The financial advice experience: What does the modern client want?

Let me explain.

The focus of the debate to date has largely been about what the advice community can do differently in order to deliver sustainable quality advice. I think we need to flip that. Instead of thinking about how advisers can deliver financial advice, we need to do what advisers do every day and that is, put the client front and centre. We need to think about how clients want to receive advice. What kind of financial advice experience does the modern client want?

Before we do that, a brief look at who the modern advice client is. Research suggests that many of them are young and more of them are female. So, we need to look at how younger clients want to experience advice and we need to look at how women want to experience advice, particularly in light of the gender pay gap and the gender superannuation gap.

We also need to look into the customer advice experience more broadly, and more deeply.

A 2021 report resulting from research conducted on 1,000 wealth management consumers across America and Canada — The Accenture Wealth Management Consumer Report: New State of Advice (the report) found that modern clients increasingly want to do it themselves when they can, get personal advice when they can’t, and they want that experience to be seamless. Most respondents (66 per cent), “want a truly digital and truly personal experience.” Only 17 per cent want a completely digital experience and only 17 per cent want a completely personal experience.

Getting the technology right for the individual client is important not only because, as the Report says, it, “underpins the client experience, establishing tone and context for the overall client relationship beyond advice delivery,” but also because, “it supports a seamless interaction model.”

Clearly, technology is a great enabler of meaningful client advice experiences. The catch is that different clients will have different levels of technological competence and acceptance, as will different advisers and advice firms.

In 2021, Netwealth published The Advisable Australian research report (the research report), based on a survey of over 1,000 people conducted by CoreData and in the field in 2020.

The research report, and subsequent associated work published this year, looks at who the client or potential client is from a different perspective. It’s not just about age/life stage and income/wealth.

According to the work, two ‘advisable Australian’ segments represent significant opportunities to financial advisers — ‘The Established Affluent’ and ‘The Emerging Affluent’. While age/life stage and income/wealth do help define members of these two segments, Netwealth identifies six other dimensions coming into play.

• Financial capability
• Financial resilience
• Financial wellbeing
• Advice propensity
• Technology adoption
• Brand affinity

Understanding the client or potential client on these dimensions will, according to Netwealth, help advisers understand how to deliver the advice experience these clients want. For example, if an adviser understands the financial capability of a client, they will know how much or how little they need to explain.

The report says, “Those with lower financial capability levels are more likely to want… their financial adviser to be a critical source of information and decision support. These people need more encouragement and education, sometimes even direction.” Whereas higher capability people, “still need support, but the role of the financial adviser is to act more as a validator or co-creator, rather than educator.”

The approach outlined in relation to technology adoption suggests, for example, that for people with low levels of technology adoption, advisers (among other things), “offer digital tools sparingly and only when it is convenient to do so…” and for those with high levels of adoption, they “offer a comprehensive digital system that can be used on mobile, matching the experience of other services they may use”.

These kinds of insights will likely help advisers to create and/or finesse the advice experiences consumers want. But it’s going to be difficult for advisers to be all things to all people, even if they focus their efforts on one or the other of the identified segments, or their own niches. Getting the right technology to support and enhance the experience is therefore going to be increasingly important.

In light of what is starting to filter through from the Quality of Advice Review (QAR) — how are we doing in relation to creating a financial advice experience, across the industry and advice profession, that the client actually wants?

Treasury recently released a 12-page snapshot from the QAR which contained proposals in relation to ‘conflicted remuneration’ associated with life insurance advice. Significantly, the proposal is to, “Retain the existing exemption for benefits given in relation to life risk insurance products, but require financial advisers … to obtain their client’s informed consent, in writing, to receive a commission in connection with the issue of a life risk insurance product.”

Two questions occur to me:

1. Are clients okay with their advisers receiving life insurance commissions?
2. Isn’t there already an obligation to disclose all remuneration to clients and obtain their informed consent in writing to it?

In relation to question one, The Risk Advice Disconnect white paper published in 2019 by Zurich following a survey of 1,000 consumers conducted by Rice Warner, revealed that few people would pay what it costs to deliver life insurance advice.

The paper highlighted that:

• Around 55 per cent of consumers are not willing to pay more than $250 for life insurance advice
• Around 27 per cent are unwilling to pay a fee at all
• The majority of consumers prefer a commission to an out-of-pocket fee
• The main reason for this is the inability to afford a fee

Out of the advisers in the study, 65 per cent said they would need to charge over $2,000 for life insurance advice.

We might also look at a 2021 research conducted by the Finance Brokers Association of Australia (FBAA) which revealed that 93.8 per cent of broker customers were not concerned that their brokers were remunerated via commissions and fewer than 30 per cent would use a broker if they had to pay a fee for service.

In relation to question two — yes, of course these obligations already apply to financial advisers.

Neil Macdonald is the CEO of The Advisers Association