On the one hand, there is no shortage of investment tools, calculators and information, whether online, in the media or from “influencers” on social media forums. Data and opinions are not the problem. On the contrary, access to affordable and actionable advice is.
Adviser Ratings research highlights the growing gap between the cost of providing advice and what investors are willing to pay. He says 64% of investors seeking advice will only pay around $500. This despite Vanguard’s research proving that advice – whether delivered by a human or digitally – can add value to investors, with human-advised clients attributing 5% of their portfolio value to advice and for customers advised digitally, 3%.
In contrast, the average advisory fee increased by about 40% to $3,500.
The problem is compounded by the steady decline in the number of licensed advisers, with more than 3,000 leaving the industry in 2021 alone. Adviser Ratings expects further downsizing this year.
In some respects, the industry has to take some responsibility. The 2019 banking royal commission shocked with its exposure of industry practices such as no-service charges, leading to a radical overhaul of regulatory oversight and professional standards.
Advisors have reacted accordingly to this significant restructuring and responded to cost and compliance pressures in running their businesses, with many increasingly focusing on higher net worth clients who have to both complex needs and ability to pay.
This is why reviewing the quality of Treasury Boards is important, not only for advisers but also for investors. Mandated by the previous government, he must report to the new government by December 2022.
The challenge of the review will be to strike a balance between protecting consumers and putting in place the regulatory structure that will help make advice more accessible and affordable for the entire investor population.
The gold standard of compliant advice in a post-royal commission world has effectively become the only standard. Yet investors have a wide range of needs, ranging from the most basic to the most complex, which are difficult to meet within the regulatory framework. As a result, most investors are excluded from advice throughout their investment journey.
While waiting to see the recommendations of this review and the government’s response, investors should be careful about where they get advice outside of the world of licensed professional advisers.
Social media forums demand a healthy dose of skepticism from investors, who should do their own research and take personal responsibility for the decision to invest.
Scammers and spruikers are alive and well in the world of online investing, so try to keep it simple and take inspiration from Warren Buffett’s Investing Handbook – if you don’t understand it, don’t invest in it .