Broken Advice?
The year so far would suggest the global economic turmoil of 2009 has now passed – with data out of America and Europe (excluding Greece) indicating stabilisation has been achieved and that consumer sentiment isn’t far behind.
While the great engines of the American and major European economies have started to re-awaken – there is still sufficient choppiness to cause consternation among Australian investors.
Right now the obvious sign of concern among investors is the continuing rise in the amount of cash being stored in the economy (now at $508 billion or 14% of GDP twice the long term average) but the less obvious sign is the emerging concern among some Australians as to the future role of their financial planner.
Financial services in Australia, in the case of Mass Affluent and High Net Worth consumers, falls into four distinct groups.
Those who take advice (broadly speaking about 24% of the available market) those who do it all themselves (about 15% of the available market), those who come in and out of the advice market depending on circumstances (broadly about 31% of the available market) and finally those who have never used advisers and are not active in direct sense (about 30% of the available market).
It has long been our contention that in terms of growing the number of people under advice in Australia the interesting group in this market place is not the 15% that do it themselves – they will be very difficult to convert to an advice based relationship – but the 31% that come in and out of the advice market place – that we believe is the group that is most interesting to advisers interested in growing their businesses.
In truth that has been the most successful model for growing business for the past five years – allowing consumers that are pre-disposed towards advice to find you and your business at a time when they need to make a series of critical decisions about the future.
However, that model may now be less relevant, in that the relationship between advisers and clients and advisers and potential clients seems to have changed fundamentally.
Right now the data seems to be suggesting that a significant number of both those consumers that are in advice relationships and those that that used to have advice relationships do not trust their current or past adviser to deliver certainty in a post GFC world.
Over the past few months we have been looking at how trust works in service based relationships ,and in essence it boils down to two core concepts:
- The Concept of Credibility – this essentially depends on the buyer’s belief that the supplier has the required expertise to deliver the services the buyer needs effectively and reliably and;
- The Concept of Benevolence – this is based on the buyer’s belief that the supplier acts permanently in the buyer’s best interest
After working out what the core drivers of trust are – we set out to measure these two elements with people who either have an adviser relationship or used to have an adviser relationship and the news isn’t great.
The chart below shows three things in stark contrast – neither those people who have an adviser or used to have an adviser rate the credibility of their current or past relationship better than 5 on a 10 point scale where 1 is extremely unsatisfied and 10 is extremely satisfied.
What’s more interesting is that those people who have fundamentally rejected advice, to not have a significantly more negative opinion of the trustworthiness of advisers than those who either use to have an adviser or currently use an adviser.
To be frank we find these numbers fascinating for two reasons.
The first is that we can effectively prove that having an adviser makes consumers happier (those people who have an adviser claim that they have a greater feeling of control of their future) and secondly in the recent data that we have post-GFC, richer (those people who stuck to their adviser’s plan are approximately 40% better off than those who abandoned the plan).
So if people who have an adviser are by and large happier and richer – why is trust so badly broken?
To be honest we don’t have the data yet to determine what is going on – the first job was to find out how these questions were answered – but the data seems to reveal that the current advice model isn’t satisfying consumers need for trust.
In the next quarter we plan to work out why trust is broken and what its going to take to fix it?
