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To close the financial advice gap, we must first appreciate how it can help us

Australia is facing a significant challenge: millions of Australians approaching retirement age are in danger of not being able to meet their financial goals due to the growing inaccessibility of appropriate help, guidance and advice. 

There are already more than four million Australians over the Age Pension eligibility age of 67, and a further 5.3 million are over age 50 and planning to retire within two decades. Super balances are rising too, meaning more retirees will rely on a combination of their superannuation and a means tested Age Pension to manage their daily living costs in retirement, as well as their health and aged care needs later in life.

This is no small task, especially given the uncertainty of a person’s own life expectancy, and many people simply do not have the financial literacy for this challenge. They will require quality help, guidance and advice to safely and confidently draw down their savings to meet all their retirement expenses from a finite asset pool that, on average, must last longer than previous generations due to growing life expectancies. 

The problem is that the financial advice industry’s capacity to meet this growing demand has drastically declined, largely due to the aftermath of the Hayne Royal Commission, resulting in a growing financial advice gap. The number of registered financial advisers has fallen from around 28,000 in 2019 to around 15,000 last year. 

Making matters worse, a recent Deloitte survey shows the advisor exodus is set to continue, with 21% of financial advisers considering a career change or retirement in the next year, despite expecting a 27% growth in their customer base over the next five years. 

Complicating this further, many Australians don't see the value in financial advice. An ASIC consumer survey from 2019 revealed that, excluding people who had received advice in the previous 12 months, 35% of respondents nominated cost as a barrier to obtaining advice, feeling that the fees charged did not always justify the value provided.

This perception issue, combined with the adviser shortage, will stop many Australians from getting the advice they need. What can we do about it? To start, the government is actively trying to address this through its “Delivering Better Financial Outcomes” (DBFO) legislation. 

The first tranche of legislation, which became law in July 2024, focusses on cutting unnecessary red tape, which currently increases the time and cost of preparing financial advice. 

The second tranche, expected to be released for consultation before the end of 2024, will create a new class of financial advisers, currently referred to as ‘qualified advisers.’ With lower barriers to entry than professional advisers, they should be able to provide cheaper advice on less complex financial matters. 

It will also provide a framework for superannuation funds to deliver large volumes of simpler advice at a lower cost than existing advice channels. But will this be enough to bridge the financial advice gap? 

One problem is that for super funds to provide financial advice at scale, they will need to introduce a hybrid model where advice is delivered digitally as well as in-person. However, building these digitised financial advice businesses will take years and require substantial investment in digital technology and GenAI capabilities. 

This will be difficult for super funds to do at speed while also balancing industry consolidation, increasing competition, and ongoing political and regulatory pressures to keep fees low. 

To truly close the advice gap, more needs to be done to bring down regulatory barriers overall. For example, we believe there is an important distinction between financial advice and financial product advice, and this difference should be acknowledged within the regulatory framework, taking into account the likelihood and severity of any potential consumer harm. 

One area to highlight and consider further is the current hawking prohibition designed to protect consumers from unsolicited offers of financial products. How will superannuation funds be able to properly engage with its members about appropriate retirement strategies without considering the merits of its own retirement product? 

Regulation should also facilitate the provision of limited advice to address consumers' occasional and specific needs. These regular and repeated interactions will help to enhance consumer financial knowledge, build trust in the industry, and foster stronger relationships.  

To achieve our goal of helping more Australians to live a better retirement, government and the financial advice and wealth industry should work together to better educate Australians on how financial advice can benefit them. 

With more Australians about to retire with more savings than ever before, we need to find ways to give them the confidence to draw down and spend their savings to live the retirement they have earned – an outcome which would also benefit Australia’s future economic prosperity.