The decline in the number of active and productive financial advisers has been overestimated, but their ongoing departure from the sector will continue to create an advice gap as larger superannuation balances push more people to seek advice, a financial services consultancy has claimed.
In recent commentary released by NMG Consulting, wealth management principal consultant David Hutchison said of the 23,000 individuals on the Australian Securities and Investments Commission (ASIC) Financial Advice Register (FAR), more than one-third were not practising as advisers or were ‘non-productive’, and their departure is unlikely to add to a gap in advice.
“Our model indicates that of the 23,000 individuals on ASIC’s FAR, approximately 6000 are not currently practising as traditional financial advisers (they are generally timeshare salespeople, forex traders, et cetera). As these people leave the industry, there is almost no impact on the supply of traditional advice,” Hutchison said.
“We estimate there are almost 3000 ‘non-productive’ advisers in the industry who focus on servicing the relatively old grandfathered books and often with grandfathered revenue streams. Many of these started in the industry as tied agents, have relied heavily on commissions and are not willing to change their business model to meet the future requirements.
“Their clients have typically already received most of the value they were going to get from advice, unless and until they have a significant change in their financial situation. As a result, they are realistically already unadvised and do not contribute to an advice gap.”
According to Hutchison this leaves 14,000 advisers who are ‘productive’ and modelling conducted by NMG Consulting estimated this number will decline by 3000 by 2025, driven by education and professional standards requirements.
“There is the direct impact of FASEA (Financial Adviser Standards and Ethics Authority) – both the more immediate impact of needing to pass the exam by the end of 2021 and the upcoming qualification requirements by the end of 2025,” he said.
“Our interviews with productive advisers indicate 5 to 10 per cent are expected to exit due to FASEA by 2025, but for many that is simply setting their retirement date a few years earlier than it otherwise would have been.”
Despite the predicted lower decrease in the number of advisers currently servicing clients, Hutchison expects the advice gap will still continue to grow as more people accumulated larger personal wealth and superannuation balances.
Using adviser and licensee data from ASIC and NMG Consulting’s in-house modelling, he said the gap of 2.3 million households seeking advice from 14,000 advisers in 2020 will increase to 3.1 million households seeking advice from 11,000 advisers in 2025.
“At a high level, demand for financial advice is relatively straightforward – a growing population and rising wealth (largely due to higher super balances) with more complex financial needs sees the future demand for advice continue to rise,” he said.
“With the propensity for advice firms to be cross-subsidised by product revenues decreasing, and the cost of providing financial advice rising, those who can get advice are likely to be wealthier households who can afford to pay for the pleasure creating a growing number of unadvised people who could really do with some advice.”
