A year to take a breath

With the last couple of years being incredibly difficult for advisers and filled with regulatory changes and Royal Commission recommendation implementations, 2022 might be time to take a breath, according to industry experts.

What is more, this is an election year and what that means for advisers is that it will be highly unlikely, from a legislation and regulation perspective, to see many changes to financial planning laws or the ways advice is delivered to consumers.

In many regards, this might be the year which will finally provide financial planners with a good opportunity to reset and take time to look after their businesses.

According to Ben Marshan, head of policy, strategy and innovation at the Financial Planning Association of Australia (FPA), one way advisers should take advantage of the next couple of months would be by paying more attention to the advice processes.

Marshan said implementation of the Royal Commission’s recommendations over the last two years has introduced a number of new processes that were often pushed on adviser businesses.

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“I think for the most part that has been done very quickly and they probably created a lot of inefficiencies and additional paperwork within the businesses. They do not necessarily mean to. So, if [advisers] can spend time looking at their business, looking at what the obligations are, you can probably find a lot of ways to make your systems and your business being run a lot more efficiently. 

“This is really the main thing planners should be focusing on this year. They met the education requirements, they’ve gotten through the Royal Commission period and now it is time to think about their businesses. 

“The last couple of years have been a little bit dramatic [for advisers] so it is not surprising that they are still worrying that there is more to come but the reality is that probably isn’t,”  Marshan noted.

Speaking of the potential sources of uncertainties, Marshan pointed to the Australian Securities and Investments Commission (ASIC’s) new financial services panel. But he said, given it was in the early stages, it would be hard to predict how the panel would go about, for example, the Code of Ethics, and its interpretation.

“We do not know how it is going to operate and there is probably a little bit of uncertainty there.”

However, he said, given the number of complaints going through the Australian Financial Complaints Authority (AFCA) and the messaging that ASIC has been providing in saying they have been seeing a good quality of advice, Marshan said it seemed like there would be very few issues for advisers to worry about.

“I think that virtually every planner out there, they do not need to really be worrying about what is going on in the disciplinary body because they are doing the right things and consumers, ASIC and AFCA trust them. And you will not really see a lot of complaints coming through so that is probably a little bit of uncertainty that we’ve got at the moment.”

On a positive note, Marshan said the current sentiment around the quality of advice was more optimistic.

“If you ask any of the regulators, which we do regularly, or speak to AFCA or read their comments, the quality of advice being provided at the moment is good or better than it has ever been and it just shows that all the regulatory change and the professionalisation has actually been working.”

Eugene Ardino, chief executive of Lifespan Financial Planning, admitted that advisers had put a very intensive regulatory year behind them, and while many of them were still in the transition period, as they were busy moving to fixed term arrangements and through compliance requirements, others might use the coming months to look at and finalise their succession plans.

“Once you get through to the next six to nine months, unless there is going to be more regulatory change, it seems as though we might be at the end of it and advisers can get back to focusing on what they do best and what they should be focusing on which is providing advice,” he said.

According to him, advisers should also use this time to focus on advice, servicing clients, and finding solutions in the challenging environment as well as helping to position their clients’ portfolios better for “what could be a very turbulent year” for markets.

“[One of the] big themes that is going to play out this year is going to be stockmarket volatility and normalising interest rates and the impact of that on client portfolios and how to minimise the fallout and make it as painless as possible for clients,” he said.

Speaking of the cost of advice, Ardino said, the industry will continue to see more mature advisers exiting the industry but the newer advisers might be choosing their clients more cautiously.

“More mature businesses have a greater capacity to take on clients and loss because they’ve got more stable income streams while fresher businesses are more reliant on making sure that all of their time is well spent.

“In my experience, people setting up new businesses, irrespective of the age, are much pickier about the clients and with more professionalisation of the community, you are getting more potentially high-fee paying clients.

“Actually, the demand for advice is going up, so given all the bad things and all the negative things I might have said, any adviser that has got their education stuff sorted out and they are going to be in the industry for the next 10 years, it’s going to be fantastic.

“You will be able to pick and choose the clients you want, and you might pretty much charge whatever you like, and you are going to be seen as more of a profession.

“However, even if it is really great for the advisers, in terms of consumers and affordability for the advice, essentially a lot of people who were able to access advice, they are going to be dealing with robots to choose the investments.

“A lot of clients that would get orphaned as a result of lot of these changes, will not be able to access advice,” he said. 

Ardino also stressed that although the changes might bring about a better industry, possibly more polished and more educated profession for the wealthy and the middle class, lower-income earners will be left to rely on robo-advice and general information from providers focused more on selling their investment products.

Greg Cook, chief executive and senior adviser at Eureka Whittaker Macnaught, said the other positive thing had been the change in public sentiment towards the quality of financial advice in Australia and that planners were clearly benefiting from the change of perception, with many planners having received record numbers of inquiries from prospective new clients.

Cook said the scale of business models would continue to be important but warned there were still some businesses with conflicted revenue models out there.

“I always thought that you need to take care with the term of independence as you can have a very vertical model that sort of fits these independent criteria but it can still be very problematic.

“Obviously the Royal Commission is another area of focus but I guess the profession is never going to be like any other profession and it needs to be completely free from elements of poor practice. 

“But the potential for poor practices needs to be minimised and achieved through higher standards, higher education and appropriate regulations but not regulations that make impossible to  deliver advice at a reasonable price,” he added.

TALENT SQUEEZE

The talent squeeze has remained one of the hottest subjects across many industries at the moment, as a result of post-pandemic changes in people’s choices.However, it has been even further exacerbated across the financial advice industry which has declined from around 25,000 advisers only a few years back to around 17,600 as at the end of January this year. The number is expected to fall even further and reach the level of 15,000 to 16,000 during 2022.

“That is a challenge and the case with most businesses that I speak to, they are struggling to find staff at all levels. And we manage to be able to recruit because we have achieved the position that allows us to be able to recruit largely through our network and I think that is the best way to find a good candidate right now, is through the network,” Ardino commented.

“One would think that with all the banks getting out of advice, there would be a lot of advisers looking for a job and potentially support staff that go with that but I also know that a lot of these people have changed their careers.”