By John Collett
Financial advice fees are soaring as planners abandon the profession because of higher educational standards and increased costs of regulatory compliance, leaving those who remain in the industry able to charge more.
Adviser Ratings’ estimates advice fees have, on average, jumped 34 per cent in the past three years, with fee hikes likely to continue.
Angus Woods, founder of the group, expects planner numbers to fall to just 17,000 by the end of this year – a decline of about 11,000 in just three years.
An Investment Trends report estimates 1.8 million Australians receive financial advice. However, the number has declined by 100,000 a year in each of the past two years. Many people who do not have a financial adviser say they cannot afford the high cost, the report says.
“The number of those who have a financial adviser has come down significantly as the costs rise, but the level of demand for advice is at all-time highs,” Woods says.
Robo-advisers are seen as part of the solution for plugging the advice gap, particularly for younger investors with simple needs who do not need full-service financial advice.
The way robo-advisers work is that consumers answer a series of questions about their individual circumstances, investment goals and tolerance for risk. A suggested investment portfolio is then automatically generated by the robo-adviser based on those answers.
Often the portfolio is a blend of exchange-traded funds (ETFs), which are listed on securities exchanges and whose units can be easily bought and sold, just like shares of listed companies.
ETFs recommended by robo-advisers often track the returns of particular markets. They are a cheap way to access the returns of markets, without having to make a bet on individual stocks or sectors.
Chris Brycki, founder of Stockspot, Australia’s largest robo-adviser with $600 million in funds under advice – double that of 12 months ago – says automated advice is about building wealth consistently over the long term through diversified portfolios.
He says that robo-advisers provide guidance tailored to individual circumstances. “We also have a team of investment advisers who answer client questions about markets and strategies,” Brycki says.
While the Australian robo-advice industry is still in its relative infancy, Alex Dunnin, executive director of research at Rainmaker Information, predicted in July that it will become “incredibly important for millions of Australian consumers”.
Dunnin said it is a highly cost-effective way for retail investors to obtain limited financial advice.
Adviser Ratings’ Woods says while robo-advisers have their place, they are unlikely to fully replace human advisers. There is much more to good financial advice than just investment advice, he says.
A good adviser can also help with superannuation and retirement planning, insurance, aged care and a host of other key financial decisions, Woods says.
He says human advisers can also ask direct questions and interpret responses in a way that robo-adviser algorithms cannot.
While the market assumes that millennials are tech-savvy and happy to use robo-advisers, many nonetheless want to speak to a real adviser, but cannot afford it, Woods says.
He says financial institutions are looking to develop “hybrid” advice models where, alongside cost-effective automated advice, clients have their “hands held” by human advisers, rather than having an adviser on call at a higher cost.