Home / Advice / Both human and digital advice constrained by the same price-to-value dilemma

Both human and digital advice constrained by the same price-to-value dilemma

The good news? Millions of unadvised Australians see the value in financial advice. The bad news is that the vast majority remain reluctant to attach market rates to that value, even if the advice is digital. But all that has the potential to change.

More Australians than ever want access to quality financial advice, with record levels of consumers seeing tremendous value in the service. But there is still a wide gap between the cost of holistic financial advice and the amount most people are willing to pay for it.

And while digital advice has been put forward, at times, as the panacea of Australia’s unmet needs, advice tech providers have their own constraints to deal with.

There are current 11.8 million Australians with unmet advice needs according to the Investment Trends 2023 Financial Advice Report, with 1.3 million of those set on seeing a financial adviser in the next two years.

  • For the rest, a reluctance to seek financial advice follows the same path it has done for years: 41 per cent of those with unmet advice needs say it’s too expensive, with a further 30 per cent saying that “unclear costs” are a barrier to entry.

    “In contrast, the value of advice is well perceived with more than 80 per cent of unadvised Australians seeing benefits in receiving financial advice,” said Irene Guiamatsia, head of research at Investment Trends (pictured).

    So there remains, as ever, a significant delta between the value people place on advice, which remains high, and the actual price point they attach to that value.

    Dreams of digital

    There is scope for digital financial advice to help fill this gap, but even digital advice providers have a tall order in convincing people that the value they perceive in financial advice is actually worth investing money in. According to the data, 72 per cent of people will only pay as much as $300 for digital advice, with only 17 per cent willing to pay up to $750 and 7 per cent of unadvised people willing to pay up to $2,000.

    A tiny 3 per cent of potential digital advice clients would be willing to pay more than $2,000 for the service.

    Most Australian digital advice provision would be charged at less than $2,000 per annum, given the service is typically a stripped back investment platform combined with basic portfolio construction or a formulaic budgeting and/or retirement tool. There is scope for digital advice providers to create a model that works with a price points that fit under this mark.

    Yet the trend is clear: whether advice comes via a real adviser or a digital offering, there are huge challenges in getting people to believe in the dollars and sense of financial advice.

    Scoped advice hopes

    If the government’s plan to open up single-issue or scoped advice from a regulatory sense comes to fruition, however, the disparity eases. The Investment Trends data shows that potential advice clients are willing to pay up to $800 for assistance with single-issue advice such as the purchase of an investment property or starting an investment stream.

    At the moment scoped advice is rarely provided by advisers, with the regulatory requirements largely analogous with those of full holistic advice, precluding it from being a profitable service. But in the government’s December 2023 response to the Quality of Advice Review, it promised to provide clearer legislative support for scaled or limited scope advice.

    The $800 offered by respondents in the Investment Trends data will likely still fall short of what advisers need to make this service provision profitable, but if the government’s efforts can make a dent in the cost to provide scaled advice it could become a more palatable proposition for both the client and adviser sides.

    If the government follows through with another promise – to take a long look at making upfront advice tax-deductible – then this could also help narrow the price to value gap.

    “These findings further highlight the necessity to address the cost barrier, [as] three in four unadvised with needs state tax-deductible advice fees would be a likely incentive to seek advice – increasing to 85 per cent among potential adviser clients,” Guiamatsia added.

    Tahn Sharpe

    Tahn is managing editor across The Inside Network's three publications.

    Print Article

    Advice review to help consumers move up advice ‘continuum’: Panel

    Bringing super funds and other institutions into the advice ecosystem should benefit consumers by creating an organic path for them to follow as their needs become more complex. More would benefit if the review also took into account the SMSF capabilities of accountants, stakeholders believe.

    Tahn Sharpe | 21st Feb 2024 | More
    The value in talking to your clients about values: Invesco

    When Invesco Global Consulting asked advice clients if they were having ESG conversations with their advisers, three specific investor groups stood out.

    Jacquelyn Mann | 12th Oct 2023 | More
    Adopt advice review plan now, ASIC can smooth any creases later: Levy pens open letter

    The advice review lead had said she wouldn’t comment on the recommendations while the government pondered its response. But with the consultation dragging on, she urged the government to get it done and let ASIC do the refinement.

    Tahn Sharpe | 2nd May 2023 | More
  • Popular posts: