Is the traditional model of financial planning broken?
There are consistently low levels of people using financial advisers – in 2011 the government estimated 21 per cent of adults had used a financial planner in the previous year. But there are also high levels of wanting a different model of advice.
So if the customer wants something different, why does the model remain the same?
It’s a serious question. Our retirement savings system puts the burden on the individual to make good decisions. Quality of advice has a large bearing on how successful the retirement planning will be, especially when it comes to the tax system.
Yet Australians are wary of a planning industry that cannot provide them with simple, affordable financial advice, regardless of income and assets.
Time and again the financial services industry is told the same story: the financial planning model is too expensive, is skewed to the wealthy and gives control to the adviser. Traditional financial planning means handing over control to someone else – usually at a high price.
Control over decisions and assets is an issue. But cost is factor too. Recent research from Investment Trends found cost remained the biggest barrier to retaining a financial planner. When cost is taken into account, only a small proportion of us would still like to receive the traditional model of comprehensive advice delivered face-to-face.
Knowledge is power and the knowledge is currently held hostage by the adviser until money is exchanged. But considering the availability of financial data and online planning tools, this is an unsustainable position for advisers. I propose a different model: give customers the knowledge they need upfront so they can take action themselves without obligation. And then “coach” them into making good decisions, should they want it.
The platforms already exist where people can use transaction tools for super, insurance, mortgages and shares. It’s just that these wrap accounts are controlled by planners.
Once people have the visibility of their own assets, they can use advisers who coach, allowing the customer to run their own finances without hefty adviser costs.
This is likely to appeal to young adults, who are bailing out of the traditional financial planning format.
The KPMG Banking on the Future Report showed 65 per cent of young adults said they would like a financial coach to help them with investment decisions, yet 95 per cent did not have an adviser.
We know young people generally reject financial advice the way the industry tends to serve it up. They prefer coaching to help them make decisions they can implement. They don’t want advice with someone who does it all for them. They want to be taught how.
If people must be responsible for their own retirements, we can at least help them help themselves.