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Group 208

Vince from Life Sherpa
June 2023

Future of Financial Advice

Life Sherpa is Australia’s most affordable financial advice service. We help working Australians get more from their money by providing advice for all aspects of their finances from budgeting and debt payoff, to insurance, retirement planning, super, investment and buying their home.

Australians crave sound financial advice with over 40% saying they plan to take it – yet only 10% do. The primary barrier is cost, with the average cost of financial advice now exceeding $3,500 a year and consumers saying they are willing to pay $600.

Financial advice is a highly regulated sector with high costs driven primarily by the cost of the qualified advisers required by law to deliver the advice which has generally been delivered one-to-one in person. This high cost of delivery has meant that clients are mostly older and wealthier, with two thirds of clients being over 55. Fees are often charged as a percentage of assets under advice, which excludes younger clients with low levels of assets. Few advisers focus on the needs of younger people who are more likely to need help with budgeting, paying off their debts, managing risk, and getting onto their first home.

There are 4.2m Australian households who do not receive advice but could benefit and are prepared to pay. Technology is widely promoted as the solution to bridging this gap.

There are 16,000 financial advisers and 19,000 mortgage brokers generating a combined $7.1bn in fees and commissions. Most operate in small (1 or 2 person) businesses, many are licenced through the major product providers (AMP, Insignia) and few have the resources to develop technology.

Thirteen years ago this month, Betterment, the world’s first Robo-Adviser, was launched amid claims that it would replace human financial advisers and make affordable advice available to all.

Today, Robo-advisers manage USD1.64 trillion globally, for almost 204 million individuals, representing less than 2% of the total assets under management globally.

So, why has the promise of robo-advice not been delivered and what does the future of affordable advice look like?

 

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Robo-advisers have focussed on a small niche within the overall financial advice requirements of consumers. Specifically, they deal solely with portfolio selection and ongoing administration. They generally do not deal with the broader advice needs of consumers including borrowing, budgeting, emergency savings, health insurance, paying for education, and aged care.

More importantly they lack the essential human component demanded by consumers. The technology exists to produce a recommendation in response to most financial advice needs. However, a human is necessary to ensure that the advice is actioned and the benefits realised.

That’s why at Life Sherpa, we’ve focused on building a technology platform that can deliver a qualified human adviser to working Australians for less than the $600 they say they are prepared to pay.

The technology consists of two components.

·       A consumer facing website that allows a user to diagnose their current position, identify and prioritise opportunities for improvement and connect with a human adviser at just the right moment.

·       A comprehensive back-office system that delivers 10x adviser productivity by removing the research and compliance burden which enables the adviser to spend more time with clients where it matters. The technology also ensures consistent advice, reducing risk and lowering compliance costs.

Together these allow us to deliver quality advice at a price consumers will pay.

Life Sherpa’s revenue comes from membership fees, fixed fee advice, and commissions on home loans and life insurance products.

We deliver our service directly to consumers primarily through social channels including our network of licenced finfluencers. Recently we have launched an employer-paid service where employees receive the service at no cost.

In recognition of our mission to deliver affordable advice to Australians wherever they live or work, and how much they earn own or owe, Life Sherpa has earned B-Corp certification and is the winner of the award for Excellence in Wealth management at the 2023 Finnies Awards organised by Fintech Australia.