When the going gets tough, advisers get going

From the Banking Royal Commission to the Financial Adviser Standards and Ethics Authority’s (FASEA’s) proposed reforms, advisers have had a pretty tough gig this year. 

The Royal Commission has advisers worried their firms might lose business and it’s no secret the looming FASEA reforms have older advisers wondering whether it’s worth the hard yards to stay in the industry or to bring forward an early retirement. 

Outside of regulatory uncertainty and negative press stemming from the Commission, advisers have battled tougher compliance burdens, new client acquisition challenges and business inefficiencies. 
Wealth Insights’ Adviser Sentiment Index shows sentiment has plummeted to levels not seen since the ASX dropped well below 4,500 points in 2012.

The data also showed that, in their role as a financial planner, fewer than half of surveyed advisers indicated that times were “good” or “very good”, with 40 per cent indicating times were “average”, and 19 per cent indicating that times were “bad” or “very bad”.

Investment Trends pointed to a profitability level that was the lowest since the Future of Financial Advice was introduced, which indicates that the broader environment is having an adverse effect on planners’ businesses. 

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As well, planners are rating their service providers lower, and there’s a growing trend towards self-licensing that’s up to 20 per cent from 17 per cent last year and 15 per cent in 2016, with another eight per cent intended to pick up a self-license in the future. 

But it’s definitely not all doom and gloom, with the majority of advisers feeling that once the dust settles, the financial planning industry will be a prestigious one to be in. 

Any publicity isn’t always good publicity

Investment Trends’ 2018 Planner Business Model Report, which was based on a survey of around 900 advisers, painted a pretty bleak picture of adviser sentiment, and, surprisingly, FASEA wasn’t the culprit. 

In fact, the report suggests the Royal Commission had more advisers spooked, with 99 per cent of advisers citing some negative impact from the publicity around the Commission including the cost of providing advice, trust in planners worsening, the number of planners falling and fewer people turning to planners for advice. 

This, coupled with the already decreasing number of Australians seeing a financial planner, with the average planner citing 109 active clients, down from 123 in 2017, 132 in 2016 and 140 back in 2015, means that advisers are losing more active relationships each year than they are gaining new relationships, and it’s putting added pressure on planners’ businesses. 

Association of Financial Advisers’ (AFA’s) general manager, policy and professionalism, Phil Anderson, said the Royal Commission affected advisers in different ways, with one end of the spectrum feeling that the Commission had a material impact on them, and the other end of the spectrum not impacted at all. 

“The other thing that’s really important is that the existing clients of advisers are much more resilient,” he said. “They have that relationship, they value that relationship, and it’s easier for them to say, ‘Well this is other people – it’s not my adviser.’”

To add to the mix, only 53 per cent of planners said the profitability of their business had improved, a figure which dropped from 72 per cent in 2014. 

But, research director at Investment Trends, Recep Peker, said although the number dropped, it was still a pretty high proportion of planners noting that things had improved. 

“So, the challenge in the industry is not necessarily uniformly distributed,” he said. “There are actually still a lot of financial planners who are being successful in their businesses, but overall now, as a financial planner, business is not as easy as it might have been a number of years ago.”

That being said, there remains an immense need and appetite for financial advice among Australians, with 31 per cent of those who are not advised potentially seeking a planner in the next two years. 

Peker said for financial planners and the businesses that support them, the challenge now was to continue to promote the fact that people who do get financial advice are better off. 

“Ninety-seven per cent of planners’ clients say that their financial adviser had positive impact on them,” said Peker. “So, clearly they’re doing a lot good work, you just have to get around the fact that for some there’s a trust issue, but there’s many more who recognise they need advice, especially from financial planners.”

We don’t need no education … do we?

When it came to FASEA, the Investment Trends’ report said the majority of advisers had a positive or very positive view of the reforms, with only a quarter citing it could have a negative impact. 

It’s an interesting statistic given those on the ground have a very different perspective, citing FASEA and potential tertiary requirements as advisers’ biggest concern given the already large (and growing) administrative tasks required. 

Anderson told Money Management that, while the Royal Commission generated a huge amount of media coverage and in turn had a negative impact in terms of consumer confidence, advisers are more worried there’s not enough equity in the model suggested by FASEA. 

“You’ve got issues such as, ‘Am I being fairly recognised for what I’ve previously done? I’ve done all of this work, and it appears like it’s going to waste’,” he said. 

Anderson said sentiment among the older advisers in particular was significantly low, with the older cohort being less likely to have a degree and therefore having a bigger challenge ahead of them. 

“There’s certainly an element of doubt as to whether they think they will succeed in this,” he said. 

The other factor, Anderson says, is the extent to which the standards could be unreasonably high, and the exam in particular is causing a significant amount of anxiety. 

“People are thinking, ‘I know my stuff, but when I get put into a classroom in an exam room, how am I going to go?’” he said. 

But each adviser is dealing with it differently, with some extremely resilient, others ignoring the issue until reforms are set in stone, and another cohort opting to be vocal and fight the changes. 

And there are also those who believe it will be good in the long term, foresee a pragmatic solution on the horizon, and are committed to being part of the industry going forward.

Managing partner, financial planning, at Findex, Matt Swieconek agreed that the most concerning aspect for advisers at the moment was the FASEA outcomes, and it’s mainly because there are such varying degrees of education across the business. 

“We do have a lot of tertiary and CFP-qualified advisers, but nobody’s feeling too sure of themselves as to whether they have to eight, four or six subjects, or a couple of bridging subjects,” he said. 

Swieconek said the question for the planners in the later stages of their career is, if they don’t have a related or approved degree, do they go the distance, or do they bring forward an early retirement? But, while sentiment is low, advisers are still optimistic. 

“They’re not feeling too buoyant about having to do additional study, but they recognise that if they actually want to get taken seriously as an industry, then this is not actually a bad thing,” said Swieconek. 

Advisers recognise though that, once the dust settles, the opportunity ahead of them is very strong, and there will be a landscape of well-credentialled, educated people, which in turn means a better-regarded profession. 

Swieconek also estimated that anywhere between 25 to 50 per cent of planners will exit the industry, including practices that “always had a bad smell about them”, leaving less competition in the marketplace and higher barriers to entry. 

What else is weighing advisers down?

If the Royal Commission and FASEA aren’t enough weight on advisers’ shoulders, added compliance and administrative burdens will be. 

Peker said 64 per cent of planners cited compliance burdens as their biggest challenge. 

Swieconek cited an increased workload of anywhere between 20, 30 and even 50 per cent for any given client as a consequence of additional compliance overlay, and it’s causing advisers to be more time poor. 

Keeping up with regulatory change as it is on top of increased continuing professional development (CPD) and internal compliance requirements has advisers pretty worried about the potential tertiary qualifications they’ll need to add to their already busy life. 

“Whilst the recognition is there that we need to get there as an industry, just coupled with the fact that they’re doing a lot more as advisers from a client’s perspective now, it’s just a major additional time-impost on the adviser,” said Swieconek. 

“The requirements that we’re having to do to make sure we’re on the squeaky clean side of the law, they’ve just gone up exponentially, and you’ve got to throw in some education on top of that. People are feeling like it’s becoming a bit of a grind.”

But, aside from regulations and negative press, advisers are bearing in mind that robo-advice and the potential end of the bull market will impact them in the future. 

Swieconek said there was an acceptance that in time, robo-advice would become a widely-used medium, but that it was moderated by the workload on advisers’ plates at the moment.

“Yes, we can see that robo-advice is on the horizon, but at the moment we’re not really concerned with that because we’re concerned with everything we have to do at the moment,” he said.

“We’re watching the Royal Commission closely to make sure the things that we’re seeing there we’re not doing, and we’re watching FASEA pretty close to make sure we’re covering what we need from an educational perspective.”

Anderson agreed that the issue of robo-advice is a potential cause of concern, but advisers were more confident now that what clients really value comes from a person.

He also said markets were a constant factor, and the end of the cycle could see things get a little more challenging, those issues are always present, and they affect advisers differently. 

“Advisers have moved on in terms of altering their revenue models,” he said. “So those that are more reliant on flat fees are less impacted by market downturns.”