There is a cautiously optimistic view emerging that the advice sector may be starting to emerge from the nadir of the Hayne royal commission and its aftermath.
Despite significant prevailing issues within the industry, the Adviser Ratings Musical Chairs Q4 report notes a “core of advisers that are excited and motivated about what the future brings”. In one Adviser Ratings survey of practice owners, 65 per cent said they were growing client books and 55 per cent expected to grow adviser numbers “either organically or through acquisition”.
A confluence of factors are building on this narrative, starting with an acknowledgement from regulators and policymakers that the compliance burden on advisers needs to be reassessed. ASIC took a new tone when it asked advisers for help in fixing scaled advice, and financial services minister Jane Hume not only endorsed the consultation but rallied the adviser troops to get involved.
The adviser cohort itself is also well on its way to crossing a significant threshold on its path to professionalism; in less than 11 months all licensed advisers will either be exam-qualified or out of the industry.
According to Adviser Ratings there has also been a significant slowdown in adviser movement, with less advisers switching or ceasing licensees in the December quarter than any quarter stretching back to early 2019. While this may be linked to the “purges” from AMP and ANZ “flaring out”, it could also be a harbinger of a return to relative stability.
Consumer demand is also increasing, the report states, fuelled by peoples’ anxiety about their finances amidst the pandemic. A corresponding decrease in supply – adviser numbers have dropped from a high of 30,000 to under 21,000 – also “augers well for advisers who choose to stay”, it states.
On the finance side, investors are betting vast tranches of capital on the sector; US suitor Ares reportedly offered $6.4 billion for AMP’s ailing wealth network and the Italian-backed AZ NGA continues to build market share, while domestic players like CountPlus are heavily invested with their converged advice and accounting partnership model.
Advice mergers and acquisitions experts uniformly agree the “strong middle” section of advice ownership will continue to consolidate in 2021.
Anecdotally, there has also been a noticeable decrease in adviser breach notices coming out of ASIC in the last months. Whether this correlates with the exodus of advisers that aren’t interested in completing the education and ethics mandate, or its just a function of the summer slowdown, remains to be seen.
Long term, good thing
According to Adviser Ratings CEO Mark Hoven all of these positive factors point to an industry starting to find its feet again. Despite the tendency of media – and social media – to focus on the negatives, there is a lot to be positive about.
“The stuff that we always hear is from the minority of people who are very vocal about what’s wrong in the industry and what needs to change,” he tells Professional Planner. “And while they have legitimate concerns the silent majority are just getting down and getting on with it.”
Hoven agrees that the positive signs shouldn’t obfuscate the remaining issues, which include the problematic nature of life insurance advice and scaled advice, the stubborn discord between how licensees and regulators view compliance and the gap between the cost of advice and what consumers are willing to pay for it. Add to that the tenuous commercial viability of large licensees and the question of how dependent these are on subsidies to survive.
Then there are more foundational issues, like whether the AFSL system is the best base with which to regulate the advice industry, plus the simmering debate around conflicts and the application of asset-based fees.
And it can’t be forgotten that many of the royal commission’s reforms lay in wait, delayed by competing priorities in the pandemic. Disruption is far from over.
Yet there are just as many green lights as red for the advice industry in 2021, and the most important of these relates to how consumers view the service.
Hoven says the increased demand for advice is connected to a feeling of economic “fragility” in the community, which should spur consumers to test the waters with simple advice requests that could lead to more concerted relationships. More broadly, this could mean an accelerated timeline for advisers to win back trust.
“Lots of advisers are switching to fixed fees so there may be an element of sticker shock for some of these people, but there is a growing awareness of the advice industry in the community and an increased desire from consumers to take control of their finances,” he says. “Long term, that’s a good thing.”