Good advice is valuable.
The right words of advice – whether it be from friends or family, business mentor, sports coach – can have lasting impact on the way we lead our lives, manage our businesses.
The same holds true for financial advice. The right advice can deliver more than just a better investment outcome. Think peace of mind heading into retirement, lower stress in a relationship and possibly even higher levels of happiness.
The need for advice ought to be beyond dispute. Yet it is not.
The value of advice ought to be well understood. Yet it is not.
With an ageing population and growing pool of superannuation assets the financial advice industry ought to be thriving. Yet it is not.
The Financial Services Council recently released a research report titled the Future of Advice prepared by the independent research and actuarial firm Rice Warner. While the report is aimed at advancing the public policy debate on the financial advice industry it contains some strong learnings for individual investors.
The report rightly identifies the challenges consumers face in managing their financial position and points to the need for advice in order to maximise income and avoid financial difficulties. A task made harder by the interplay of tax, super and social security regimes.
The research has modelled a range of cameos to assess the value of advice and estimates that those who obtain advice accumulate more than three times more assets after 15 years than those who make their own decisions (including doing nothing)".
That is a significant financial payoff and is in line with proprietary research by Vanguard titled Adviser's Alpha that independently researched the impact of advice and estimated the value about 3% in improved net return.
The value of the advice is not always for the wealthy or in the complexity. The Rice Warner paper says the greatest cumulative increase in funds at retirement when advice is taken at younger ages comes from asset allocation advice. Regardless of wealth level for an individual aged 40 about half the value of the advice is derived from simple advice in respect of savings.
Indeed individuals who are in the low socio-economic wealth bands are expected to gain more from advice than those who are wealthy. That reflects the tendency of those individuals to save less of their disposable income and allocate assets to safe but low-yielding asset classes such as cash and term deposits.
The Rice Warner research makes a strong case for the tangible, financial benefit of getting advice – with one important caveat. Costs matter.
The modelling of the impact of advice was done on a before-fees basis because fees vary widely across the industry. Importantly, the research showed that advice fees of 1% of a portfolio value would likely be a "net detractor" in purely financial terms.
There is considerable public policy discussion around the so-called "advice gap" which refers to the gap between those who could benefit from advice and those who actually receive it. During the Royal Commission into Financial Services poor and unethical practices within the industry were publicly exposed and as a result there has been considerable restructuring of the advice industry with major banks withdrawing as major players in the market along of with the number of individual financial planners falling as some choose to simply exit the industry.
Not surprisingly after the revelations from the royal commission the regulatory focus was heightened around investor protection. The financial planning industry today looks quite different today to five years ago – conflicted remuneration has been banned, a best interest's duty introduced and educational and professional standards are in the process of being lifted.
But the very measures meant to protect consumers are impacting the cost and complexity of providing advice and the Rice Warner report calls out the fundamental problem that the law regards most financial advice as complex and risky for consumers. So "simple advice has the same complex and lengthy processes as high-risk advice," according to Rice Warner.
Consider the components that are required to provide a financial plan:
Fee disclosure statement
Statement of Advice
Record of advice
Opt-in requirement (where this an ongoing fee arrangement)
The result is that the complexity of delivering advice has driven up costs and as a result it is the middle ground where the "advice gap" has widened and that in part is because the cost of delivering the advice is much higher than consumers are prepared to pay.
The FSC/Rice Warner study has recommended a new model with the aim of simplifying the advice delivery structure and making it more affordable.
The proposal is separating Personal Advice into two categories – simple personal advice and complex personal advice.
Simple advice would deal with well understood financial needs and products. Complex personal advice would cover things that are known to be complex and/or risky but also include areas where specialised advice skill are required such as derivatives or self-managed super funds.
Whether the FSC/Rice Warner proposal is the best solution is up for debate with regulators, policy makers and the industry. ASIC has kick started this discussion in asking for feedback on the roadblocks towards the delivery of good-quality affordable personal advice. What is clear though is that it is a debate worth having in order to ensure mainstream Australian investors can get both the right level of advice at an affordable price and the long-term benefits that good advice can provide.
An iteration of this article was first published in The Age / Sydney Morning Herald on 19 Jan 2021.
By Robin Bowerman
Head of Corporate Affairs, Vanguard Australia
25 Jan, 2021
BEc (Acc), MBA, CPA, FFin
David has been in the Financial Services Industry for nearly 30 years. He was one of the founding Directors of the successful Financial Planning and Stockbroking Practice, Henderson Gregory Forrest, for a decade. Prior to that, he held senior roles in companies such as ING, KPMG Accountants and AMP. David was previously Chairman of OAMPS Superannuation Trustee Board and currently serves as an independent Board Director for several companies.
David’s extensive experience in all forms of superannuation, including Self Managed Super Funds (SMSF), Defined Benefit Funds, retirement funding through Account Based Pensions, stockbroking with a focus on Direct Share Investment, Taxation/Remuneration Planning, Centrelink, Aged Care and business management, equip him to advise expertly on all aspects of Financial Advice.
Those with a particular interest in superannuation/SMSFs, direct share investment, salary packaging or applying for the Centrelink Pension will find his knowledge and ability in formulating and implementing creative, logical and simple wealth creation strategies a valuable asset.
David maintains a strong personalised client service focus, providing tailored solutions for clients.
David Forrest is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846
Business Finance Manager
B Bus (Acc), CPA
Michelle’s career has spanned across the Financial Services, Retirement Living and Aged Care industries working in the private sector, not for profit and more recently with the state government for over 20 years. Her experience extends to many facets of the financial services industry, having worked in superannuation administration, technical support and financial planning practice administration.
Commencing with AMP and subsequently working in commerce and accounting roles with companies such as Brambles, Adelaide Bank Retirement Services, ECH Inc and SA Health and Wellbeing, Michelle returns to financial services after working in practice financial management at Henderson Gregory Forrest. This wide range of experience from senior accounting and management roles has provided Michelle with a strong background in business administration.
With an astute financial acumen and keen interest in business improvement strategies, Michelle ensures the smooth running of the Integrity Financial Advisory practice providing valued management support to our personalised client service focus.
B Com, Dip FP
Darren joins the Integrity team as a strong technical specialist with almost 20 years’ in the Financial Services industry. He has extensive experience advising clients on how to build and protect wealth, prepare for retirement and retire comfortably.
Commencing with advising clients on direct equities for over 10 years at Baker Young, Tolhurst Noall, and ABN AMRO Morgans, his career expanded to providing holistic client advice, having operated his own financial services licence and company. Most recently having worked for a 'Big 4' bank, he has welcomed the more personalised ‘client first’ approach that is evident at Integrity Financial Advisory.
With a deep understanding of investment markets, he is appropriately qualified and authorised to provide direct share advice, as well as superannuation/SMSF advice, encompassing both investments and insurance.
Meticulous in his approach, he aims to deliver quality outcomes for clients by understanding their financial situation and needs before providing advice which is central to our advice process. Darren supports David in tailoring solutions for all client financial advice needs.
Darren Chalk is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846
Client Service Manager
Natasha commenced working in the financial services industry in June 2008 and is a new addition to the Integrity team. During the past 11 years, she worked closely with advisers providing administration support in a share broking and financial advice business.
Having successfully completed her RG146 accreditation in securities and managed investments and continued her studies to complete her competency in Superannuation, Natasha can ably assist with all aspects of fixed interest, cash management, portfolio administration, direct shares and client advice implementation.
Natasha takes time to ensure she understands our client’s financial goals and needs and believes in creating, preserving and utilising wealth through effective financial management as a key objective in helping clients.
Client Service Manager
Kelly has worked in the Financial Services Industry for over 10 years and has supported David since 2013. Kelly’s primary background is in customer service and administration.
On starting in the industry, Kelly initially focused on direct shares, stockbroking administration and client liaison. Since moving to the Client Service Manager role, Kelly has developed skills encompassing all aspects of financial planning including client advice implementation and term deposit management.
Kelly’s experience in the direct share environment, especially management of estates, provides a key part of the direct equity expertise in Integrity’s Client Service Team.
Returning from Parental Leave following the arrival of her second child, Kelly has developed further honed multi-tasking skills after juggling the demands of a growing family.
Client Service Manager
Jasmine has worked in the financial services industry for over 12 years in all areas of client administration, working with David since 2013.
Jasmine has extensive knowledge and experience in client service including implementation of advice, portfolio reporting, assisting with the establishment of Self Managed Super Funds (SMSFs), term deposit management and a long history of helping clients with their enquiries.
Jasmine’s attention to detail, yet gentle approach, means she is able to solve the trickiest of questions for our client community.
Jasmine has gained her Certificate III in Financial Services qualification.
Client Service Manager
Merrilyn has worked in the financial services industry for over 11 years in all areas of client administration, and is a new addition to our client services team, returning from Melbourne to join the team in June 2019.
Merrilyn has extensive knowledge and experience in client service including implementation of advice, managed fund administration, assisting with the establishment of Self Managed Super Funds (SMSFs) and process improvement for the previous practices she has worked with. Merrilyn’s experience with direct shares constitutes the other part of our administrative support for direct equity investments.
Merrilyn’s warm and caring nature continues to endear her to our clients and she has already established herself as a valued member of our team.