1. Name: Wayne Belford Date: 28th May 2010
The cost of advice
Name: Wayne Belford Date: 28th May 2010

2. Disclaimer
This presentation is given by a representative of Colonial First State Investments Limited AFS Licence , ABN (Colonial First State). Colonial First State Investments Limited ABN , AFS Licence (Colonial First State) is the issuer of interests in FirstChoice Personal Super, FirstChoice Wholesale Personal Super, FirstChoice Pension, FirstChoice Wholesale Pension and FirstChoice Employer Super from the Colonial First State FirstChoice Superannuation Trust ABN and interests in the Rollover & Superannuation Fund and the Personal Pension Plan from the Colonial First State Rollover & Superannuation Fund ABN and interests in the Colonial First State Pooled Superannuation Trust ABN
The presenter does not receive specific payments or commissions for any advice given in this presentation. The presenter, other employees and directors of Colonial First State receive salaries, bonuses and other benefits from it. Colonial First State receives fees for investments in its products. For further detail please read our Financial Services Guide (FSG) available at colonialfirststate.com.au or by contacting our Investor Service Centre on
The information is taken from sources which are believed to be accurate but Colonial First State accepts no liability of any kind to any person who relies on the information contained in the presentation.  
This presentation is for adviser training purposes only and must not be made available to any client.
This presentation cannot be used or copied in whole or part without our express written consent.
© Colonial First State Investments Limited 2009.

3. Agenda The issues The research and its findings
Investor attitudes towards advice
Implications for the industry

4. Who is the researcher?
Dealer Group Advisers are an independent research house specialising in the financial advice industry
Director Andrew Wheeler is co-founder and former CEO of the Lonsdale Financial Group
He is regularly quoted in Money Management, SuperReview and InvestorDaily
Dealer Group Advisers have been engaged by Colonial First State to conduct independent research on our behalf

5. Key research questions
How do advisers use their time? How does this compare with best practice?
What average hourly charge would be needed to sustain a fee-for-service practice?
What is the cost of providing different levels of advice?
How does this compare with the range of fees charged?
What is the average client’s propensity to pay for advice?

6. How advisers use their time
Working time is broken down into three categories:
Productive
Compliance
Non-traceable
Accountants were used as a best practice benchmark
Accountants
Financial advisers
Non-traceable
30%
Compliance 5%
20%
Productive
65%
50%
Source: Dealer Group Advisers

7. Compliance weighs on productivity
Time breakdown – hours per year
Over 50 businesses were surveyed
Revenues ranged from $200,000 to $4 million
The average practice revenue of a financial adviser is $300,000
The productive time of an accountant is 15% greater than a financial planner, due to the less rigorous regulatory requirements
200
400
600
800
1000
1200
Compliance
Productive time
Financial advisers
Accountants
15% less productive
15% more compliance
Source: Dealer Group Advisers and Roy Morgan

8. The cost of advice
Assuming average productive time of 50% and average practice revenue of $300,000
Cost of advice per hour is $340
Advice includes meeting, preparing, presenting and implementing
Advice
Required hours
Cost
Basic
2.0
$680
Simple single issue
4.0
$1,360
Complex single issue
8.5
$2,890
Annual full service plan
10.5
$3,570
Source: Dealer Group Advisers

9. Basic advice… can lose money
$700
Estimated 2 hours required costing $680
Average charge between $250 and $500
Only 20% of clients are willing to pay over $200
The shortfall starts at $180
$600
Minimum shortfall
$500
$400
$300
$200
$100 $0
Cost
Minimum price
Maximum price
Source: Dealer Group Advisers, Roy Morgan and the Financial Planning Association of Australia

10. Simple single issue advice… can lose money
Estimated 4 hours required costing $1,360
Average charge between $250-1,000*
The shortfall starts at $360
$1400
$1200
Minimum shortfall
$1000
$800
$600
$400
$200 $0
Cost
Minimum price
Maximum price
Source: Dealer Group Advisers and the Financial Planning Association of Australia

11. Complex single issue advice… can make money
Estimated 8 ½ hours required costing $2,890
Average charge between $1,500 and $10,000*
The shortfall starts at $1,390
For the first time, fees have the potential to exceed the cost of advice
$12000
$10000
$8000
$6000
$4000
Maximum shortfall
$2000 $0
Cost
Minimum price
Maximum price
Source: Dealer Group Advisers and the Financial Planning Association of Australia

12. Annual full service plan… can make money
Estimated 10 ½ hours costing $3,570
Average charge between $1,500 and $20,0001
87% of investors would not pay more than $1,000 for an annual plan2
And only 16% of investors would probably or definitely pay $3,5002, once informed of the cost $0
$3,000
$6,000
$9,000
$12,000
$15,000
$18,000
$21,000
Cost
Minimum price
Maximum price
Maximum shortfall
Source: Dealer Group Advisers, Roy Morgan and the Financial Planning Association of Australia

13. Ongoing client relationships make money
At either end of the market, propensity to pay is far below the cost of advice
One off advice is generally not profitable
Basic and simple single issue advice is a money loser
Ongoing client relationships are the money spinners
Cost of advice
Willingness to pay – 80% of total market
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500 $0
Basic advice
Annual full service
Source: Roy Morgan

14. Financial advice is important
Over 50% of people own shares directly1, and 82% have superannuation2, yet only 20% seek advice3
Tax cuts have diverted more resources to households, so their decisions have a greater economic impact
Without financial advice, ageing Baby Boomers could saddle Generation X and Y with a heavy tax burden
Similarly, Generation X and Y need advice to ensure they can support themselves throughout their retirement
1Reserve Bank of Australia
2Australian Bureau of Statistics
3Financial Planning Association of Australia

15. Investors want financial advice
85% of investors either need a plan now, or say they will in the future1
9 out of 10 investors say they benefited from using a financial planner2
Investors recognise the intangible benefits of seeking financial advice
I will never need a plan
I need a plan now
I may need a plan in the future
1Roy Morgan 2Galaxy Research

16. Investors recognise the intangible benefits
70%
66%
63%
62%
60%
54%
50%
47%
46%
40%
30%
20%
10% 0%
Peace of mind
Greater control of finances
The prospect of a more comfortable
retirement
Avoiding bad investments
Following a budget
The ability to save
Source: Galaxy Research

17. Value of advice far exceeds the cost
$700
Value of advice
Cost of advice
$600
$500
Anyone with a need for financial
advice can benefit from it
$400
Present value ($000’s)
$300
$200
$100 $0
A post retirement inheritance
A low income plan
A retired nurse
A family in need
A young family building wealth
A wealthier family building wealth
Pre retirement plan
Pre retirement inheritance
Source: The Value of Advice, prepared by Rice Warner Actuaries for the Financial Planning Association of Australia

18. But… investors are not aware of the cost
1% of people would pay over $3,200 for a financial plan
2% of people who have seen a financial adviser would pay over $3,200 for a financial plan
Once informed of the cost, only 38% would possibly be prepared to pay for it
56% of people who have seen a financial adviser would possibly pay for it
Investors who have seen a financial adviser are much more likely to recognise the value of advice
Source: Roy Morgan

19. Investor willingness to pay
45%
40%
Those who have sought financial advice have a greater understanding of its cost
35%
30%
25%
Have an adviser
Actual cost
20%
Don’t have an adviser
15%
10% 5% 0% $0
$800
$1,200
$1,600
$2,200
$2,600
$3,000
$3,400
$3,800
$4,000
Annual financial plan – cost willing to pay
Source: Roy Morgan

20. Long term relationships are profitable
Investors recognise the benefits of financial advice
A wide range of people want financial advice, but many can’t afford it
Only 1% of investors would be willing to pay the full cost of a financial plan*
Generally, one off advice is not profitable, but over the long term client relationships produce a return
*Roy Morgan

21. Compliance increases the cost of advice
Compliance requirements reduce an adviser’s productive time
The rigorous compliance regime reduces the access to advice for low income clients
A simple question does not necessarily induce a simple, cost effective answer
Without a high net worth to invest, or money for up front fees, low income clients miss out on advice

22. Conclusions
20% of people seek financial advice, yet over 50% own investments
The real cost of financial advice is well above the current price
Investors are not willing to meet the full cost of financial advice
Onerous compliance requirements increase the cost of financial advice and reduce availability for low income clients
Subsidisation reduces the price and increases the availability of advice

23. Conclusions
There is a key advantage in having an ongoing relationship with a financial planner in order to maximise opportunities and to build the discipline of maintaining the long term plans.

24. Conclusions
The non financial impact of advice is clearly valued by clients.

25. Conclusions
Financial advice is valuable and more Australians should receive it. Surveys of clients of financial planners are usually positive with high levels of satisfaction.

26. Conclusions
The rewards of following a plan should provide results far outweighing the costs.