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Potential barriers to advice

Lack of trust in financial advisers and institutions

$$ A Melbourne University study found that when people were asked what stops them from improving their financial situation, the most common response was that they do not trust financial institutions or advisers.

$$ This research also found that more than half of Australians had experienced one or more negative experiences with financial services providers.

$$ This is supported by research from the Conexus Institute which reported $40$ per cent of their research participants identified that their level of trust in financial advice had decreased.

$$ These findings on trust are supported by academic literature. Research indicates that trust in financial advisers in Australia $($score of $42/100)$ is well below the global average for financial advisers $($score of $54/100).$

$$ CPA Australia also reported that $17$ per cent of consumers said a lack of trust prevented them seeking help with their finances.

Mismatch between the cost of advice and what consumers are willing to pay

$$ Research by ASIC found that the cost of advice was the most commonly identified reason for participants not seeking financial advice. Sixty$-$four per cent of participants agreed that financial advisers were too expensive.

$$ These findings are supported by research from the Conexus Institute, which found that $44$ per cent of respondents said they could not afford advice and $29$ per cent stated advice did not represent value for money.

$$ In addition, research by the University of South Australia found that $70$ per cent of its participants said their value range for advice was $$0-$$$999,$ while only $6$ per cent indicated that an advice fee of $$3,000-$$$4,999$ was reasonable.

$$ In $2021,$ Investment Trends found that, on average, consumers were willing to pay $$600$ for advice, when the average fee for limited advice was $$1,760$ and the average fee for comprehensive advice was $$3,060.$ This increased slightly in $2022,$ when on average, consumers were willing to pay $$770$ for advice while the average fee for limited advice is $$2,070$ and the average fee for comprehensive advice is $$3,280.$

$$ Finally, Adviser Ratings found that $4$ in $5$ Australians aged $45-54$ said they need financial advice, but do not have the capacity to pay for it$.$

$$ This increased to more than $80$ per cent of retirees in the $75$ plus age bracket who wanted advice but did not have the capacity to pay for it$.$

Background

The Quality of Advice Review $($QAR$)$ Final Report, conducted by Michelle Levy and released in December $2022,$ aimed to identify opportunities to 'improve the accessibility and affordability of quality financial advice'.

To achieve this goal, the report proposes changes to the regulatory framework governing the provision of financial advice. Beyond these headline changes, the report also explores broader opportunities to enhance the accessibility and affordability of financial advice for Australian consumers.

Part A $-$ The Value of Financial Advice $-$ Research Summary

Ms$.$ Levy identifies the 'mismatch between the cost of advice and what consumers are willing to pay' as one of the potential barriers to advice $.$ This potential barrier is supported by a review of prior research, which emphasizes consumers' perceptions of the cost of financial advice as 'too expensive' and 'not representing value for money.$\text{'}$ While this research identifies valid constraints to the accessibility and affordability of financial advice in Australia, it tends to overlook an equally important consideration$$the value that good financial advice can provide.

Industry research, exemplified by initiatives like Vanguard's Adviser Alpha and Morningstar's Gamma, has traditionally focused on quantifying the tangible benefits of advice, such as contributions to investment performance and overall net wealth. However, more recent reports, including the Value of Advice Index published by FPA Australia in $2022,$ have broadened the scope by highlighting some of the more intangible benefits of financial advice, such as subjective wellbeing and overall quality of life. This shift in focus is also evident in contemporary academic studies, which increasingly attempt to identify the non$-$financial benefits

of financial advice.

Required:

Summarise the findings of recent $($ideally conducted within the last five years$)$ academic and industry research that seeks to identify both the tangible and intangible factors contributing to the value of financial advice. When summarising the relevant research, consider the following questions:

$$ Who conducted the research?

$$ What type of data $($quantitative$,$ qualitative, or a combination$)$ was used to inform the analysis?

$$ When and where was the research undertaken?

$$ What are the main findings$/$arguments of the study?

$$ How do the findings contribute to a holistic unders