It’s been five months since the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry ended its hearings into financial advice. Although nobody is sure exactly how the hearings will shake up the advice industry, it’s a safe bet that significant change is coming.
The Royal Commission’s recommendations will come on top of education and professional standards reforms the Financial Adviser Standards and Ethics Authority (FASEA) is introducing over the next few years, and together these factors will shape the future of the advice industry for decades to come.
At CoreData, we’ve analysed ASIC’s financial adviser register to see what change, if any has already reared its head in the movements of registered advisers. Although the Royal Commission is written about as the key catalyst for change, the data shows that industry trends were set long before tythe inquiry was even considered.
Is the industry growing?
2018 has been a momentous year in many respects: the North Korean leader and US president attend a summit together for the first time; and we marked a century since the end of WWI. Although not quite as momentous an event, a downwards trend in the number of advisers in the industry was confirmed.
Until the second half of 2015 the net change in the number of registered financial advisers remained fairly consistent. From then on however, the net change in advisers has varied considerably and there’s been a net loss in advisers for each six-month period in the past 18 months. This is a remarkable shift, suggesting that the number of advisers working in the industry is in decline, at least for the short to medium term.
In July this year, CoreData looked at the ASIC adviser register and spotted a significant difference in the number of advisers joining the register for the first time and advisers who left the register, over the three-month period to July. This new data establishes that the trend does hold for longer than three months and in fact the number of advisers joining the system, net of those leaving, is plunging further into the red.
Shifting Structure of Adviser Networks
Even more interesting are the trends in terms of licensee size. Over the past five years, there’s been a marked decline in the proportion of advisers working for the Big Five-aligned advisers (see note).
The data also shows a leap in the number of advisers working for mega firms around the end of 2016, after which it stabilised. The number of advisers working for small, micro and sole-practitioner licensees has increased steadily over the 24 months, generally, it seems, at the expense of the Big Five. Since the start of 2014, the share of advisers working at Big Five firms has fallen 21.2 per cent while the share of advisers working for small, micro and sole-practitioner licensees has increased 54.3 per cent, 69.7 per cent and 268.3 per cent respectively.
The numbers Mason, what do they mean?!
In a word, change. The two charts are linked intuitively but illustrate separate factors. The decline in the number of advisers over the past two years or so hasn’t been matched by a corresponding drop in demand for advice. The issue is with advisers leaving the industry, rather than a marked decline in advisers joining the industry. The FASEA educational standards reforms seem to have turned up the heat on advisers, with many declining to go back to school in favour of simply leaving the industry altogether. At the start of 2019, 2020 and 2021, increasingly tighter standards will be enforced and so some of those unwilling to meet the new standards may see now as their best opportunity to leave the industry. Expect the increase in number of advisers leaving the industry to continue as these deadlines loom larger.
The shift in the structure of the industry may be heralding a new era of financial advice in Australia, with sole-practitioner licensees occupying the field once dominated by the big players. The reputational fallout of the Royal Commission has been significant, and advisers feel the need to distance themselves from the brands making headlines.
The trend towards smaller licensees, pre-dating the Royal Commission, may be driven by those inside the industry seeing the writing on the wall. On the agenda of the Royal Commission is a look at the implications of sole-practitioner licensee practices; the findings on this will spur or curtail the shift towards smaller players.
Will these changes bring about better, cheaper services? We’ll have to wait and see.
Note: Advice firms are classifed according to adviser numbers, as follows:
Mega: greater than 200 advisers (excluding Big Five)
Large: 51 – 200 advisers
Medium: 21 – 50 advisers
Small: 6 – 20 advisers
Micro: 2 – 5 advisers
Sole practitioner: one adviser