Prohibitive Advice
Why is it that a willing and financially able potential client will walk away from a financial adviser, even though they can clearly see the value in the adviser’s offer?
It comes down to one, prohibitive factor: cost.
A recent round of mystery shopping conducted by CoreData among super funds’ financial planning arms found that the number one reason why would-be clients declined to take up the relationship after the initial meeting was that the perception that the cost of advice was too high.
The main reason wasn’t, as many might expect, that the financial adviser failed to articulate the value of the advice. Although while nine in 10 people said they felt an adviser could assist them before having met with one, perceptions were much more mixed about whether the adviser could improve their financial situation after having met them.
Advisers’ fees were the most commonly mentioned barrier to consumers proceeding with the adviser. Approximately half of shoppers felt the adviser’s fees were too high (53.8%).
This doesn’t seem too radical a concept given the reported gap between what consumers are prepared to pay for advice and what advisers cost this advice as.
Industry research has put the cost of holistic or comprehensive advice at between $1,400 and $3,500, depending on the complexity, yet consumers often balk at paying less than half this for financial advice.
The pricing of the financial planning firms shopped varied broadly, but as a general trend, as the portfolio sizes increased so too did the annual fees would-be clients were quoted – a reasonable correlation given that often the greater the amount of money under advice, the greater the complexity of the work involved for the adviser.
Although consumers balked at the cost of advice they were very positive about the planner’s ability to financially assist them ahead of their initial meeting, with nearly nine in 10 consumers thinking advisers could assist them with things like accessing research on latest market developments (88.5%), checking their investment strategies (88.5%), development of investment strategies that take into account their financial situation (88.5%), saving them time by keeping them up to date on market developments (88.5%) and providing access to market knowledge and expertise they don’t have (88.5%).
However, not surprisingly given the recent market conditions, consumers were less optimistic about advisers’ ability to provide them with high returns, with only half thinking advisers could assist them in this area (57.7%).
If advisers want to increase their customer acquisition effectiveness, they’re going to need to consider ways to overcome the stumbling block of cost.
5 Comments on “Prohibitive Advice”
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Dr Doom says:
I don’t blame consumers for this perception. What you probably had was a situation during the good times where consumer and adviser were feeding off each other up the risk ladder. Consumers tasted the easy money and now want it to continue.
Jack says:
Advice is an intangible and I suspect most people struggle to put a value on intangibles before they have an experience. The bias for the consumer is to then, when asked, nominate some nominal number. I’m sure they would like to say “can’t you just tell me, I don’t need a plan”. That’s a bit like someone with a tumour saying to a surgeon “can’t you just give me an aspirin” to avoid paying the cost of surgery. It should be made clear to clients that strategic advice and service is separate to investment advice. The two have been charged together which I think has arisen because its an easy model and less invasive but the value of each is then clouded. The value of strategic advice is diminished as the headline of investments dominates the clients perception. Advisers are then at risk of losing clients because of investment returns despite sensational technical advice and service.
Sven says:
Dare I say it? The tax deductability of initial advice fees would go a long way to easing the gap between what consumers are prepared to pay and what a planner costs the advice at.
burningpants says:
Unfortunately, when many consumers think about what value advisers add, portfolio returns are top of mind. There are still too many value propositions in the industry that have been built around this false premise, and until that changes, many consumers will remain unable to see beyond the tangible aspects of a financial adviser’s offer.
Independent observer says:
Why do we persist with the idea that advisers’ have the ability to provide clients with high returns? (your words The 57.7% who think advisers can do this are misguided. Let’s be honest it’s out of our control