CoreData’s head of market insight, Simon Hoyle, looks at 2019 through the lens of a data aficionado and comes up with the ten charts that tell the story of the year in wealth management, superannuation and investment.
From adviser migration to licensee satisfaction, BoJo and Trump to foxes and oxen, Hoyle takes us through the highs and lows of a year in the industry that will long be remembered.
1. Industry fallout
New education, professional and ethical standards were widely tipped to be a factor behind advisers leaving the industry. So the logic went, a cohort of advisers would find the task of upgrading qualifications unpalatable, impossible or impractical. A benchmark of sorts exists in the UK, where an estimated 20 per cent of advisers left the industry after the Retail Distribution (RDR) regulatory overhaul. CoreData’s analysis of the Australian Securities and Investments Commission’s financial adviser register suggests that in 2019 about 15 per cent of advisers – that’s around 4200 individuals, a rate of around 350 a month – have left the industry. We believe this trend is likely to continue into 2020.
2. The adviser shuffle
Advisers are not only leaving the industry, they’re also moving between licensees. CoreData’s “lap chart” analysis of the 50 largest licensees (as at October this year) shows the rankings of these licensees (based on number of authorised representatives) has been reshuffled considerably since 2016. The biggest players three years ago remain the largest players today but there has been significant action among the smaller licensees where adviser movements and departures have led to a change in the pecking order.
3. Can’t get no satisfaction
Advisers’ satisfaction with their licensees took a hit this year. CoreData’s 2019 Licensee Research uncovered deep and strongly felt dissatisfaction among advisers authorised by institutionally branded licensees, and a smaller fall in satisfaction among advisers authorised by institutionally affiliated licensees. So-called independent licensees, on the other hand, fared well, with advisers reporting levels of satisfaction with all aspects of the licensee offer on a par with previous years. This may in part explain why advisers, when or if they leave an institutionally branded licensee, are more inclined to head down the independent-licensee or own-AFSL route. Based on what advisers had to say about their respective licensees, CoreData this year announced NAB Financial Planning as the Institutionally Branded Licensee of the Year; Matrix Planning Solutions as the Institutionally Affiliated Licensee of the Year (and also as the overall Licensee of the Year); and Sentry as the Independent Licensee of the Year.
4. Trust is hard to win back
A dominant theme through 2019 was the impact on public trust in financial advice caused by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Before the royal commission swung into action, trust in financial advice stood at 60 per cent*. As public hearings into advice got underway, and misconduct was given a very public airing, trust plummeted, to about 35 per cent. Since then, more than 12 months ago, it has struggled to recover. Preliminary results from CoreData’s Q4 2019 Trust Survey show it stubbornly stuck around the 39 to 40 per cent mark.
5. BoJo and Trump
Research with high-net-worth individuals during 2019 has uncovered the things that wealthy individuals think about – and will be thinking about – as they make investment and portfolio construction decisions in the year ahead. Australia’s rich are more likely to be driven by external forces than internal. Trump’s Presidency, particularly given the ongoing impeachment inquiry, and the ability of Boris Johnson to lead a successful Brexit in the UK have also contributed to the global risk environment and are cited as key influencers of HNWI intentions in the next 12 months.
6. Industry funds headed for the top
Sometime probably during the third quarter of 2020, a shift will take place in the balance of power in what will by then be the $2.9 trillion superannuation system. Industry super funds will overtake self-managed super funds (SMSFs) to become the largest industry sector.
Industry funds overtook retail super funds during the first half of 2018, and SMSFs are the next target. Analysis by CoreData suggests the assets of industry funds will draw nearly level with SMSFs in June next year. By September, assets of industry funds will exceed SMSFs by about $10 billion, at which point it looks like game over. For a live version, visit here.
7. A clear winner in the super fund wars
At CoreData we’re constantly analysing the super industry in new and interesting ways.
Our animated forward projection out to 2030 shows there is likely to be a clear winner in the super wars. An industry once dominated by retail funds primarily distributed by financial advisers will soon be dominated by a handful of mega industry and public sector funds. And the historical industry leading fund will disappear from the top ten altogether.
8. Accountants should be gearing up to deliver advice
Demand for financial advice is on the rise, and it may be accountants who move to satisfy it. A report published by CPA Australia (in conjunction with CoreData), My Firm. My Future., reveals that two in five (38.3 per cent) small and medium-sized businesses currently receive financial advice from their accountant, and a further one in four (24.9 per cent) would like financial advice to be provided by their accountant within five years. Around half (49.4 per cent) of consumers who have a relationship with an accountant already receive financial planning and advice services from their accountant, and about one in three (34.6 per cent) would like their accountant to provide financial planning and advice services within the next five years. Accountants are often spoken of as being a source of new financial advice capacity, and demand for the service from existing clients underlines this.
9. Are you a fox, ox, island or cruiser?
One thing made clear by CoreData’s work during 2019 is that not all advice practices are made equal, and not all are equally well equipped to flourish in the new world of financial advice. Early in the year CoreData produced a segmentation model dividing the advice practice universe into four segments: Foxes, Oxes, Islands and Cruisers (OK, we know the plural of “ox” is “oxen”, but sometimes the rhyme is the most important thing). Each segment has its own set of challenges, and survival is not guaranteed for any business, but the challenges for some will be greater than for others. One of the principal characteristics of Cruisers, for example, is a heavy reliance on grandfathered conflicted remuneration, and large books of clients who are not provided ongoing services.
10. The future is bright
It’s been a tumultuous year, and we have no reason to suppose 202 will not be just as challenging for advisers and advice businesses. But through it all, we should never lose sight of the fact that financial advice is a valuable and service. CoreData’s work with clients and consumers over 2019 underlined again and again that the benefits of financial advice for individual Australians are real, and tangible. The upheaval taking place in the industry now and into the foreseeable future is disruptive and traumatic for many advisers, but it will not undermine that basic, fundamental fact.
* The trust score is the percentage of people who, on a scale from zero to 10, where zero means “no trust” and 10 means “total trust”, rate their trust in financial advice as six or higher.