There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
The legislative threads surrounding financial services “look less like an elegant tapestry and more like a painting by Jackson Pollock”, the ASIC chair said, before announcing a new thinktank to reassess ways the regulator can help make the system more efficient and less complex.
Investor trust in financial advice building at home and abroad
Financial advice industries aren’t analogous in different regions, with different regulatory systems and market conditions shaping the way they operate within their own services ecosystem.
But they do share the similar levels of demand, with most developed nations in the midst of a sea of change as wealthy boomers transition to retirement and the greatest multi-generational transfer of wealth in history begins in earnest.
As demand is growing, and the importance of financial advice is increasing, so are consumer trust levels.
At home, the Financial Advice Association of Australia last month revealed that trust in advisers was “at an all-time high”, with the FAAA’s 2024 Value of Advice Consumer Report, released in early October, revealing that 94 per cent of financial advice clients trusted their financial adviser to act in their best interests
“According to clients of financial advisers, the top three ways to describe their financial advice relationship are: trusted and transparent, reliable, and has good rapport,” the report stated.
This came after research group CoreData reported in September that trust scores in Australian financial planners had climbed back up to their pre-Hayne royal commission level of 55 per cent, after falling all the way to 35 per cent in the commission’s aftermath.
The focus on ethics in financial advice is apparently playing a role in the increasing trust levels. According to recent research from the Governance Institute of Australia the perception of ethics within advice is improving.
Australia is not alone in having trust levels increasing. According to consultancy group Cerulli Associates, trust in US financial advice is also reaching historic levels.
Cerulli reports that in 2014 only 39 per cent of “affluent” investors agreed with the statement: “I trust that financial services firms are looking out for my best interests.” Asked the same question in the middle of 2024, and that figure had increased to 60 per cent.
Those trust levels are relatively homogenous across age levels in the US, Cerulli reports, sitting at between 56 and 65 per cent for all age groups. Trust levels do tend to increase slightly as clients get older, however, with those over 70 sitting at the top end of the trust scale.
“This likely is an outcome of these older respondents benefitting from their long-term advisory relationships – they have enjoyed a prosperous retirement, which they attribute to the trustworthiness of their providers,” said Scott Smith, Cerulli director.
In the UK, financial services regulator the Financial Conduct Authority (FCA) report has been charting consumer trust in financial advice since the retail distribution review (RDR) , which 12 years ago introduced education standards for advisers and curbed commissions.
While only about 8 per cent of UK adults employed the services of an adviser, 87 per cent of those had moderate or high levels of trust in their adviser. Asked which sectors they trusted the most, advisers were middle of the pack behind banks and pension companies, but ahead of fintechs, the UK government and social media companies – which came last.
Globally, then, financial advisers are re-engaging with consumers on a different level than they have in the past. While advice systems vary in different regions, uplifts in professionalism and improvements to regulatory standards and are combining to provide long-term benefits to the industry and its stakeholders.
