The problem with financial advice for those who really need it

The average client taken on by advisers this year had assets of nearly $1 million compared to $840,000 a year ago.

The change has coincided with higher advice fees. The average upfront fee for financial advice climbed 25 per cent to $4000 in the 12 months to May, while fees for subsequent years of advice have increased 18 per cent to $4700.

Rebecca, a 31-year-old recruitment worker, and her husband Ali moved to the western Sydney suburb of Austral in 2022.

Then came twins – when they’d only planned to have a second child – coupled with a string of interest rate increases and stubbornly high inflation.

The Mohamads have cut back on nearly everything, other than their Disney+ subscription, and Rebecca went back to paid work four months after having the twins.

With a combined income of $160,000 and a mortgage, she is concerned that their family is only two interest rate increases away from breaking point.

“My response to everything that’s been said about the ‘cost of living’ is that it’s not the cost of living – it’s the cost of surviving,” Rebecca says.

“I’d like [financial] advice on the budgeting (if there’s something that we could be doing better), setting up investments and generating a passive income.”

Colonial First State’s Power says the high price of advice is a consequence of fewer financial advisers after more than 12,000 exited the industry following the Royal Commission and higher overheads.

“There would be some advisers in some areas that would provide that support [to lower wealth clients], but typically what we’re seeing is that advisers are moving much more to that $500,000-plus of investible assets,” Power adds.

She says that for low-wealth potential clients, charging fees of $4000 or $5000 would constitute a proportion of the clients’ wealth that “wouldn’t sit well with advisers”.

“Australians with less than $150,000 in their superannuation are finding it almost impossible to access financial advice. There is an even greater imperative for the Quality of Advice reforms to be implemented.”

The Quality of Advice Review, commissioned by the former Coalition government, recommended eliminating some of the paperwork involved with providing personal financial advice.

It also recommended that for simple forms of advice provided by super funds, banks and insurers, the requirement that advisers act in clients’ best interests be replaced with a new duty to provide “good advice”.

The Labor government in June announced it would implement a series of recommendations from the review allowing superannuation funds to consider members’ age pension entitlements and family situations when providing financial advice. It will also replace statements of advice with an advice record to be determined following consultation.

But consumer groups including CHOICE, Financial Counselling Australia and the Consumer Action Law Centre claim the removal of the best interests duty places consumers’ savings at risk of bad advice.

They also say that, amid cost of living challenges, consumers are more concerned about covering their bills than accessing advice.

But Colonial First State cites a separate survey it commissioned of 2536 Australians which found that 71 per cent of advised Australians felt very positive about their financial future compared to 44 per cent of unadvised Australians with equal levels of wealth.

”Most Australians who have never received financial advice aren’t confident making decisions about their superannuation,” says Power. “Considering how many Australians have a super account and how few have accessed advice, this is a wake-up call.”

Coalition senator Andrew Bragg says the Albanese government needs to get serious about improving access to advice, listing reduced paperwork as a priority. He accuses the government of “dropping the ball” by failing to implement recommendations in the Levy review to cut red tape.

Bragg also wants to eliminate the ASIC financial adviser levy paid by practitioners and licensees. The levy was frozen at $1142 for advisers during the 2021 and 2022 financial years, but will increase to $3217 over the 2023 financial year and is due to be invoiced in early 2024.

“We don’t want Australians to be paying $5000 for statements of advice – this is crazy. The Levy review was designed to end the madness,” says Bragg. “The government has massively failed to cut the cost of advice and improve accessibility.”

Chief executive of the Financial Services Council Blake Briggs says regulatory costs are a “significant driver” of advice fees.

He cites modelling by the Financial Services Council (FSC) which found that replacing lengthy statements of advice with a financial advice record, consolidating documents and removing the safe harbour steps – a legal checklist required to show the advice provider has acted in the client’s best interests – could reduce the cost of advice by $2000.