Every advice firm is interested in growing its business – in tapping-into the addressable market.
But what is the advice market? Is it those that receive financial advice today, or is it those people who are not receiving advice, but should (or at least) could receive it?
The ASX-listed investment platform and wealth management fintech company Netwealth Group (ASX: NWL) has been exploring this conundrum, and asking – who is advisable?
Netwealth’s report, The Advisable Australian, is an attempt to understand the two segments – the currently advised, and the potentially advised.
Netwealth says there are two million-plus Australians who use financial advice today, and four million-plus who or are likely to – or who would possibly – seek advice in the future.
The firm and its research partner CoreData made a couple of key assumptions. The first was that the Advisable Australians are over 30 years old – that is an age sufficient for a person or household to have needs that could be met by professional financial advice. The second is that neither income and assets nor life-stage alone are enough to say any particular individual has advice “potential.”
In fact, Netwealth makes it clear that while income, age and life-stage are important, factors such as an individual’s propensity to use service providers in general, their clarity on financial goals and what an adviser can do to help, along with their price-sensitivity to advice, are just as important to consider.
Netwealth developed a concept of Advice Propensity, which is a measure of the likelihood of an individual (aged over 30) to use or seek financial advice. It found that there were at least two million (2.1 million) individuals who don’t use advice but are “likely” to seek advice, of which almost seven in 10 (68.0%) are likely to want advice in the next three years, and two in five (841,600) are likely to want it in the next year.
This group of individuals is also attractive in that they control, in aggregate, $2.1 trillion of household wealth and have $369 billion of debt. Netwealth also identified another group, those who will “possibly” seek advice in the future. “These people are longer-term prospects, but still represent a material opportunity and are worthwhile understanding better, the report says. There are at least two million (2.18 million) of these individuals too, with $2.3 trillion of household wealth and $361.2 billion of debt.
The research team found that “wealth” is not just a measure of an individual’s income and assets, it is much more than that. When looking at what wealth means for The Advisable Australian, the researchers broke it down into a broader definition of wealth that encompasses financial capability, financial resilience and financial wellbeing.
The Advisable Australian can be defined by the following six dimensions:
1. Financial Capability: Financial awareness, knowledge, confidence, ability to take control and access financial-related services.
2. Financial Resilience: Financial preparedness and ability to navigate and withstand threats to financial security.
3. Financial Wellbeing: The impact on physical, mental and social health in relation to wealth and finance.
4. Advice Propensity: Openness, amenability and the lack of perceived barriers to using financial advice services.
5. Technology Adoption: Technology-savviness, confidence and an appreciation of the value found in digital services.
The first report emerging from the Netwealth/Core Data research, The Advisable Australian Volume 1 – A new way to think about Australian investors, explains these six dimensions in detail, illuminating some of the fundamental human wealth characteristics of Australians – what really drives them to make wealth decisions (or to avoid making decisions), what motivates them to seek financial advice, and the way they prefer to receive advice – both the content of communication and interaction with an adviser, and their preferred mode of communication.
The report provides guidance to help financial advice businesses use the “dimensions” to better understand individuals, segment their target audience and enhance their advice value proposition as a solid foundation for marketing and client engagement.
Once the dimensions are well understood, a companion report, The Advisable Australian Volume 2 – The fight for the future market: The Emerging Affluent, considers how these dimensions combine in real life to create an addressable market segment – in this case, younger, mostly professional individuals whom the research team assessed as having tremendous potential as financial advice clients both now and in future.
We recommend the reports, available here, as a challenging but rewarding read for advisers.