The challenge of the DIY consumers for Financial Advisers
Strategic Issues & Value Proposition

The challenge of the DIY consumers for Financial Advisers

September 4, 2020

by Tony Vidler  CFP logo   CLU logo  ChFC logo

Some telling research was done by Dr Claire Matthews of Massey University that highlighted the DIY (Do It Yourself) consumers mindset, and the challenges which that poses for financial advisers.

The research was specifically on “KiwiSaver and Retirement Savings”, and explored some of the issues and attitudes of Kiwi’s.

While the research was retirement davings (KiwiSaver) focused, it raised issues pertaining to financial advice in the wider context.

Retirement savings are clearly a major issue for the nation given the current projected population changes will have 1 in 5 New Zealander’s over the age of 65 by the year 2031.  In just over a decade then a fifth of the population will be retired, or contemplating imminent retirement.

But it gets worse: The Reserve Bank found in their survey this year that “40 percent of households are at risk of falling into financial hardship since Covid-19, and a third were already in difficulty“.  So retirement is a bit of a challenge…but so too is next month it seems.

And last week the government appointed Commission For Financial Capability comes out with this: Kiwis are clueless, careless and deluded about money and retirement savings

Through all of this there is “reluctance to make use of financial advisers, with the advice of family and friends often preferred”.

So we have a nation which is apparently lacking a fair bit in financial literacy and overwhelmingly prefers the hot tip from the un-employed brother in law despite the fact that the tipster is unlikely to be able to financially survive a couple of months on their own merit anyway.

What does this say about financial advisers?  Or rather, what does this say about the perception of financial advisers by consumers?

“Nothing very flattering” is the answer.

To be fair, there are a couple of cultural elements at play in society here which will present a challenge for a long time to come. The first is strong sense of community arising from indigenous culture, where the emphasis for eons has been for the community to look after its own. There is a tendency to turn inwards for help – go to those whom you trust most and whom you know will rally around.  Then there is that pioneering ethos of which Kiwi’s are so proud which suggests that each individual should just perservere no matter what, and figure it out for themselves.  Those general attributes of our society are not going to change anytime soon and will therefore be a barrier to engaging more readily with professionals for some time to come.

Despite that, the truly significant challenge presented to financial advisers however is that largely they are not even considered a primary source of information on financial matters.  Note I didn’t say “source of advice”, but a source of information

As the main source of information advisers are rated number 1 by about 19% of the surveyed population apparently.  Nearly (but not quite!) the same as was “books, newspapers and/or magazine articles”.

It would seem therefore that the primary challenge presented by DIY consumers to financial advisers is to be seen as the premier source of credible financial information and education.

Before we can convince the market on the “value of the advice component”, we have to be accepted as the most valuable source of information.  If we cannot be seen as the most valuable source of information then there is little chance of being valued for our interpretation of the information or opinions on how consumers can best use it.

The hard yards have to be put in to establish the financial adviser as the primary information source.  Then, and only then, will there be sufficient people placing considerable value upon the advice component.

You might also be interested in this related article:
How Can You Value Financial Advice?
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