InFocus: Will there be a silver lining to the industry’s adviser exodus?

Over the last few months, the industry has undeniably experienced dwindling adviser numbers as shown on the Australian Securities and Investments Commission (ASIC) Financial Advisers Register (FAR).

The industry has now been additionally plagued by a growing trend among accounting practices, especially those with limited authority, who are consciously choosing to hand back their authorisations on the grounds of the unfavourable cost-to-return ratio given that financial advice was only a small part of their business.

Also, many of them said that ASIC’s levy was the nail in coffin as it came on top of other costs and requirements such as the Financial Adviser Standards and Ethics Authority (FASEA) exam and other associated costs with regards to licensing including the requirement of obtaining of the continuing professional development (CPD) points.

The shift in approaches to the provision of the financial advice, meaning that it will not be financially viable for all types of groups to remain in the business, is pointing everyone to the key question of how many of today’s advisers will stay in the industry and how many will really be out there working with clients next year. At the end of May 2021, the numbers of actual advisers, as evidenced by the FAR, broke the psychologically important threshold of 20,000 and sat at 19,953. 

By comparison back in mid-2018, and right in the middle of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services, the number of financial advisers stood above 25,000 and the top 100 largest financial planning groups collectively accounted for 16,000 of advisers, according to Money Management’s 2018 TOP Financial Planning Groups ranking.

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Fast forward to mid-2021 and the data is confirming the continuous exodus of advisers, with the revised forecasts often not shy from the predictions of around 15,000 FASEA-certified advisers who will be around next year to continue to advise their clients.

Colin Williams, director at Wealth Data which provides a weekly analysis of adviser movements, said that at a high level he would expect a major 25% reduction of adviser roles against the current number of 20,306, which compared to the high of 28,216 in 2018 and will translate into a 46% drop.

“If there is a silver lining in the forecasts, the number of advisers who provide holistic advice, predominately the financial planning peer group, will hold up relatively well.

And it is this sector that provides the bulk of advice across retail clients in Australia,” he said.

At the same time, he admitted that in the space of the accounting – limited advice, another peer group representing the licensees that have the majority of its advisers restricted to self-managed super funds (SMSFs) and superannuation, would be the hardest hit in percentage terms. 

“This peer group is relatively new and took advantage of rule changes in 2016 allowing accountants to provide limited advice to their SMSF clients. The vast majority of advisers in this peer group would not view their role as financial adviser, rather they would spend the majority of their time working as an accountant. Therefore, few if any will lose their actual job in the accounting firm,” Williams explained.

On the other hand, Wealth Data’s director stressed that even before ASIC’s FAR became available and limited licences got the green light, he said he was always of the opinion that there would be approximately 15,000 advisers working with clients.

But this is not necessary a bad thing for the industry. According to Williams, it could be the start of a “boom time” and for advisers, particularly those who will be here for the long-term, opportunities to gain referrals and clients from accountants will improve.

“To put this into perspective, when dividing the total number of SMSFs by the current number of advisers, the current ratio of 28.8 per adviser, if we get down to 15,000 advisers, it will be 38.3 per advisers. Assets held in SMSFs will move from 37.1 million per adviser to 49.3 million per adviser,” he said.

Grahame Evans, chief executive at Easton Wealth, was of a similar opinion. 

“We would probably suggest the number of advisers will decrease to around 15,000, but you will need to take off all of these people doing the time-share, and you’ve also got stockbrokers in that, but the numbers of advisers are dropping substantially”.

He said the other important time which will see a lot of advisers come off from the register will be the beginning of 2022, given that under the Corporations Act existing advisers are required to pass the FASEA exam before 1 January, 2022.