The number of Australians that use a financial adviser has dropped by 20% over the past five years, according to the latest Investment Trends research.
According to the September 2012 Advice & Limited Advice Report, nationwide client numbers now sit at 2.4m, down from 3m half a decade ago. But Investment Trends Principal Mark Johnston has suggested that these statistics won’t cause sleepless nights for many advisers.
"The interesting thing is that most planners don't see smaller active client numbers as a bad thing. They typically estimate that they lose money on the bottom third of their book, so losing those clients is not necessarily a negative,” he said.
“Many are actively trying to focus on higher net worth clients and service a smaller base better. That's great for planners and for those clients, but does threaten to create an advice vacuum for the masses. This is where the big players must step in.”
Scaled advice a ‘terrible description’
What these big players will need to do, suggested Johnston, is focus on what he calls ‘modular advice’, claiming that the ‘scaled advice’ moniker discounts key clients.
“Changing current business models to efficiently deliver defined scope advice specific to people's current needs will be a key success factor for large institutions for the next five years,” he said. “And the language around the discussion needs to change.”
“Scaled advice is a terrible description because it assumes advice starts small for low balance clients and follows a steady growth path from there. The reality is many high net worth clients also want specific advice, are willing to pay for it, but have no interest in an ‘all you can eat’ advice model at the current time.”
Claiming that the demand for modular advice is present at all points of the wealth spectrum, Johnston pointed to a ‘simple choice modelling exercise’ that Investment Trends ran to assess Australian's base preferences for advice delivery.
“When you factor in realistic costs, only 6% of Australian adults intuitively favour the comprehensive, face to face, regular review model of advice delivery, while 43% prefer some other model of receiving the advice they need,” he said.
Realistic costs for comprehensive advice, he explained, need to account for the fact that the average planner takes six and a half hours to to deliver a full SoA for a new client – a figure that has come down only slightly in the last eight years.
“This sets a minimum price for advice, because the cost of providing advice is quite high. This has always provided a natural limit on what proportion of the population will access advice through this model,” he said.
Are you concerned about the drop in advice clients? Join the debate by commenting below.