Why should consumers use advice?
Advisers are being told they need to focus on honing their value proposition for consumers.
Wednesday, December 17th 2014, 6:00AM
by Susan Edmunds
FMA chief executive Rob Everett said advisers needed to decide what their industry offered New Zealand investors and consumers, and how it would sell that. “In marketing-speak, financial advice in New Zealand needs to firmly define a widely-recognised, long-term value proposition. And one that accommodates the regulatory framework,” he said.
“I know that there are firms and individuals that have a great reputation. I meet many AFAs who are committed and passionate about what they offer their clients and who have clearly earned the trust their clients put in them. But – generally – across the piece, the sector might be said to be lacking a good ‘reason why’.”
He said advisers needed to be able to explain why consumers should seek their services. “Is it better returns? Is it quality advice? Is it access to products they can’t access otherwise? Is it a combination of these things, or is it something else completely.”
Everett said New Zealanders did not understand the sector sufficiently to confidently draw on the value of advice that advisers would offer. “The solution to this question – what do advisers offer New Zealanders and what are we doing to encourage New Zealand investors to seek advice? - is largely down to the sector. There’s an advocacy role for the sector professional bodies here, in assisting the sector to resolve its value proposition and ensuring that proposition is understood. By the Government, by the regulators, and by consumers.”
Institute of Financial Advisers president Michael Dowling said it was something a lot of advisers were already working on. “Whether they’re paid in commission or fees, it’s not really about remuneration. It’s about consumers seeing the value in what you provide to them and what they are paying for whether that’s directly by fees or indirectly through a product.”
Advisers needed to look at what it cost them to offer advice, he said. “The first part is to understand what the cost is, and the second how to communicate that to clients so it’s easily understood.”
When most advisers were paid by commission, they had taken an averaging approach, he said. While some cases paid commission, others would not but the commission earned would be averaged across all clients. “Now with greater transparency people are having to say this is the cost of providing this to you.”
Advisers often needed to be reminded of the value of their services to clients, Dowling said.
Many had been doing it for so long that they took things for granted that clients would value and be prepared to pay for. “It was highlighted to me by a young guy who was setting up a super account. He worked on a killing chain and couldn’t even spell the address he lived at. Assistance to fill out the forms and understand what they meant was a huge benefit to get his super saving started. It’s stuff we’re so used to doing but you’d be surprise what they value and what they are prepared to pay for.”
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