All Change

Humans may very well be a highly adaptable species, yet at a grass roots level individuals react in a variety of ways to significant changes in their lives and during times when there is a move away from the status quo.

Some people are quick to make decisions in times of upheaval while others take longer to interpret the implications.

When the so-called global financial crisis began and then unfolded with deepening ramifications, companies and individuals made their respective assessments of what it meant to them and how they should react?

From both a consumer and corporate behaviour perspective, some groups held tight, some hoped for the best, some made considered responses while others exhibited knee jerk reactions.

In addition to the attitudinal and behavioural drivers of responses the range of reactions to the crisis was also based on different groups and parties being exposed to a variety of data and information.

Nonetheless some individuals and companies see change as an opportunity while others refuse to accept the inevitable, with others – yet still – tending to freeze in reacting and therein allowing indecision to take hold.

Over the past two years, since the financial crisis officially emerged in the third quarter of 2007, markets have gyrated wildly and by doing so reinforced the old adage that markets go down and markets go up.

Having said that – excluding some modest rallies – the tendency has been for markets to go down rather than up over the period.

During these times of upheaval – some may say chaotic – the strain on financial advisory businesses has been particularly pronounced.

Large numbers of existing advice clients have been questioning their long-term strategic direction, as it appeared much of what the industry had come to accept as gospel in relation to diversification was in fact part fallacy.

Meanwhile new business, excluding insurance for some practitioners, has been challenging as fewer people are attracted to advice-driven investing and planning during uncertain times – with some of this drop in demand coming from those people who opt to sit on their hands and do nothing

This shrinkage in demand for advice is against the back drop of a Government and industry looking to reshape the business models of many advisers with the industry debate on remuneration reaching fever pitch.

Long term, our modelling tells us that the demand for advice will rise, and that the industry presently has insufficient supply to meet this demand.

Yes, fluctuations in demand levels will exist just as greater than usual demand will exist in periods of superior market outperformance.

However what the possible impending Government changes stemming from the various reviews may potentially result in – as many already arguing against what they see as potentially draconian shifts in the industry’s structure will attest – is the preclusion of people from taking professional financial advice under the current structure.

In terms of overall levels of demand, fundamentally, what we do know from our research experience is that individuals who have a plan or a road map, however not necessarily a plan with an adviser, are much more likely to feel financially secure than those who don’t.

When it comes to advisers though, new CoreData research reveals that Australians who have never used a financial adviser are more than twice as likely to be financially insecure as those who do.

More than a quarter (27.5%) of people in fact who have never used a financial planner point to not being financially secure, compared to only 12.6% of people with an ongoing advice relationship and 11.8% of those who have an intermittent relationship with a financial adviser.

This is an important statistic as past CoreData analysis indicates that financial security is a critical variable in influencing levels of happiness among Australians.

The findings stem from a research report titled Financial Planning Affection Study, assessing attitudes towards financial advisers among all non-advised and advised Australians.

What is interesting from the research though is that the outlook for some participants in the financial planning industry is looking increasingly bleak, with large swathes of clients losing faith in their advisers’ ability to return value to their investment portfolios.