Industry urged to bridge gap: Aussies unconvinced of advice value despite success stories

The financial advice industry needs to better convince Australians of the positive impacts of seeking advice, according to Colonial First State (CFS).

CFS’ The Empowered Australian Report 2023, which surveyed more than 2,200 consumers, has revealed Australians are not fully convinced on the benefits of receiving advice.

According to the report, more than one in three Australians who have never received advice cannot articulate a single benefit of receiving financial advice. It comes as no surprise, CFS explained, that unadvised consumers lack knowledge of how advice would positively impact them.

It said advised Australians understand the value of the advice they pay for but have been under-utilised by the industry as advocates for the benefits of advice.

“While access to affordable advice is a key priority, Australians first need to know how advice can benefit them. This is an education issue that requires a coordinated effort by the industry and government. Explaining the value of advice is not enough – consumers need to be convinced that advice will have a positive impact on their lives,” the report wrote.

“Articulating what financial advice is and what it can do for people is a challenge that still needs to be met. Those who have never received advice are largely oblivious to the benefits that advised Australians are experiencing.”

A simple explanation of how the advice process works, what a financial strategy is and the real-world benefits it has on advised Australians is a key solution, CFS believes. It also needs to articulate to consumers how financial confidence and retirement preparedness are directly related to receiving financial advice.

It also questioned the terminology of the term “financial advice” and how consumers may be unsure what it stands for or confuse it with similar terms such as “personal advice” or “retirement advice”.

“The term ‘financial advice’ can be interpreted in a number of different ways. While there is a legal definition of ‘personal advice’ as it relates to financial advice, the commonly used term ‘financial advice’ can be ambiguous. There is a risk that different interpretations of the term could drive confusion and apathy among consumers, preventing them from seeking the professional support they need.

“This risk is heightened by the use of additional terminology such as ‘comprehensive advice’, ‘limited advice’, ‘scaled advice’ and ‘retirement advice’. Consumers need a clear and simple definition of what financial advice is.”

Moreover, CFS found that consumers believe financial advice is most needed by those who are struggling financially (52 per cent) or have an average amount of money (22 per cent), while 15 per cent said advice is most needed by the wealthy.

Using super to pay for advice

CFS’ research also highlighted the significant number of Australians seeking to pay for advice through their superannuation, as the government looks to clarify the legal basis for doing so.

Announced on 7 December 2023, Minister for Financial Services Stephen Jones’ final Quality of Advice Review (QAR) reforms included expanding super funds’ ability to provide advice to members.

The government will provide a “broad” list of advice topics that are appropriate to be charged to a member’s super. This will relate to a member’s investment decisions, retirement income, and their broader financial circumstances.

CFS found that 61 per cent of Australians are interested in using their super funds to pay for their retirement plan, with younger Australians aged 25 to 29 exhibiting the strongest interest.

Kelly Power, superannuation chief executive at CFS, believes the government’s advice roadmap is crucial to giving consumers and advisers more avenues to access advice.

“Financial advisers and the customers they support will benefit from greater clarity around how people can use their super to pay for advice,” she said.

“Many Australians still don’t know that the cost of advice can be deducted from their super account. At a time when many Australians are struggling with the cost of living yet are in need of advice, having a clear list of advice topics that can be paid for with super represents an important development.”