One swallow doesn’t make a summer, but there are some interesting and slightly disturbing figures emerging from a CoreData analysis of the ASIC financial adviser register.
Looking back over the June quarter of this year we’ve found that the financial planning industry is attracting about one new entrant for every two advisers who leave it.
Let’s be clear that there are two lenses we should apply to this finding: one, we don’t know why the people are leaving or if they will be back; and two, this is only three months’ data, so it’s hard to get too excited. But it’s worth paying attention to because, over time, we will get better data and a better understanding of what is going on.
So three months is a short timeframe, but if the figures hold up, they raise some big questions about how the growth plans of financial planning licensees can actually be achieved, and just how the industry will address its dwindling numbers as barriers to new entrants rise.
The ASIC data shows that between April 1 and July 1 this year, a total of 957 advisers’ names were removed from the ASIC register, and only 463 new names were added to it, for a net loss of 494. The register contained 24,799 names as at July 1.
This data does not track movements of advisers between licensees – licensee switching has no effect on the overall size of the industry. Instead, it shows which licensees succeeded in attracting first-time advisers to the fold and which saw representatives leave not only their licence but also depart the ASIC register.
So being crystal clear, an individual whose name is not on the register cannot give personal financial advice to retail clients and has therefore left the industry. They might have moved to insurance, or banking or selling gift hampers, but they cannot legally give advice.
So the industry is shrinking and relatively quickly – on this data it’s losing net about 2 per cent of its registered planners every quarter even BEFORE the new standards come in. In the UK when the Retail Distribution Review (RDR) hit, about 20 per cent of advisers left the industry, and that’s something it’s never really recovered from.
So we understand the push factors – advice is now too hard, it requires too many qualifications (for some) and there is too much scrutiny – but where’s the pull? What is the lure for people who genuinely want to help people have a better financial future?
For Licensees seeking growth, and by that we include industry superannuation funds who are seeking to manage their members through the process from saving to spending, this means that they will increasingly be forced to compete for a smaller pool of qualified and interested recruits.
The hidden bomb we are not sure how to talk about
The picture may in fact be even worse than we think it first appears, because while more than 460 first-time names were added to the ASIC register in the June quarter, almost 100 of them were as authorised representatives of Wyndham Vacation Clubs South Pacific, which is not a financial planning licensee in any generally accepted sense – they sell time share resorts.
It’s a quirk of the legislation that timeshare schemes are a type of managed fund and scheme operators must hold an Australian financial services licence. It means that someone who is a professional financial planner with 20 years’ experience and charges a fee for service is licenced in the same category as someone selling timeshare accommodation.
I don’t want to for one minute say anything bad about people selling timeshare accommodation, but it’s worth noting that one of Wyndham’s “advisers”, Cymon Fontaine, was jailed last year for four years for fraud and had previously been jailed for drug trafficking.
Wyndham, part of the NYSE-listed Wyndham Hotels & Resorts Inc, boasted about 400 authorised representatives at July 1, and develops and markets “flexible, points-based holiday ownership products”.
Under this model, clients buy points or “credits” from Wyndham and use them to buy different levels of membership. The level of membership determines the member’s privileges and benefits and allows them to use credits to stay at a range of resorts or hotels around the world.
Three other holiday resort or timeshare promoters made the top 20 licensees for attracting new advisers: APVC, part of the Accor hotel group, attracted seven newcomers to lift its numbers to 65; Ultiqua Lifestyle Promotions attracted seven to reach 53; and Classic Clubs attracted four to reach 73 representatives.
New standards not yet in play
Until January 1 next year it is still possible for newcomers to the industry to get onto the ASIC register without holding an approved tertiary qualification, providing a window for licensees to attract new representatives to the fold. But after that things get substantially tougher: all individuals on the register have to meet new industry-wide continuing professional development requirements; they have to sign up to a scheme to monitor their compliance with an industry-wide code of ethics by January 1, 2020; and they will be required to sit and pass an exam before January 1, 2021. And perhaps the biggest of all: by January 1, 2024, all existing advisers must hold an approved bachelor’s or higher, or equivalent, qualification. It is not certain how many representatives of the time-share licensee cohort will seek to comply with all of these new requirements.
Accountants form a significant source of new recruits to the financial adviser register, with SMSF Advisers – the licence owned and operated by the National Tax and Accountants Association (NTAA) – attracting double-digit numbers of advisers, mostly accountants seeking to continue providing advice to clients setting up self-managed superannuation funds (SMSFs).
GPS Wealth and AMP Financial Planning also attracted double-digit numbers of first-time advisers to their ranks, but on the flipside, AMP saw more than 50 of its advisers leave and depart the ASIC register. About the same number of Count Financial advisers also departed, along with more than 40 Commonwealth Financial Planning (CFPL) advisers.
Thirty-three Dover Financial Advisers representatives were removed from the register – even before the company announced it was shutting down its licence and revoking all of its advisers’ authorities.
And spare a thought for the three individuals who joined the ASIC register for the first time during the three months to the end of July, and selected Dover as their licensee.
In coming weeks we’ll take a closer look at the movements onto and off the adviser register to see if we’re actually witnessing a longer term trend and whether the financial planning industry is as dire a position as it appears from the past three months’ figures.