Like so many other industries, there has been a significant change in consumer behaviour for financial advice clients because of the economic impacts of the coronavirus. The Financial Planning Association of Australia (FPA) says that advisers and firms need to make changes to both better support clients and also support their business in the “new normal.”
“We’re experiencing an extraordinary and life changing moment in history. It’s affecting every facet of our lives,” said FPA Chair Marisa Broome during an FPA virtual keynote event in early September. “Our health, our work, our emotions, our friendships, our travel plans, our life plans and of course our financial circumstances.
“Money plays such a critical role in our ability to live the life we want. Especially in the face of challenging and unplanned circumstances.”
The general consensus of speakers at the virtual keynote was that advice needs to adapt to help more Australians make smart decisions around their finances, regardless of their level of wealth.
What clients did to protect their finances – and what to expect in the future
Unsurprisingly, when the picture of the economic impacts of the coronavirus began to become clear, the majority of Australians took action to protect their finances.
A survey conducted by CoreData of 1,145 people found that more than 80% took some action. The most common action was to reduce discretionary spending (63.5%), reduce spending on essentials (47.8%), and cancelling memberships (36.7%). Seeking additional work and applying for financial support were also common actions.
Despite easing restrictions, we’re far from the end of the pandemic and it’s likely the economic ramifications will have a long tail. The FPA says that Australians are making long-term changes that may take more than a year to return to pre-crisis levels – if they ever do.
While 30% of survey respondents said they expect to resume discretionary spending on things like memberships and subscriptions (Netflix, gyms) within the next six months, around 20% said it may take more than a year to go back to their previous spending level.
How financial advice needs to adapt
The COVID pandemic has shifted the perspective of what financial advice can be, shifting from unlocking dreams to managing unprecedented times. It’s a role that not all advisers are set up to execute.
Money magazine’s Paul Clitheroe told attendees that the current professional financial planner framework was restricted to helping high net worth individuals and consumers who could afford advice. “That satisfies [roughly] the top 10 or 20% of the population of Australia,” said Clitheroe.
“What we do for the other millions of people who want to talk about everything from their credit cards, to investing a hundred dollars, to talking about [whether they should] put a thousand dollars in super or [toward paying off their] mortgage? That remains a challenge.”
CoreData research revealed two areas where advisers could offer support services that would provide value for a more diverse group of people, including how to reduce bills to my regular billers (energy costs) and explaining the different affordable financial advice and support services that are available.
“We at the FPA want to change this,” said FPA Chair Marisa Broome. “We want more Australians to seek financial advice but to do that they need to be able to access it and afford it. I passionately believe that helping Australians to build their financial capability and understanding is critical not just to them individually but to the nation,” she added.
Consumer advocacy organisation CHOICE’s CEO Alan Kirkland echoed the need to provide more basic, understandable financial solutions for people. “It’s about really assessing when advice as provided by a financial planner is actually the right approach for a person and if it is, whether they need one-off advice or ongoing advice.
“Because sometimes, good advice is about giving people the skills they need to make decisions themselves through their day to day life.”