The rising cost of financial advice

Hobson Wealth Partners' Warren Couillault talks about the cost of providing financial advice and why he believes it is now 50% to 100% more than it was five years ago.

Wednesday, July 19th 2017, 11:58AM

Who are Hobson Wealth?

Hobson Wealth Partners is the former Macquarie Private Wealth in New Zealand. I led a buy-in, along with about 25 of the key members of the business last year, and purchased the business off Macquarie Group.

How many advisers?

Around about 30.

And you have a reasonable FUM?

Around about $2 billion worth of assets in Auckland, Wellington and Christchurch advisers, and a total team of about 60.

You’ve been in this business now for a while, and you’ve seen more and more examples that it’s getting more difficult to get advice to consumers. What’s your take on this issue at the moment?

Advice in financial services is extremely important, and not everybody knows that they need it. It’s expensive to deliver the advice, for lots of reasons. It’s expensive to hire good people; research people, advisers. The cost of doing business is high, and increasing from a regulatory point of view, from a systems point of view and from a compliance point of view. There’s fee pressure in the industry, so the revenue to pay for delivering that advice is always under pressure. The challenge in the industry is to make sure that we, as service providers, can deliver the service that the consumers need and want, and grapple with the challenges and deliver that service in an environment where there are challenges from a consumer point of view, as well.

Do you think people know where to go to get advice?

I think the investor/entity with larger sums of money does have ready access to advice. Middle and low is a bit tougher, because if you don’t have a significant asset base to invest, it’s difficult to pay for the advice. Suppliers might not necessarily want to offer their advice to you.

Are you seeing examples of people turning away from advice, because it’s too expensive?
Yes.

What do we do about it?

There’s three or four different ways of addressing that problem. One is education (that old chestnut) in the industry, to make sure that people - consumers, investors, people with assets - do know that they need advice.

Who’s role is that, though?

It’s the regulators.

But the regulators don’t do anything about it.

Not now, but overall, they probably ought to, given that it’s increasing regulation in the industry, that is part of increasing the cost of delivering the service. It’s up to us in the industry, as well, to provide education to consumers and our customers.

Is there a role for government?

There probably is, particularly considering the growth in KiwiSaver – in fact, there’s now nearly three million KiwiSavers, $40 billion of assets and growing in the industry. It means that a lot of people will have a long-term retirement savings plan now, and should know that they might need to get advice on that asset at some stage.

One adviser said that they had done a survey of their clients, and they’d be willing to pay $125 for advice on KiwiSaver. Is that doable?

The average KiwiSaver balance, from memory, is around $13,000. I would have thought $125 would be a minimum. It’s doable, but it’s tight. The revenue that managers have to charge to look after that money is under pressure and is low. That is the dilemma that the industry faces. How does someone with a $13,000 asset get access to the advice that they need? The KiwiSaver schemes have too many investors in conservative and/or default allocations. That is the issue.

Can you quantify in percentage terms how much the cost of advice has risen?

On a stand-alone basis, I’d estimate 50-100% increase in cost over the last five or six years. It’s quite a lot. The scale in businesses is increasingly important, so that the cost of advice delivery is spread over a larger client base.

Is there an issue that we’re over-regulating the advice and financial sector? Or that the regulation isn’t smart enough? A great example is the AML requirements for KiwiSaver. Have we got the mix right there?

I think it’s improving. Obviously, the regulatory framework changed a few years ago and it was unknown to the sector. The implications and consequences were unknown, but there is continuing to be reviews and we do see improvements. I think that will continue over time.

Are they heading in the right direction?

I think so. These things are slow, they take time.

The rising cost of advice is driving the growth of this roboadvice in the industry. What are your views on that? Where does it fit in?

I think it will most definitely be a big part of the sector in a number of years’ time. I don’t know what that number is, a low number or a high number. But it will be a big part of the sector. If you’re looking at ways of getting advice to a wider range of investors, you have to look at all the different ways of getting that advice across. In the not-so-distant past, everyone would go into a bank branch to take out cash for the weekend. Now, it’s either online or automatic payments. The different ways of doing things must include automated delivery in our sector.

Will that be a big part of the industry?

Yes.

You’ve got quite a background in investment management – you were the CIO at Fisher Funds. We’re at a turning point in the markets; we’re starting to see a lot of dialogue coming out of Central Banks and asset prices seem to be pretty inflated at the moment. What’s your take on the market?

The world has been pumped with easy money in the last seven or eight years. That won’t last forever.

We can see the end, can’t we?

The end is nigh, perhaps. Asset prices and every asset class you look at are historically high, because of the weight of that money. That means the need for advice for an investor is all the more important, because asset allocation and being aware of asset pricing - or mispricing, in some cases – is increasingly important.

What’s your message to investors and advisers on what they should be thinking about now?

Asset allocation is the number one. Which asset classes to follow; which asset classes to be weighted in properly; fixed income around the world is pretty high; equities are pretty high; real estate is pretty high. Look at the combination of assets that you’ve got. Look at equities in particular, which can generate their own growth, rather than relying on returns from asset price increases. That will be a pretty good place to be. We’ve had a good run for a long time, especially in New Zealand. That always breeds a need for more caution.

Do people need to dial back their return expectations?

Yes. Halve them from what they’ve been in the last few years, as a rough estimate.

Tags: financial advisers Fisher Funds Hobson Wealth investment KiwiSaver regulation retirement roboadvice