What price for financial advice?

Two days before Christmas the Australian Securities and Investments Commission (ASIC) released an interesting report into the financial advice industry titled “Access to financial advice in Australia“. There are many interesting insights in the report – the one I will highlight today is the cost of delivering financial advice.

In conducting the research ASIC “surveyed 35 holders of an Australian financial services (AFS) licence (licensees) selected as a sample of the personal financial advice industry“, as well as more detailed discussions.

The ASIC research reveals that “Licensees reported an estimate of the cost of providing comprehensive financial advice to a client in the range of $2500–$3500.” (para 171, page 42)

The report does not go into greater detail but I suspect that cost estimate does not include the cost of providing support in implementing the advice. That would be an additional cost to licensees. I also suspect (know) that more specialised advice and complex client situations have a higher cost to deliver the advice.

No business owner interested in staying in business wants to sell their services for less than it costs them to deliver them. In fact to reward them for the risks of entrepreneurism they need to add a profit margin above the cost. (Many professional service industries target a minimum profit margin of 30% in order to be sustainable and rewarding.)

So in shaping your expectations of what advice will cost you (“the price”) keep in mind what it could actually be costing the adviser to deliver it to you. By quoting you a fee in the thousands they are not having a lend of you, they are just trying to stay profitable.

ASIC noted in summary  “Overall, it appears that the costs of providing financial advice are much higher than the average amount consumers are willing to pay.” (para 169, page 42)

That is no surprise to anyone in the industry. But it is a big problem as it means that many people miss out on getting great advice because we as an industry traditionally haven’t clearly articulated the value of advice. But the value of advice is a topic for another article.