Corps Act (the section on Advice), leave ASIC to regulate product and remove them completely from advice regulation. Remove the jurisdiction of AFCA. Institute a professional standards board, with teeth, that can license, suspend, revoke and remediate when there is inappropriate conduct. The Board should have representatives from consumer groups etc but the majority should be seasoned professional advisers. They will ensure that the profession does not get tarnished by those that seek to profit unprofessionally from clients as it hurts not only Australians seeking a better a life but damages reputation of the rest of us doing our damndest to look after our clients the best way we can .

This is not a new concept, it's EXACTLY how law, medicine and accounting are professionally administered.

Until this happens I will never consider scaled or limited advice, I simply can't afford the cost of the provision of this advice under layers of regulation and the business risk that I am in no way compensated for.

August 22, 2022

Well said and well written. It’s a disaster of an industry. I’m 16 years in and love the clients and area of work but can’t stand the rest. If another review fails, I’m out, I’d suspect I won’t be alone. Health is way more important.

August 24, 2022

100% correct it was overwhelming driven by Wealth Management arms of big banks selling product volume.

Their aligned advisers weren't properly supervised or training in many cases. Show me the money and I'll show you trail back to the incentive. Ironically, a CEO of one of Australia's biggest ISA was directly involved into the distribution of new and even more ridiculous investment options on their platform. It served no customer benefit rather just hype for the salesforce to flog to the unsuspecting public

November 20, 2022

Very good assumption on the whole industry and the pathetic changes introduced, I did 29.95 yrs self employed, so pleased I dont continue to wake to this everyday.

August 20, 2022

I very recently retired as an experienced and well qualified adviser and have to say that escaping the ever changing and escalating compliance burden was the principal reason I retired. In my view ASIC has been a very poor regulator with its complex and often unclear regulatory framework a constant source of stress as well as being time consuming and costly. The public needs to be protected but a body dominated by lawyers who have no practical experience of giving advice and seemingly little understanding of what clients want and can afford to pay for has a lot to answer for.

Peter A
August 18, 2022

Example of why Financial Planners are destroying it for themselves:
When the Aug mini crash happened in 2007, 72 yr old wife had sufficient non-super investments. Part time worker 75 yr old Husb had a GOOD comprehensive fin adviser (franchised to a national firm) who changed his $650k retail allocated pension to $550k in a conservative balanced 50% growth 50% defensive, and $100 k into Cash option.
After the GFC that planner retired and sold to a SALESPERSON planner in 2010 or 2011. New planner transferred the Cash back to the 50/50 option for a one off fee and has charged $6900 pa since, recently reduced to $6855 pa, as the fund has drifted down to $480 k. No advice or changes in the following aprox 10 yrs. Over $1000/hr charge out rate for what Warren Buffett calls 'sitting and knitting'.
Professionals get paid for the professional work they do. Most Financial planners' pay structures are closer in nature to commissions rather than how much professional work they do. This is why so many are salespeople, not professionals, and why their industry is in turmoil.

Robert Delmenico
August 19, 2022

How about you re-phrase that first sentence to 'Example of why a financial planner is destroying it for himself' instead of casting aspersions on the entire industry

August 19, 2022

What has the industry/profession done about this kind of behaviour? It is not an isolated incident. To some extent, it is why a royal commission was held. I.e. the profession wasn't dealing with it.

I am a health professional. "Salesmen" have been becoming a bigger & bigger part of professions for decades, & in my experience the professions don't do anything about the appalling behaviour. It is not limited to Financial planners. But professional bodies do little or nothing.

It is probably time society as a whole discussed the topic in general, rather than industry by industry, or individual by individual. Do we want or expect professional behaviour at all anymore? How will we define it?

More specifically, if the profession does nothing about Peter A's example, the profession deserves criticism.

Sarah S
August 19, 2022

Hmm dragging up one incident from over a decade ago seems appropriate (please note the sarcasm)
The industry has changed a lot in this time. Educate yourself.

August 20, 2022

Sarah S, an incident from 10yrs ago which still incurs fees 10 yrs later with no further advice, hardly seems to be the behaviour of a 'changed industry' as you suggest. Peter A's experience is one that other retirees have experienced. I know of 4 persons whom were all 'educated' as you put it, just not in the financial profession, which is the whole point of this issue. Peter had the courage to stand up and speak to tell people about the experience, so people may question such things in the future, to be heard but not to be mocked.

August 20, 2022

The financial planning industry & planners have unequivocally brought over regulation onto themselves. For too long, they have been driven by greed, particularly in the form of trailing product commissions. Unfortunately the Royal Commission has done little to change the cookie cutter approach of many financial planners & has failed to remove long overdue commissions received from insurance products - which needs to change. Paying $5K plus for a basic & templated SOA is highway robbery and then advisors whack a 1% FUM fee on top of this. It is little wonder why we have seen the rise of ‘finfluencers’ in recent times & I say good luck to them. They are providing a valued service to many who could not otherwise afford or who would not be necessarily ‘better off’ after seeing a financial planner.

Adam M
August 20, 2022

Interesting scenario. I guess there are a couple of questions -

1. Depending on sequence of returns, client could be far better off in 50/50 portfolio v.s cash. Returns have probably been 3-4% per annum better than cash.

2. Assume adviser has been providing FDS and consent docs in line with legislation. Therefore client has been opting in to the fee at least every two years.

3. Client would have had minimum pension payments at least so over 15 years let’s assume avg of 30k minimum over that time = $450k. Therefore decline in value of $170k when 450k has been taken doesn’t sound so bad.

4. Lastly, who is to say the adviser doing nothing hasn’t ensured this client stayed the course. There has been a few sell offs - 2016, 2018, Covid- 2020 which clients without an adviser might have panicked or had an adviser that moved them to cash. Markets have since recovered so that would have been costly..

Not saying the advice or adviser was great or is truly delivering value, but there is an argument to say the client is much better off for the relationship!

August 20, 2022

Peter, this is an issue not just for financial planners but for many professional services you use. When a medical specialist retired sometime ago and nominated his replacement, I went back to my GP and checked whether there were other doctors who I could choose from. Same with insurance agents, accountants and others.

SMSF Trustee
August 17, 2022

Somebody once said to me that they didn't want to put their money into super because the share market was too risky. I explained to them that they didn't have to put their super into shares if they didn't want to, but that whatever it was in the tax they'd pay on it was much less than if they did exactly the same thing outside super. It was an eye-opener to them.

That person was my wife and the conversation was at the time I left full-time work and had to decide what to do with super. She ended up joining me in an SMSF structure as co-directors and members, which has served us very well. My financial adviser was a key part of that conversation.

The adviser business model was always flawed. It was based upon being paid for investment advice - getting a % of assets under advice in some way or another - when the real need of the consumers wasn't really about investments. As you say in the article Graham it's about "'budgeting, retirement planning (including superannuation), insurance, taxation, social security, estate planning, mortgages, even lifestyle coaching''. But because the remuneration was based on the investments, that's how the industry always presented itself and what it focussed on.

And generally stuffed it up. Not everyone, but on the whole most advisers know very little about asset allocating, picking good managers, blending index and active funds, etc. That's why the SMSF industry became so strong - people no longer wanted to pay for crap investment advice.

The adviser that I used for many years - until he sold his practice back to AMP before it imploded, an eventuality he saw coming a few years ahead of most - focussed on the other stuff. He helped me and my wife to understand how to set up not only the SMSF but also at the time a transition to retirement pension. I was only semi-retired and at the time that worked well. Then when the $1.6 mn cap came in, he showed me why it was best to just move everything into accumulation mode again. He explained the regulatory maize clearly and helped me to navigate it. It wouldn't have mattered whether I'd invested all in direct equities or all in term deposits or (as is actually the case) a diversified portfolio across asset classes, it was the vehicle in which my investments were sitting that mattered and made all the difference.

Incidentally, he was pretty good at the investment stuff too. Good to bounce ideas off. But it wasn't what I was paying him for and he knew it and enjoyed the fact that he got to be helpful, genuinely helpful.

I miss him terribly.

August 17, 2022

There SHOULD be lots of regulation/compliance and an element of fear if an adviser wishes to take responsibility for someone's life savings. Having only recently witnessed figures of a person with the same firm for 20 odd years for total management of affairs, I am horrified at overall result and Power of Attorney deemed necessary to adviser which meant one partner could not access other partner's information when it was necessary. It's a good example of how sometimes the simplest thing is best such as 'just buy quality shares which historically pay good divs and use divs to live on" which a tax accountant would have been able to advise 25yrs ago instead of being lead by an adviser into a complicated structure the client didn't understand and never would, plus a few losses along the way on what I would consider doubtful investments, yet the 1% fee still remains. At least the underlying capital would have remained. Mart's suggestion of "guidance" not "advice" has merit, with a fee commensurate to any professional guidance sought at hourly rates, leading people to seek more than 1 set of guidance and seek several opinions, and hopefully gain information along the way to make the right decision and not put all their eggs in one basket.

Jeff O
August 17, 2022

Another excellent read. And wow; i can not wait to see the QAR's assessment of 'fear' & 'quality' (and hopefully quantity). A certain amount of fear of regulators or clients is good in advice markets that lack transparency, information asymmetries etc, with some advisors pushing unnecessary high cost advice to the mass market . For the wealthy segment of the market - the main problems are in essence both the quality and quantity of advice in many advisory business models. It's very difficult to assess quality - so (wealthy) buyers beware of handcuffs, shop around and rightly expect a sound regulatory regime with recourse. On quantity, the essence is the need for a retainer fee to meet fixed costs and then unbundled fees for all other scaled advice services that meet the changing needs of the client over their lifetime. Eventually, digital scaled advice will emerge and where and when needed topped up with face to face advice for more complex needs and for clients that prefer personal relationships. What's the problem in the mass market? In the mass market, there is little need for advisors. Households receive advice on buying a home - the key household asset - from many places - banker, mortgage broker, buyers advocate etc; on (compulsory) superannuation from their (industry/Vanguard) funds and a simple will from post office kit or lawyer on line. It's pretty simple and efficient to deliver and cheap for the household. At it's core for most households - best interest financial advice is....invest in yourself (education etc) and find a good job/income, save a deposit and buy a home, pay back the loan over 30-40 years, put your super in a low cost high growth fund including insurance coverage and (probably) look forward to an govt aged pension topped up by your retirement savings or the pension loan scheme.

August 17, 2022

It's interesting irony that the "mass market" are the less sophisticated and most in need of good financial advice/mentoring but now have been shut out. FoFA was a farcical attempt to regulate misbehavior of the <1% and the Royal Commission into misbehavior was based on premise of finding and calling this <1% out.

Senator Hume's "I am actually taken somewhat aback " is ridiculous and shows she is not well informed or living in an "alternative reality". ASIC's "why not litigate" mantra is publicly stated by the regulator post their RC dressing down and shown in all the cases they've elected to prosecute since. So many examples involving APRA approving an RSEs approach only to see ASIC litigating for 10s of $M even when there was no determinant. So my only conclusion is you'd get more honestly on intent on Fox News that you'll get from either the Senator or ASIC.

The retirement income covenant is also a farce once they get their head around what an RSE can't provide directly to members without "safe harbour". Darwinism in action???????

Rob G
August 17, 2022

I recently had cataract surgery on my eye. The surgeon is an expert in his profession and specialises only in this field. He employs multiple staff at varying levels, operates from professional premises and keeps his technical knowledge up to date. The surgery was performed in a private hospital, with nursing staff and an anaesthetist in attendance. The gross cost to me was about $1,100 all up. (In my case, health fund rebates reduced that to $0)

In assessing the condition of my eye, had that surgeon been operating under the rules applied to financial planners, he would have had to run a kidney function test, cardiac monitoring, neurological scan, respiratory assessment, bone density test and who knows what other assessments to ensure his "limited advice" on eye surgery was compliant with the legislation. One can only imagine how my costs would have escalated for little to no benefit.

The fact that I am writing this comment one week post surgery attests to the cost and technical efficiency the medical profession enjoys - an efficient and cost effective business model denied to financial planners and clients seeking limited advice.

Graham W
August 18, 2022

Great analogy Rob, as an accountant and financial planner I really "knew" my clients but the draconian regulations made it very difficult to accept new clients.

August 20, 2022

Rob, what if your eye surgeon had expected a trailing commission?

August 20, 2022

I agree Rob. As someone who has been under financial advice but no longer, as in our case I don't see the benefits of ongoing advice. The annual review meetings didn't provide value and most of the material in the subsequent SOAs were general ("Past performance is not indicative", "You do this under your own risk", etc). More valuable would be a service that provides specific advice when needed. The ongoing subscription style financial advice programs provide regular income for financial firms, but are not always what clients need. Of course it would be the client's responsibility to provide all relevant information for once-off consultations. Some clients may need ongoing advice, specially if they don't have the discipline to stay on course, but not everyone.

A balanced view on fees
August 20, 2022

Rob, I agree, medical practitioners typically are very efficient in the delivery of their services, however, your proceedure was subsudised by:
(1) health insurance that relies on a insurer using a pooled contibution model so the actual cost is spread amoungst a large number of members (effectivly it is subsidised)
(2) As a member of a health fund you pay annual premiums to your insurer and have done so over many years there is a cost for the cover you hold so you are effectively getting that capital abck and
(3) Medicare typically covers a substantial portion of a medical proceedures costs. Medicare is funded by the Medicare Levy which all taxpayers who earn income over a threshold must pay, so again, like health insurance the medical proceedure is subsidised.

The doctor who performed the prceedure does not send you the bill for his services it is sent to the health insurer and Medicare, so the actual cost of the service is typically not fully disclosed other than a gap. The doctor should be paid well given the success of the proceedure, their education, skill, experience and the support team they haveto allow them to do what they do.

This is not the case with finanical advice or any other profession such as accountants and lawyers. There is no insuance saftey net and no government subsidy so the cost to provide the service/advice refelcts the actual cost of providing the advice/service as well as provide the relevant professional a return for the risk thay take in providing the advice, their skills, qualifications, experience and the infrastucure they need to provide that service.

It would be interesting to see what the actual cost of the proceedure was.

August 17, 2022

Talk about the unaffordability of financial advice to the general public. Take this, my wife is a practicing psychologist and her PI insurance cover is $250 pa, I am a sole financial adviser for my own AFSL my PI insurance cover is $12000pa. Guess who ends up paying this, the consumer.

August 20, 2022

Freddy. As a general rule, insurance premiums are actuarially based on the risk to the insurer. High insurance premiums means financial advisors are higher risk. So why is your profession considered to be such a high risk? Its one thing to complain about having to carry high costs which then make your services less affordable, but isn't this cost a consequence of a poor history? If it was just a few rotten apples, why are the insurance costs so high? You may find many of the costs imposed on your profession are simply a consequence of how you have collectively acted in the past.

Chris S
August 20, 2022

Disagree, Steve, and I am not an adviser. The problem is that an adviser can legitimately put a client into, say a 70/30 position, then the market falls 30% and the client 'loses' a million dollars. There was nothing wrong with the advice and the client knew exactly what was happening, but then they sue the adviser. Being part of a large group or with settlement paid by an insurer, the client is paid out to avoid extra cost and bad publicity - "I'll go to Current Affair if you don't settle". No due to bad advice.

August 17, 2022

As an adviser attached ultimately to an ever expanding large institution in the industry (yes there is one), I can tell you they have teams of people in small rooms who do nothing but pontificate on the latest legislation/regulation and dream up additional measures ("standards") to protect themselves (and us) from litigation. A new raft of standards seems to come out every few months- leaving practices little time to bed down the previous changes into our processes. It is a world of shifting sands- and it now takes as much time and effort just to manage and renew our annual client service agreement as it does to conduct a full client review process- what we actually get paid for. Then there is the acute staff shortage. The stress (and the "fear" Graham talks about) filters down to everyone in our industry. Its not just the advisers who are leaving. Knowledge of the ubiquitous Xplan software is a pre-requisite and in a smaller business, training a new inexperienced recruit can be a significant disruption. The only way to employ a new CSO without incurring a loss of productivity for at least 6 months is to effectively poach someone from another similar business. The increased complexity of every role in a planning office means every single individual carries inherent key-man risk. The costs of luring someone has skyrocketted and will only get worse in the next few years.

August 17, 2022

Graham - what a wonderful article. I am one of those that has recently left after 20+ years in the industry -despite being fully tertiary and FASEA qualified. The fear factor has had a huge impact on me despite never having had a complaint made against me. In fact reading this article brings it all back and brings tears to my eyes. I admire those advisers still in the industry and hope Government policy changes soon for the better for those remaining in the industry.

August 17, 2022

Would limited/ scaled back advice actually work now? Would any adviser actually provide it, even if it was more simple to do. With so few advisers and so much demand, its now a capacity trade off - one off simple advice for a small fee OR take on the $1m client and charge an annual ongoing fee? From a business proposition and risk/return business trade off, I can't see anyone actually wanting to do it, even if you make it simple, its not worth it - I wouldn't.

August 19, 2022

I really don't understand why there is a perceived issue with scaled advice. If robo-advisers like Stockspot can do it why can't other licensed financial advisers do the same?

August 20, 2022

Perhaps you don’t understand is probably because you are apply logic. There’s no logic to the layer upon layer of draconian prescriptive legislation. That’s why. The cost of providing s called advice massively outstrips what is sensible for a client to pay.

Toby Potter
August 17, 2022

Logical outcome of the decline in supply of advice and increase in demand for investments will be the entry of the direct sales model by product issuers. Complex products with technically correct offer documents will be promoted and sold on a no advice basis to underinformed investors - result, significant losses by investors. Effective action by ASIC "Nil", expansion of ASIC bureaucracy "Substantial", imposition of costs through ASIC cost plus levy "Substantial"

August 17, 2022

There's a very real issue amongst all areas of the "wealth" profession because of what many or those in it would regard as poor quality legislation by governments from both sides. The ideas can be good, but sometimes the detail isn't sufficient, or the thrust goes against what every body in the industry say, via formal submission, would work to achieve the particular end.

With ASIC and the other regulators sitting like fat spiders in the web, waiting to pounce on some entity whose attempts to make sense of it all has inadvertently drawn them too close, to run a test case to work out what the legislation actually means in the real world, I don't doubt that advisors fear them. Such an encounter can be ruinous for a small business.

August 17, 2022

Graham - great article, one of your best I reckon. No question advice is needed by more people but it's mainly the cost that puts clients off. And hard to address what to do as advisers need to make a crust and added to the compliance burden this puts the cost of an SOA and advice beyond the budget of most clients. So I wonder if a possible solution would be to change 'advice and guidance' to 'advice OR guidance' ? For 'guidance' the adviser is offering full service to those clients that presumably can and will pay (as is the case now). But for 'advice' the adviser is providing a scaled down service that simply answers specific client questions or addresses specific interest areas, and the client signs off that this is guidance and not advice, and no SOA needed, and cheaper cost. Such 'guidance' could, of course, be provided electronically but I'd reckon there would be some advisors that would be OK with face to face guidance of this sort if the compliance 'rules' allowed for it. The only other way I can see advisers thinking this is an industry that they can get appropriately compensated in is the return of 'hidden fees' (trailing commissions etc) and I doubt that's the right path to take.

August 17, 2022

Good article, touches a nerve. As someone who has seen the very best and the very worst of financial advice, I just shake my head at the complexity and the BS. Is total paranoia with protecting backsides and protecting consumers where, in reality, it does neither, so it is very frustrating! When complexity fails to improve outcomes, it is fatally flawed. I now have two >18 Grandkids and set myself a challenge to give them an introduction on one page! Simplicity is always harder than volume, but if we can educate young people in the basics, they have half a chance to ask the right questions and look after their own futures

Russell (a veteran adviser)
August 17, 2022

would love to see these intro's!

August 17, 2022

Hi Rob
I would love to see your attempt too. I am currently trying to teach my 20 yo children.

Graham Hand
August 17, 2022

We will publish Rob's one-pager next week.


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