Colonial First State has begun examining a range of different financial planning models in a bid to better understand the gap between what quantifies advice and what clients are willing to pay.
The financial services institution recently commissioned a survey that looked at a range of different financial planning models from the very small to the very large across different styles of advice, Colonial First State general manager distribution Paul Barrett said.
"The significant find of the study is that financial planners have spent more time on compliance duties than a lot of other similar professions," Barrett told delegates at the 9th Annual Wraps, Platforms and Masterfunds Conference late last week.
Barrett said to generate the industry average income a producer of $300,000 required an hourly rate of about $340, so consequently the cost of providing very simple advice was around $700. Therefore, very complex advice cost around $4000.
The research also found that only a handful of clients were prepared to pay high levels of fees for advice, he said.
In fact, only 3 per cent of superannuation members who have recently switched superannuation funds were prepared to pay this amount, according to Barrett.
"So there is clearly a gap between what is being charged and what is being prepared to be paid by consumers," he said.
"Now the result of this situation is that subsidies are employed. Subsidies are employed to ensure consumers have sufficient access to advice."
The benefit of the subsidies has been the provision of cost-effective advice, however the downside is that some forms of subsidies can lead to situations where advice may be provided that may not be in the clients' best interest, which Barrett pointed out was the focus of a number of industry inquiries.
"In my view, when you think of all the possible things that will come out from these reviews it is inevitable that the large institutions are going to benefit - they are actually going to gain from much of the change that is coming," he said.
