Advice / APAC / Insights

Why advice could be worth $630 billion to the nation

Source: Shutterstock, via: GrandeDuc
Source: Shutterstock, via: GrandeDuc

ASIC’s latest consultation paper, CP 332 Promoting access to affordable advice for consumers, aims to identify the challenges, barriers and impediments people face to seeking financial advice, and how to overcome them.

We know financial advice helps individuals achieve their financial goals and improves their overall wellbeing. But what is often underappreciated is the benefit to the nation overall if more people can access quality, affordable advice.

From CPA Australia’s Value of Advice Report 2020, published by CPA Australia in collaboration with CoreData, we can see that 81.2 per cent of Australian consumers and 73.9 per cent of small-to-medium-sized enterprise (SME) owners who receive professional advice believe they are more financially secure as a result. (“Professional advice” is defined in the report as a spectrum of advisory services, including accounting, financial advice, tax agent services and mortgage broking).

The benefits of advice are not only about financial security – there are intangible benefits that are just as important as financial outcomes. Almost one in two (47.7 per cent) of consumers and two in five (40.2 per cent) SME owners have experienced mental health improvements after receiving professional advice. Australians also report benefits to family life, work satisfaction, physical health and even social life.

Increasing accessibility to advice will generate significant macro benefits

However, CPA Australia’s report dives much deeper, into the potential macro benefits of advice for Australia as a whole. The report argues that getting advice not only delivers benefits to individuals, but can also benefit society as a whole and, what is more, can be measured by a dollar value. By increasing accessibility of advice to the Australian population, the report estimates that a whopping $630.3 billion per year benefit can be achieved by having the entire population using advice due to people being better managed and more efficient with their money.

Of course, that is a theoretical maximum. But the main point is that we don’t need to reach a state where every single Australian becomes the client of an adviser; we merely have to increase the proportion of people receiving advice from where it currently is in order to start generating significant benefits to Australian society and the economy.

CPA Australia estimates about 39.1 per cent of the Australian working population currently receives advice (see table, below). Even an increase of less than 1 per centage point in people receiving advice, to 40.0 per cent of the population, will result in a $9.3b aggregate benefit to the economy per year.

Source: CPA Australia’s Value of Advice Report 2020
Click on table to enlarge

The point is, making advice more affordable and more accessible will increase the likelihood that more Australians receiving advice will increase, which will generate benefits to society and the economy as well.

There are also potential other positive flow-on effects from increasing the proportion of people who receive advice. By boosting the financial outcomes of those with advice, there is a potential reduction in the amount of government welfare required. Again, taking a theoretical scenario, if the uptake of professional advice in the community increases to, say, 50.0 per cent, we can reduce the amount of spending on the age pension by 3.9 per cent, equivalent to $1.9b per year.

Source: CPA Australia’s Value of Advice Report 2020
Click on table to enlarge

These issues are not often talked about when discussing the benefits of advice. But if we look at the big-picture impact and include it in any discussion about the value of advice, the arguments for greatly improving the affordability and accessibility of advice become too strong to ignore.

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2 Comments

  1. jeremy@businessfp.com.au' Jeremy Wright says:

    Finally the message and the facts are starting to sink in, that Advisers provide an invaluable service to Australians and the economy.

    What we need now is for the Regulatory maze to be clipped so Advisers can move forward and rebuild.

    There has been very little progress in this area and with the exodus of thousands of advisers and thousands more to come, this is an extremely urgent priority.

    The first step is simple and would enable the Life and Disability Insurance sector to begin recovering, by separating Investment and Insurance advice.

    Most Financial Planners are hesitant to work in the Insurance field as it is currently a minefield and many Risk specialists are exiting.

    The financial impact of the Life Insurance Framework and FASEA fiasco, has seen the Life Insurers face massive declines in New Business and it is estimated there are fewer than 3,000 Risk specialists practicing today.

    Australia requires 30,000 Risk specialists, which will fix the issues, though a lot needs to change, before that fantasy can become reality.

  2. pjohnston@aiofp.net.au' PETER JOHNSTON - AIOFP says:

    Jeremy, some well placed Life Office Executives suggest there are less than 500 Risk specialist left in the market, a disgrace. Thankfully many Politicians are now realising that they were duped by the Insto/O’Dywer aligned Associations LIF/FASEA push and being possibly an election year, some meaningful changes may on the away – fingers crossed.

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