Andrew Inwood. Principal & Founder, CoreData Group

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2 Andrew Inwood Principal & Founder, CoreData Group

3 AFA VALUE OF ADVICE October

4 ABOUT US: WHO WE ARE CoreData is a global specialist research and strategy consultancy, with a head office in Sydney, Australia. Our primary focus is providing clients with research insights to help their businesses grow. Founded in 2002, we are independently owned with the capabilities and expertise to conduct bespoke and syndicated research on six different continents. Our aim is to deliver clients with timely and actionable research and market intelligence that will drive transformational change in their business. We have offices in: Sydney Perth Melbourne London Boston Manila Singapore Bogota Malta Cape Town 4

5 Today CoreData and evidence based decision making 5

6 Today CoreData and evidence based decision making The value of advice Emotional, Financial, Behavioural 6

7 Today CoreData and evidence based decision making The value of advice Emotional, Financial, Behavioural Why this is important to you 7

8 A MAN YOU SHOULD LEARN TO LOVE KEY INSIGHTS/ Daniels Gift: INFOGRAPHI C A = πr 2 E(uIp,x) = E(xe) p(x) u (x) The expected value of our actions is a product of two simple things The expected cost of our actions divided by the expected gain.. Daniel Bernoulli

9 Our Methodology Quantitative Research Large online survey (n = 946 ) comparing the difference between advised and non-advised individuals in the Australian population. Qualitative Research 15 one on one interviews with your clients discussing the benefits they receive from financial advice. Financial Modelling 3 financial models demonstrating the benefit that typical Australian households would receive from financial advice. 9

10 Not All The Benefits Are Visible Emotional Benefits Emotional benefits relate to day-to-day wellbeing and happiness. Research participants indicated significant emotional benefits of financial advice. Peace of mind and confidence with managing finances was a major value proposition of financial advice. 10

11 Not All The Benefits Are Visible Emotional Benefits Emotional benefits relate to day-to-day wellbeing and happiness. Research participants indicated significant emotional benefits of financial advice. Peace of mind and confidence with managing finances was a major value proposition of financial advice. Financial Benefits Financial advice leads to better financial decisions. Advised clients typically pay less tax, have little to no bad debt and have their money working harder for them. 11

12 Not All The Benefits Are Visible Emotional Benefits Emotional benefits relate to day-to-day wellbeing and happiness. Research participants indicated significant emotional benefits of financial advice. Peace of mind and confidence with managing finances was a major value proposition of financial advice. Financial Benefits Financial advice leads to better financial decisions. Advised clients typically pay less tax, have little to no bad debt and have their money working harder for them. Behavioural Benefits Behavioural benefits are longer term structural habits. Financial advice trains better behaviours. Advised clients are more in control of their finances than unadvised individuals. 12

13 The Perceived Value of Advice It is impossible for a consumer to evaluate the value of a service until it is experienced. What do you feel are the greatest benefits or value you may stand to gain from receiving professional advice? I would like to be in a position where I can stop worrying about money male, 58, QLD To gain a better understanding of what is required to achieve my goals and prepare myself for the future female, 33, SA To get out of debt and live with less financial stress female, 38, QLD Finding out things I had no idea about in regards to making your money work for you male, 55, NSW Access to knowledge and opportunities I wouldn t be otherwise able to female, 30, VIC Learn how to invest enough to live the lifestyle I want to female, 31, VIC Securing a better retirement and savings plan male, 29, VIC 13

14 EMOTIONAL BENEFITS 14

15 Advised Australian s Are Confident Australian s Financial advice has given me more confidence in making financial decisions 15

16 Advice Equals Peace Of Mind Advised respondents to the online survey typically feel that their advice relationship has contributed to a better peace of mind. Since I received financial advice, I have more peace of mind Agree or strongly agree 79.4% 16

17 FINANCIAL BENEFITS 17

18 The Scenarios Modelling purposes only 1) The Big Check Up : 57 61; End of working life approaching empty nest. 18

19 The Scenarios Modelling purposes only 1) The Big Check Up : 57 61; End of working life approaching empty nest. 2) Loss of Partner 41; When a partner dies early.. 19

20 The Scenarios Modelling purposes only 1) The Big Check Up : 57 61; End of working life approaching empty nest 2) Loss of Partner 41; When a partner dies early 3) Upstarts 33-35; Just getting ready. 20

21 Methodology Scenarios Developed Advice Provided Scenarios Modelled Developed by CoreData Three scenarios created to reflect the financial circumstances of ordinary Australians, as informed by our research experience and ABS data. All three scenarios provided with mock financial advice by a highly qualified and experienced financial adviser. A paraplanner working with the financial adviser then modelled the three sets of scenarios with XPLAN, with and without financial advice. CoreData then analysed the results of the scenarios to find the value of advice 21

22 Assumptions We Were Deliberately Conservative Consistent return Superannuation funds & banks do not earn a different rate of return between the advised and unadvised scenario. Consistent livelihood Consistent living expenses Excess income distributed to bank account The advised scenario do not earn a greater livelihood from employment by switching jobs, etc. Living expenses (excluding insurance & advice) is assumed to be the same in both the advised and unadvised scenarios. In both the advised and unadvised scenarios, income (net of expenses and salary sacrifice) is distributed to bank account. Cost of advice We assumed the cost of advice as $5,000 first year and then $1,200 every year. This is obviously only expensed in the advised scenario. Conservative Outlook The model has erred to conservative estimates by assuming the advised households are not advised to take on more risk. 22

23 Scenario 1 BIG CHECK UP Meet George and Sarah Couple in their mid to late 50s who are up for the big check up as retirement is fast approaching. 23

24 What Financial Advice Were They Given? Super George to commence salary sacrifice to maximise his concessional cap. Sarah to commence salary sacrifice $15,000 pa to her super. Mortgage Cashflow surplus as additional repayments to home mortgage. Once mortgage repaid Sarah to make non-concessional contributions from cashflow surplus to her super. Retirement At retirement age each commence an account based pension and draw income. 24

25 NPV Net Financial Assets Thousands For George and Sarah, the Value of Advice is $800 For George and Sarah, the Value of Advice is 24% More Wealth At Retirement $700 $600 $500 $400 $300 $200 $100 $ (George s) Age Unadvised Advised 25

26 For George and Sarah, the Value of Advice is + $127,000 NPV financial assets at retirement $38,400 Less paid in interest expense - $127,000 Less total tax paid $54,000 Average annual accountbased pension 26

27 Scenario 2 Loss Of Partner Meet Nicki Nicki unfortunately lost her partner recently and is dealing with the emotional, familial and financial consequences. 27

28 What Financial Advice Were They Given? Death Benefit Repay the home mortgage. Repay the credit card debt. Invest $319K into an investment and have income fund education costs and then reinvest income once this cost has finished. Make a non-concessional contribution to super of $100K. Super and Retirement Salary sacrifice $10,000 to super per year until retirement. Commence an account based pension with super balance. 28

29 For Nicki, the Value of Advice is + $29,000 Average annual income (from investments) $71,000 Average annual accountbased pension + $634,000 NPV financial assets at retirement + 6.2% Average ROI post-tax annually 29

30 Scenario 3 Upstarts Meet Hannah and Richard Hannah and Richard are a couple in their early thirties, looking to get a head start in securing their financial future. 30

31 What Financial Advice Were They Given? Income Protection Insurance Income protection insurance (75% of gross income) for each, to age 65 with 90 day wait. Richard & Hannah covered for $10k and $5.6k per month respectively. Life & TPD Insurance Life & TPD insurance for each, paid from super. Richard & Hannah covered for life $1.35m each, TPD $800k each. Trauma Insurance Trauma insurance for each. Richard and Hannah covered for $100k. Mortgage Make additional $10k per annum mortgage repayments (loan repaid in 27 years) Cashflow Surplus Invest cash flow surplus into a managed portfolio with income reinvested. 31

32 For Hannah and Richard, the Value of Advice is + $708,000 Financial assets at early retirement (61 and 59 years old) % Average ROI post-tax annually + $200k Trauma insurance cover + $1.6m TPD insurance cover k per month Income protection insurance cover + $2.7m Life insurance cover 32

33 BEHAVIOURAL BENEFITS 33

34 Plan for the best, prepare for the worst How long would you estimate you are covered for in the event you are unable to work? 34

35 Retirement Preparedness How well prepared financially do you feel for your retirement? Very well or reasonably well prepared 82.7% 33.0% Advised Unadvised 35

36 What advised clients are doing right now Since I received financial advice, I save more money Since I received financial advice, I m more equipped to handle sudden, one-off costs. 54.9% 60.0% 36

37 SUPPORT OUR INDUSTRY I feel like the world has lifted off my shoulders now that I have a plan. I won t have huge nest egg, but what money I do have is working harder for me - (62, Female, WA) 37

38 BUT WHY IS THIS IMPORTANT? 38

39 The Opportunity 11.6 million Australians 39

40 The Opportunity The Penetration 11.6 million Australians 40

41 The Trust Gap 41

42 THE MORE THEY WATCH, THE MORE DAMAGE IS DONE How have the Royal Commission s hearings on financial advice impacted your view on the reputation of the financial advice industry? - % answered I think much less of the industry 60% 53% 29% 9% I have viewed the I read/view/listen to the I have read/viewed/heard I haven t read, livestream at least latest Royal Commision the occasional story on the viewed or heard a once and read reporting through Royal Commission but do story or article on substantial mainstream publications not actively look for the topic financial reporting on its events frequently (SMH, Daily Telgraph, ABC News, etc) updates 42

43 Do You Do What You Say you will do? Lets Look At That Slightly Differently Are You Who You Say You Are?l\ 43

44 Do You Do What You Say you will do? Lets Look At That Slightly Differently Quarter 1 Are You Who You Say You Are?l\ 44

45 Do You Do What You Say you will do? Lets Look At That Slightly Differently Quarter 1 Quarter 2 Are You Who You Say You Are?l\ 45

46 Do You Do What You Say you will do? Lets Look At That Slightly Differently Quarter 1 Quarter 2 Quarter 3 Are You Who You Say You Are?l\ 46

47 Do You Do What You Say you will do? Lets Look At That Slightly Differently My Adviser My Adviser My Adviser Quarter 1 Quarter 2 Quarter 3 Are You Who You Say You Are?l\ 47

48 Do You Do What You Say you will do? Lets Look At That Slightly Differently Trust Gap My Adviser My Adviser My Adviser Quarter 1 Quarter 2 Quarter 3 Are You Who You Say You Are?l\ 48

49 YOU ARE A TRANSFORMER 1. More Confident 2. Better Insured 3. Richer 4. More likely to have more holidays 5. More likely to privately educate 6. More likely to get an insurance pay out 7. Less vulnerable to economic shocks 49

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