Conventional wisdom suggests we delegate to a financial adviser because they have the time and expertise to help us achieve our financial goals. The truth may be a little “darker”.
It seems “Delegators” just need someone to blame if things go wrong.
Michael Kitces, Head of Planning Strategy at Buckingham Wealth Partners had a good look at this in his article Do Clients Hire Advisors For Their Expertise, Or Simply To Pass The Buck On Blame?
Quoting a study by Steffel, Williams, and Perrmann-Graham in Organizational Behavior And Human Decision Processes he found delegation is driven more by a desire to avoid responsibility than obtain expertise.
What is worse, Steffel and the team found avoiding blame is so important when delegating that people seek to delegate to those with authority over expertise.
This makes it easier to understand how advisers in the “pre-Hayne” era, with only an online qualification (achieved in a few days), could so easily sell over-priced, under-performing products. Big personalities, backed by a big brand.
Thanks to the Hayne Commission the four big banks and AMP had to hand back $1.86 billion for bad advice and fees for no service.
According to the Australian Financial Advice Landscape report, June 2021, the proportion of advised Australians aged 21 and over dropped from 12.2% to 11.2%. The percentage never seems to get above 20%. Is this because of high fees or people feeling their situation doesn’t warrant a financial adviser. Is it because this is the natural proportion of “Delegators” in any community? I suspect the latter is playing a role but cannot find any data to back it up.
Consumer segmentation research by Forrester finds the majority of consumers are not full “Delegators” or full “Do It Your Selfers”. Most of us are “Validators”, who retain primary responsibility for financial decisions, while still seeking an advisor’s expertise to review and “validate” a financial decision.
Where does this leave financial advice? Will advisers slug it out for their share of “Delegators” while Robo Advisers slug it out for their share of “Do It Your Selfers”. What about the largest group – the “Validators”?
This group provides a huge opportunity for “tiered advice” allowing them to access (and pay for) validation when needed.