An international wealth manager has predicted the Australian financial advice industry will suffer a further significant reduction in size during the next few years due to certain market pressures.
“In a recent survey from Wealth Insights Australia, one-third of advisers reported that they would leave the industry within the next year or two. This is a frightening reality and shows the impact of the last 10 years on the advice market in Australia,” Allan Gray Australia chief operating officer JD de Lange said.
A number of factors currently affecting the financial advice sector in this country have been identified as the critical factors that will trigger additional exits from the industry, such as the new educational standards, a depreciation in the value of financial planning practices and ongoing revenue pressure.
According to de Lange, advisers are now feeling under constant threat as a result of these elements creating an environment that makes it very difficult for the sector to grow.
“There are about 10 per cent fewer advice clients than five years ago, which has created fee pressure for advisers. As a result, advice has become extremely expensive even by Australian terms,” he noted.
“In an asset-based-fee world, the discussions were more investment focused and price was a function of assets under management. Today an advice plan needs a structuring fee and an ongoing management fee, both based on the value proposition offered by the adviser.”
On a positive note, he recognised financial advice provided now is of much higher quality, which bodes well for the industry’s future.
Global Adviser Alpha founder David Haintz suggested practitioners need to revisit their business models with a view to making significant changes in order to successfully adapt to the sector’s new dynamics.
“Advisers need to change their perspective. They are giving away what they should be charging for and charging for things they should be giving away,” Haintz said.
Further, he pointed out this required a shift away from product-based advice.
