Small independent and self-licensed firms are set to fall by the wayside as the industry grapples with “massive change and disruption”, according to Mark Hoven, chief executive of Wealth at Adviser Ratings.
Hoven pulled no punches in his assessment of industry trends during a pre-recorded presentation for a virtual reality conference this morning hosted by Planet of Finance.
“I expect seeing an upsurge in discontinued licensees, particularly for those younger licensees that have over-committed,” he said.
The genesis of Hoven’s prediction lies in the “adviser migration out of the mass institutions and into private licensees”. There are now 28,000 listings on Australian Securities and Investment Commission’s financial adviser register, he noted, and eighty per cent of licensees established in the last 12 months having five or fewer advisers.
Hoven said he was particularly interested in “the continued growth in self-licensing in the last twelve months.”
“Many of them are advisers escaping the institutional licensees and choosing the extreme alternative. I wonder how long this trend will continue,” he said.
Conditions will tighten for these advisers, according to Hoven, as headwinds become “immense” and many struggle to remain viable.
Small and self-licensed firms are not the only ones under threat, however.
Hoven quoted Macquarie, who recently forecast total advice remediation at the big six institutions at $11 billion, calling the figure “truly nightmare material” and suggesting that mid-size firms will come under scrutiny next.
“What are their liabilities, and what have they provisioned for?” he asked.
Small and self-licensees may escape the regulators gaze, Hoven continued, but the question remains: “Would they survive an inspection?”
ASIC are primed to tighten the clamps on advisers in the wake of the Hayne Royal Commission, he warned, especially after Treasurer Josh Frydenberg allocated $400 million to the regulator, whose new motto he said is: “why not litigate?”
The areas ASIC will focus on “shouldn’t surprise anyone”, he said. These include conduct and culture, financial stability, supervision, technology investment, balanced scorecards, fast growth, high staff turnover, license variations, together with “patchy” fee disclosure statements and fee-for-no-service practices.
Hoven said he was fascinated by what was happening in the licensee and dealer space, and added that some licensees were “peddling misinformation”. The good ones, however, will build out their value proposition by unbundling services and fees around user-pays models. This unbundling will be key, he believes, as advisers look for licensees that divide services into “component modules” and let them create their own best-of-breed solutions.
“Various models are emerging, but at the heart is a steady unbundling of services and fees around the flexible user pays model.”