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Financial stress underlines need for better advice model

Many have seen the value of their superannuation, property and share portfolios fall over the past six months, which has only highlighted the need for quality advice.

The number of workers in severe financial distress has doubled since 2020, with just short of one million Australians struggling to keep afloat and a further two million under moderate duress.

New research published by AMP revealed an increase in financial stress across all income brackets with women, single parents and part-time workers particularly vulnerable.

Higher-income workers are also suffering, with 20 per cent of employees earning over $100,000 experiencing financial stress.

  • Workers cited feeling dissatisfied with their current financial situation and difficulty meeting bills each month. Moreover, anxiety levels have increased due to the impact of higher interest rates, inflation and market volatility.

    There has also been a notable increase in the number of Australians aged above 65 who are anxious about finances. Fifty-nine per cent are worried about debt levels, while 26 per cent stress about their financial security.

    Advice remains out of reach

    The report accentuates the demand for accessible and affordable financial advice. Based on the 2,013 respondents, one in two are likely to seek professional advice in the next 12 months.

    Thirty-eight per cent cited help with developing a savings plan as the number one reason for seeking financial advice. Helping plan for retirement was the next most common reason, mentioned by 36 per cent of those surveyed. Both making and managing investments finished equal third, voted by 30 per cent of responders.

    However, costs remain a significant barrier to those who are financially stressed from accessing advice. Director and Principal Adviser Rob Shears at Valor Private Wealth says one-off advice typically costs upwards of $5,000.

    “Fixing that gap, which is people that need be spending hundreds of dollars and not thousands of dollars on advice, is the key,” he adds. 

    In her proposals paper for the Quality of Advice Review, chair Michelle Levy flagged major deregulation to bring down the cost of advice. Levy proposed repealing the existing best interest duty, instead replacing it with a statutory obligation to provide “good advice”. She suggested this will shift attention to consumer needs and removes much of the burdensome administrative process of formulating advice, including statements of advice.

    “It creates more opportunity for providers to think about the form in which they provide advice to customers and opens up more room for innovation,” the draft paper outlined.

    Shears believes the answer is technology, given that there is a limited number of strategies in the adviser toolkit. Then it’s about tailoring it to the needs of the individual’s circumstances.

    “I’m really optimistic about robo-advice over 10 to 20 years. It’s just not happening in the next year, which is the problem.”

    How to deal with financial stress

    AMP provides four approaches for reducing financial stress: clarifying the current financial situation, setting financial goals, sharing stress with the employer and seeking help from experts.

    For actionable steps people can take today, Shears suggests reviewing discretionary spending and cutting back on non-essentials. He does, however, admit it is not always easy.

    “The habits that people build are the hardest thing to change,” he says. “And that doesn’t happen from a single phone call. That is actually changing someone’s personality.

    “There are so many costs people can cut out that they don’t realise,” he adds. “But they need to want to change first.”

    Many workers will have seen the value of their superannuation, property and share portfolios fall over the past six months, in addition to an increase in the cost of living. Shears says this is where an adviser can be “worth their weight in gold” by keeping clients grounded and assuaging concerns over market volatility. Keeping a written record of plans also provides something tangible to refer back to when anxiety creeps in.

    “I know people who are worried about the markets even though they’ve got enough money to live for five lifetimes,” Shears says.

    “You can educate away the typical fears of volatility and financial security if people know what they’re actually invested in and why.”

    *If you need help or assistance, call the National Debt Helpline on 1800 007 007 or Lifeline on 13 11 14.

    Lachlan Buur-Jensen

    Lachlan is an experienced journalist writing across The Inside Investor and The Inside Adviser.

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