The value gap and winning new clients
Introduction
Consider fitness intentions.
Many people understand the benefits of regular gym attendance for health and wellbeing, yet fail to visit. The intention is present, but the action is missing. This disparity is prevalent when engaging a financial adviser too.
Many recognise the benefits of engaging a financial adviser, yet fail to commit the time and money to one. In both cases, perceptions can get in the way of acting, and potential clients remain stuck as “prospects.”
Netwealth decided to try understanding how as an industry we could shift these behaviours, and in partnership with The Lab Strategy, a strategic insights firm, conducted Netwealth’s 2024 Advisable Australian research. This was conducted over two phases from March-June 2024:
• Qualitative insights: We undertook in-depth interviews with three groups of Australians – people who are considering engaging financial advice, people who are currently advised, and people who have recently ended their relationships with their financial advisers; and
• Quantitative study: We undertook a survey of 450 Australians aged 18 and over, who are currently considering engaging a financial adviser in the next 2 years (149 responses), currently using the services of a financial adviser (156 responses), or have used the services of a financial adviser in the last 2 years, but aren’t currently (145 responses).
This report focuses on Australian’s 18+ years old and considering engaging a financial adviser in the next 2 years’ (“prospects”).
The power of behavioural science in closing the value gap
This report uses the latest advancements in behavioural science to help us gain a deeper understanding of how prospective clients form judgments and make decisions regarding financial advice. It focuses on how we can alter perceptions about financial advice, and turn those new and positive beliefs into action, converting prospects into clients.
With Behavioural Insights at the core, we have built the Netwealth Value for Money Model, which features in this report. This model defines how we think about value in terms of perceptions and actual behaviours, highlighting that sometimes the drivers of value are not rational at all.
Using our 2024 Advisable Australian research and this model we hope to provide you a better understanding of the challenges of converting prospects into clients and with clear strategies to help bridge the “value gap.”
Introduction
Introducing Netwealth’s Advisable Australian segmentation
To understand investors better, Netwealth developed a segmentation model based on two commonly used attributes, age and affluence, where affluence uses income, debt levels, property values, and household assets data.
Netwealth’s Advisable Australian segmentation model has identified three segments of investors aged 18+ years old that could be of importance to financial advice firms today:
1. Emerging Affluents: These people are typically younger individuals (aged between 18 and 45 and Generation Ys) and are in the wealth accumulation phase.
2. Established Affluents: These people are often at later life stages (over 45), focusing on wealth preservation and legacy planning, with substantial assets and complex financial needs.
3. Established Mass: These people are typically in mid-life (over 45), and are focused on maintaining stability and growth with fewer assets and simpler financial needs.
According to last year’s Netwealth’s 2023 Advisable Australian research, together both Affluent segments represent a quarter of Australians 18+, yet control close to half (49%) of Australians’ total household wealth. Established Mass is the largest single segment, comprising 41% of the Australian population 18+, and controlling around a third of household wealth.
More specifically, these segments differ in several ways. Emerging Affluents are largely Gen Y (71%), Established Affluents are older, with a mix of Gen X and Boomers, with three quarters still working in a full or part-time capacity. The Established Mass are the oldest and largely feature the Boomer generation, with 50% already retired.
Household income for Emerging Affluents is the highest, largely due to dual income households, whilst Established Affluents have the highest value of assets, and the Established Mass are less affluent.
When it comes to appetite for advice, Emerging Affluents are the most likely to be using a financial adviser today or ’when needed’ (44%), and are the most likely to be considering advice (31%). However, plenty of people in the other two segments either use or would consider financial advice.
Key findings
Prospects are not driven by price alone
One of the main findings of our research is that the barriers to advice is not just price, but largely deep-rooted emotional drivers, like being loss-adverse, being focused on today or having an unrealistic overconfidence in financial abilities.
Prospects say they want value, but what is value?
Value is ambiguous, however with Netwealth’s Value for Money model we have defined three key drivers: motivation, ease, and context. Motivation refers to how your service aligns with the prospect’s personal goals and aspirations. Ease refers to how the service simplifies the process of engaging and receiving financial advice. Context refers to how the service provides cultural, social, and environmental cues that foster confidence in your service.
71% of people considering advice want an adviser they can ’trust’
Prospects need to feel confident in the integrity and honesty of the firm they hope to work with, especially at the beginning when they are unsure where to look or who to listen to. This reflects a general apprehension towards financial advisers, and a need for reciprocity, where prospects are more likely to engage with advisers who they perceive as genuinely acting in their best interest.
Don’t assume prospects know the benefits of advice
Our research shows people considering advice often don’t have a good understanding of how your service will help them achieve their goals – both financial and emotional. For 63% of prospects, if you clearly articulate and illustrate this you can impact their perceived value. This is as much about showing them you can tailor strategies to them, as it is about making sure they are understood.
Key findings
Using the right language will influence a prospect
Whether you are communicating digitally via your website, or in person, the language you use can sway a prospect. Our research has identified that certain persuasive language can articulate value better, so it is important that advice firms spend time crafting appropriate language to use.
Case-studies can go a long way to demonstrate value
The use of case-studies that showcase how your firm has helped clients with similar goals, challenges, circumstances and even background is an important tool for advice firms to demonstrate value and increase trust and credibility. It reflects the behavioural science principle of conformity, where decisions are heavily influenced by the norms and behaviours of groups to which they belong or want to belong to.
59% of prospects will value education and knowledge from their adviser
One way to bridge the value gap is to educate prospects and help them navigate complex financial decisions. Our research shows that most prospects want to learn and understand their finances, not just receive advice. They seek to enhance their financial literacy by challenging themselves with new perspectives and insights.
Segment and tailor your messaging for the diverse needs and preferences of prospects
Our Netwealth research also reveals that prospects are not a homogeneous group, but rather a diverse and segmented market, with different needs, preferences, and expectations. To cater to these different segments, you need to understand your target market and tailor your services and communication to their specific needs and preferences.
What’s creating the value gap?
Part 1.0
The barriers to advice
Netwealth’s 2024 Advisable Australian research revealed that despite strong motivations to seek financial advice, such as securing financial peace of mind (53% of all prospects) and planning for retirement (58%), several barriers prevent these motivations from translating into actual engagement.
Our research paints a vivid picture of the challenges financial advisers face in engaging potential clients.
Through a behavioural science lens we have identified five critical areas creating the value gap for prospects – holding “considerers” back from being clients.
They are:
Prospects are loss-averse
Potential clients are deterred by the perceived cost of financial advice, which they view as a loss rather than an investment.
Prospects are focused on ’today’
People live in the present and don’t relate to their future selves. This makes them prefer instant gratification over long-term financial planning, which lowers its value.
Prospects feel they are not right for financial advice
Many prospects think they don’t need financial advice because their situations are simple, or don’t understand it properly.
Prospects are overconfident in their financial abilities
Many prospects think they know enough about finance and so they don’t feel they need an adviser, however our research suggests otherwise!
A disconnect exists between the cost of advice and prospects’ willingness to pay
Financial advice costs much more than what many people expect.
The barriers to advice
Prospects are loss-averse
The most significant reported barrier is the perceived cost of financial advice, cited by 51% of prospects. The research suggests that prospects often view the cost of financial advice as a loss from their current financial position, overshadowing the potential gains. This is a barrier to purchasing financial advice services.
An Emerging Affluent prospect explained,
“ I’ve watched some of my friends engage expensive financial planners but get poor advice and make losses. At least when I do it myself, there are no fees and less risk. ”
Prospects are focused on ’today’
Behavioural Science studies (Hershfield, 2011) found that humans are present-focused creatures, and struggle to connect with their future selves. Financial advice prospects are therefore often ’present-biased’, favouring immediate comforts over future benefits, which can diminish or make it difficult to value the long-term benefits of financial planning.
Our research identifies procrastination and choice paralysis as substantial barriers, affecting about 30% who say, ’Other things in my life distract me and I put the decision off.’ Many prospects delay financial planning, and/or are overwhelmed by the options, with 27% of prospects indicating they just ’haven’t been able to find financial advice yet’.
Prospects feel they are not right for financial advice
A quarter of prospects (25%), especially the Emerging Affluent and Established Mass prospects, believe their financial situations are too simple for professional advice. This misconception – that financial advice is only for the wealthy or those with complex financial needs – reduces its perceived utility. This suggests a disconnect between the services offered and the ’type’ of person or circumstance that warrants financial advice.
One prospect noted, “ My finances aren’t big enough. ”
This sentiment underscores the misconception that financial advice is exclusive to high-income earners, indicating ambiguity about the value.
Additionally, prospects struggled to find a way to confirm the advice would be useful and relevant to their personal situation and goals.
“ I always thought you needed to be rich to have an adviser, like it was a luxury thing. ”
Advisable Australian prospect
The barriers to advice
Prospects are overconfident in their financial abilities
A notable barrier to engagement with financial advisers is that many prospects believe they possess adequate financial knowledge, which can lead to undervaluation of professional advice. That is, they probably think they can do it themselves.
But this is not actually the case.
Our research highlights a discrepancy between perceived and actual financial literacy. For instance, while 59% of prospects self-reported moderate financial literacy, and 23% claimed high literacy, objective assessments* revealed that only 15% genuinely have high financial knowledge.
By segment, the younger Emerging Affluent prospects tend to overestimate their financial literacy the most, with 47% claiming to have high financial literacy, compared to just 22% actually having high financial literacy when assessed. This was also seen with the older Established Affluent prospects, with over one third (35%) claiming to have high financial literacy compared to an objective analysis of only one quarter (26%) having it.
*Refer Methodology for the objective assessments researched for
By Advisable Australian Segment
The disconnect between claimed vs. actual financial literacy
How would you rate your own level of financial literacy? Perceived (Claimed) vs. Actual.
The barriers to advice
A disconnect between the cost of advice and prospects’ willingness to pay
In our Advisable Australian research, respondents were exposed to three “typical” financial advice packages, with low- to high-value inclusions.
In terms of suitability, a majority of all three segments considered package 2 (’Ongoing holistic advice and support to keep you on track ’) the ’most suitable to their financial needs’. This was the top rated package for Established Affluent at 71%, followed by Emerging Affluent at 63%, and Established Mass at 57%.
The other packages had lower and similar scores for suitability for Established Affluent (51% and 49%) and Established Mass (40% and 38%). However, there was a significant gap between the suitability of the simpler package 1 (57%) compared to the top tier package 3 (30%) for the Emerging Affluent, aligning with this segment’s less complex financial needs.
Here are the packages we tested:
Package 1
A one-time financial plan and its implementation to get you started
• Comprehensive, one-time financial planning service for mainstream investment advice, structured advice, and assistance with investment setup
• Additional services: insurance advice, 5-year cash flow planning
• Digital tools for self-service management without ongoing support
Package 2
Ongoing holistic advice and support to keep you on track
• Continuous portfolio management adapting to life changes and market conditions
• Complex investment options like private equity and responsible investing
• Additional services: loan assistance, will creation, family trust establishment
• Annual reviews, semi-annual investment reports, dedicated team
• Enhanced educational resources including podcasts
Package 3
Concierge wealth with exclusive opportunities
• Most comprehensive package
• Acts as a personal CFO for proactive household wealth maximisation
• Access to exclusive and new investment opportunities
• Detailed tax planning and debt management advice
• Quarterly reviews, on-demand support from a dedicated adviser or specialist team
• Expanded education benefits including exclusive events and detailed investment research
Percent of prospects that indicate the tested financial packages is ’suitable’ Emerging Affluents Established Affluents Established Mass
The barriers to advice
The cost disconnect
People make decisions and judgments based on familiar reference points, or ’anchors’, and adjust behaviours based on these anchors. Because prospects do not have prior experience of financial advice and its costs, they will be relying on the assumptions and conclusions they arrive at based on the information available to them.
We wanted to try and understand these ’anchors’ better, so for the three packages prospects were asked to share spontaneous perceived price points, from feeling ’too cheap’, a great ’value for money’ bargain, through to ’expensive’ and ’too expensive to consider.’
For Package 2 (Ongoing holistic advice and support to keep you on track), $5,000 per annum was seen to be ’too expensive’ so that a person would not consider it, $3,750 p.a. was seen as ’starting feel expensive, but not out of the question’, whilst $2,001 p.a. was seen as great value for money.
For Package 1 (A one-time financial plan and its implementation to get you started) $1,000 was seen as too expensive and for Package 3 (Concierge wealth with exclusive opportunities), $8,000 was seen as too expensive, whilst for both respectively it was starting to feel expensive but not out of the questions at $3,750 p.a. and $6,000 p.a. Furthermore, when prospects were shown a ’market rate’ price point for each of these packages (Package 1: $5,500 p.a., Package 2: $7,500 p.a., Package 3: $12,500 p.a.), less than half of those who claimed the packages were suitable for their needs had any willingness to pay for them at these price points.
What this tells us is that the current reference points (or ’anchors’) for the cost of financial advice by prospects is a significant barrier to adoption.
At what price point (for the year) would you consider this service to be...
Package 1
A one-time financial plan and its implementation to get you started Package 2
Ongoing holistic advice and support to keep you on track Package 3
Concierge wealth with exclusive opportunities
Too cheap – priced so low that you feel the quality can’t be very good
Bargain price for good quality service – great value for money
Starting to feel expensive – it’s not out of the question, but I’d have to give it some thought
Too expensive – would not consider it
How willing are you to pay for this package at this price (of those who think the packages are suitable for their needs)?
Not at all willing Slightly willing Moderately willing Very or extremely willing
Willingness to pay market rate?
Speak to Netwealth
Netwealth Investments Limited
Level 6, 180 Flinders Street, Melbourne, VIC 3000
Freecall 1800 888 223
Email contact@netwealth.com.au
Web netwealth.com.au
Disclaimer: This information has been prepared and issued by Netwealth Investments Limited (Netwealth), ABN 85 090 569 109, AFSL 230975. It contains factual information and general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of any individual. The information provided is not intended to be a substitute for professional financial product advice and you should determine its appropriateness having regard to you or your client’s particular circumstances. The relevant disclosure document should be obtained from Netwealth and considered before deciding whether to acquire, dispose of, or to continue to hold, an investment in any Netwealth product. For information regarding the relevant target market for Netwealth products, please refer to the products Target Market Determination available under the ’Forms & Documents’ page at http://www.netwealth.com.au. While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), no person, including Netwealth, or any other member of the Netwealth group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information.