The Financial Adviser Standards and Ethics Authority (FASEA) educational requirement is the main driving force behind adviser exits from the financial planning industry, recent data has revealed.
According to data obtained by financial planning practice sales broker Growth Focus, FASEA’s exam requirement has triggered early retirement for many advisers, driving the sale of many small and medium-sized financial planning practices, and is the most common reason provided by advisers for choosing to leave the industry for another career.
“As a professional with decades of experience in your industry, would you be willing to study the basics as a formal requirement? Unfortunately, the answer is ‘no’ for owners of established small and medium businesses. They would rather exit and leave the industry than requalify,” Growth Focus managing director Steven Fine said.
“It’s clear that FASEA has had a bigger impact on smaller businesses. Some senior managing directors have indicated to us that although they themselves are not going through the education program, they are in a position due to the size of their business to effectively manage the business without providing direct advice themselves.
“It’s logical for small practices to leave the industry as they are not as equipped to handle industry changes, from education standards and licensing fees to compliance requirements and insurances.”
The Growth Focus data also revealed reasons for selling varied depending on the structure of the financial planning business.
“Illness is a key trigger for sole owners because there is no one able to take up the reins, resulting in more pressure to act decisively about a sale. The same thing applies when the single owner is under financial duress. The data also shows that succession is more prevalent in partnerships over single owners, and large businesses over small operators,” Fine said.
“Retirement among the single owners showed significantly higher as a percentage compared to the larger practices in partnerships. This is because in partnerships, both partners must be retiring simultaneously for retirement to be the cause of a sale.”
According to the Adviser Ratings “Adviser Musical Chairs Report” for the June quarter, the number of financial advisers had dropped since March, contributing to a significant increase in advised wealth that had transitioned between advisers over the past financial year.