Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
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.
Comprehensive advice demand surges in the US, average adviser manages $822M
Client books for US advisers are swelling as investors increasingly understand the benefits of holistic financial planning according to new data out of US advice consultants Cerulli Associates.
Fifty-three per cent of US investors now believe that having a written financial plan is important, up from just 41 per cent back in 2014, with financial planning practices that incorporate comprehensive wealth management and planning services seeing longer lasting client relationships, an increase in “upmarket growth” and wealthier clients onboarding.
Cerulli’s Financial Planning: Fueling Client and Business Growth report details how the increased demand is being driven by a confluence of factors, including greater market volatility and the increased complexity of investment vehicles. Worth noting, too, is that traditional employer pensions are on the decline in the US as the shift to self-funded retirement continues.
A developing market trend, the report explains, is the increased desire of investors to find an advisory that provides comprehensive services, rather than specialised services. “Financial planning and advice services are now a vital consideration for investors when choosing an adviser with whom to work, nearly surpassing investment performance as a factor,” says Cerulli associate director Andrew Blake.
Advisers that specialise in comprehensive wealth management have significantly higher average client funds under management per practice than those providing advice under a singular or case-by-case basis, Cerulli says. Comprehensive private wealth advisers manage an average of US$822 million versus $210 million for case-by-case planners.
Comprehensive advice providers also service a far greater proportion of high-net-worth clients (37 per cent as opposed to 7 per cent) and manage a far greater average client portfolio: $1.8 million versus $562,000.
Blake says the disparity highlights the opportunity for advisers to shift to a more comprehensive model, because that is the direction clients are taking.
“With client demand for financial planning increasing and the majority of retail investors considering a financial adviser’s planning-related services as an extremely important factor when selecting an adviser, the service offering provides an opportunity for advisors to differentiate their practice beyond investment performance,” Blake says. “Just less than one-third (31 per cent) of financial adviser practices provide a wide range of core financial advice services as an integral part of their value proposition, creating ample opportunity for advisers to gain a competitive advantage.”
The shift may present challenges for some advisers, Blake notes, but the potential for practice growth makes it worthwhile.
“Advisers who don’t currently provide financial planning and advice services don’t need to make the transition all at once,” he adds. “Small steps can be taken toward incorporating financial advice and planning into a practice’s service model and familiarizing clients with the value proposition of services.”
