While 15 per cent of advisers left the industry in the first ten months of 2019, new research suggests the government’s announcement of an extension to adviser education requirements has temporarily stalled the rush to exit.
The Adviser Ratings 2019 Australian Financial Adviser Landscape Report says the reprieve for advisers – announced by the Assistant Minister for Financial Services, Jane Hume, on August 30 last year – has quelled concerns and eased the urgency advisers felt to meet the mandate.
The extension pushed out the adviser exam deadline 12 months to 1 January 2022 and the education deadline out two years to the start of 2026.
“There was a marked slowdown in Q3 following the government’s announced extensions for advisers to meet the [Financial Adviser Standards and Ethics Authority] deadlines,” Adviser Ratings CEO, Mark Hoven, says.
In a related study, the Q3 Adviser Musical Chairs Report, Adviser Ratings said the “regulatory reprieve” could be a “handbrake” on the rush of advisers leaving the industry.
“Our latest research provides a much clearer picture of the education gap confronting the advice industry, and it’s not as bad as some of the commentary suggests,” the Landscape report states.
They 90 per cent pass rate for the early exams gave advisers confidence, the Landscape report noted, as did the realisation that 18 per cent of advisers already met the qualification standard and 42 per cent only needed to complete four subjects.
Hoven notes, however, that while the extension has marginally alleviated adviser anxiety, finalisation of the legislation has been pushed out to 2020. The bill still needs to pass both houses of parliament for the legislative measures to be ratified.
“Should the government legislate the proposed 2021/2026 FASEA deadline extensions next year, more advisers may choose to stay and study,” Hoven says.
While the education standards played a major role in adviser anxiety in 2019, this was far from the only headwind. Around half the advisers who ceased authorisation in Q3 2019 were already appropriately qualified, the Musical Chairs report notes. “These results on their own indicate it would be difficult to blame the heightened regulatory qualification regime exclusively for adviser cessation at this point.”
The Hayne royal commission contributed as much to the adviser haemorrhage in 2019 as the new education standards, with the final report’s recommendations sparking an end to grandfathered commissions in 2021 and furthering the big banks’ and AMP’s exit from wealth management.
Adviser numbers dropped from 28,365 in December 2018 to 24,403 by end November 2019, according to the Landscape report. “We feel stronger in our conviction of an advice market heading towards net 15,000 advisers”.
The amount of capital that will need to transfer out of adviser control at $900 billion, the Landscape report estimates. “The exits in 2019 were higher than we originally forecast.”
While thousands left the industry in the period, new entrants flat-lined. Only 33 new advisers were recorded in 2019 up to September, compared to 4,888 in 2018 (though that number was inflated by an influx of advisers becoming authorised before the professional standards deadline), 2,335 in 2017 and 3,874 in 2016 (refer below).