Financial advice is fast becoming an essential service

In the past year, Australians have seen their lives change socially and financially, and these are extremely challenging times for many people.

Our recent Retirement Realities research found that almost a quarter (23 per cent) of Australians aged 30-65 say they will be forced to delay retirement and work longer as a result of coronavirus. Nearly half (45 per cent) are either scared or do not feel financially confident about retiring.

One in three Australians (34 per cent) have saved less than usual because of loss of income and/or an increase in bills, and half are planning to change their financial habits after the pandemic, reducing spending and keeping an eye on their budget.

A number of Australians have also accessed their super early, potentially losing many of the benefits that come with building their super balances and being unable to replace the money as they head into retirement.

This means more Australians are likely to need professional advice on how to get their finances, or retirement savings, back on track. Figures from the ASX Investor Report in 2020 showed that 63 per cent of Australians are open to receiving financial advice, and nearly two in 10 are likely to seek advice after the COVID pandemic.

We can see that the need for advice is becoming realised.

The growth of mum and dad investors

According to the same report from the ASX, Australia continues to be a nation of investors, with close to 9 million adult Australians holding investments outside their super and primary dwelling. Almost a quarter have also only started investing in the past two years.

Unsurprisingly, the extreme volatility and sudden decline in asset values caused by COVID-19 in 2020 has had a considerable impact on investors. Retirees have been the worst affected group, with a significant number being forced to revisit their plans to manage the dual challenges of ongoing market volatility and ultra-low interest rates.

Across the board, investors have become more focused on diversification and risk management, along with sustainability of returns.

Many investors have also taken advantage of opportunities to capitalise on falling asset prices by adding to their portfolios. While some have been doing this with long-term goals in mind, others have taken a shorter-term view.

There has been an influx of new and young investors into share markets around the globe, helped by low-cost platforms that allow for easy trading. Research suggests that almost two-fifths of Millennials and Gen Z-ers began investing in shares last year, whether directly or through a micro-investing app. In addition, a growing number of influencers on social media also promote this style of investing, with ‘#robinhoodstocks’ on TikTok videos clocking up 8 million views (to October 2020).

In May, financial regulator ASIC warned investors away from day trading stocks, following a huge rise in speculative trades. ASIC warned that this type of activity was “likely to lead to heavy losses – losses that cannot happen at a worse time for many families”. While there are Australians looking to DIY invest, the value of engaging a financial adviser cannot be underestimated in how to build a comfortable nestegg for retirement.

Making financial advice affordable and accessible

These factors, combined with the phasing out of government support initiatives including JobKeeper and JobSeeker, point to the fact that sound, affordable and accessible financial advice is more important today than ever before.

Affordability has become an increasingly significant problem for the financial advice market in Australia. There is a mismatch between supply and demand with few providers actually able to provide advice on a scale that works for ‘every Australian’. ASX research shows that 25 per cent of next gen investors and 27 per cent of wealth accumulators would like to engage an adviser but they’re too expensive. Generally these advice models work for more affluent Australians, which has left the ‘mass market’ feeling priced out.

We need to give Australians a reason to engage a financial adviser. Offering people advice that is tax deductible can go some way to increasing take up. Making the process completely transparent from what you can expect from a financial adviser to their function, will also enable the mass market to see the value they could get.

But more broadly, the industry must find more ways to make advice not only more affordable for Australians, but profitable for financial planners.

Advice key to navigating retirement incomes

Financial advisers have a key role to play in helping older Australians to navigate an increasingly complex retirement income system, which also interacts with the aged care and tax systems.

The final report of the government’s Retirement Income Review asserts that misconceptions and low financial literacy have resulted in people not adequately planning for retirement or making the most of their assets when in retirement. I believe Australians have a strong desire to be self-sufficient throughout retirement. Retirees may understandably be reluctant to draw down too heavily or too quickly on their savings, given concerns about possible future aged care costs and outliving their savings.

And this is where financial advice can play a part, leading to better outcomes for retirees. A financial adviser can help with managing income and cash flow, increasing confidence and providing peace of mind. This can lead to better investment decisions, particularly in times of economic and social crisis.

The value of advice

Australians have become more engaged with their superannuation and investments; in some circumstances this has led to some of the short-sighted behaviour outlined earlier. Ultimately though, I believe this increased engagement, and some potentially negative DIY outcomes for investors, will lead to a significant increase in demand for quality financial advisers as the profession evolves to meet people’s changing needs.

In a post-pandemic world, many younger Australians will be focused on ways to bolster their retirement nestegg. Many will have to start over rebuilding superannuation balances after seeing contributions fall as a result of reduced working hours or in some cases having had their super account drained to make up for lost income through the early release of super scheme.

We are also likely to see more seniors turn to financial advisers for reliable information on how to facilitate a comfortable standard of living and live a dignified retirement.

Advisers have a crucial role to play in helping Australians meet their retirement goals. Access to affordable financial advice is more important than ever before.

Bryce Quirk, general manager, CFS Advice Relationships