Economists are warning that Australia is at a heightened risk of a recession this year as the RBA keeps on track with aggressive interest rate rises, but for advisers it will be Business As Usual.
Economic growth will continue to slow through 2023 under the impact of rising interest rates aimed at curbing inflation, Commonwealth Bank’s (CBA) economics team announced in February.
With consumer sentiment falling, house prices to continue to weaken and the first signs of a spending slowdown emerging, CBA’s economists expect interest rates will have to be cut by Australia’s central bank in the fourth quarter of this calendar year to help avoid the prospect of a recession, commonly known as a ‘hard landing’ for the economy.
A recent KPMG survey of financial services CEOs found that while many (89 per cent) agree that a recession is inevitable, the majority (57 per cent) believe the recession will be mild and brief.
What all of this means for the financial advice sector is more difficult to predict. While a recession will no doubt mean advisers will need to spend extra time reassuring clients that their investments are in safe hands, there does appear to be a fair degree of optimism out there that financial planners won’t lose much business in the event of a recession.
Verse Wealth CEO Corey Wastle argues that the need for financial advice is driven by life events and change of circumstances. He doesn’t expect his firm to be impacted by a recession.
“We have been through Covid-19 and the years that followed, and it wasn’t our advice that people sought less advice,” he says.
Regardless of the economic situation, Australians still need financial advice and much of advice is driven by life events, change of circumstances or people just want a plan or simply make better use of their money, Wastle says.
“People are still having children, starting and selling businesses and still getting inheritances, wanting to invest money and take better control of their spending habits,” he says. “A recession doesn’t tend to impede these things or a major or meaningful way.”
However, he acknowledges that there’s no crystal ball on how hard our economic landing might be, and that advice firms should prepare in the event of challenging times. Having cash reserves is the best risk mitigation strategy.
“We tell our clients they need to have expenses put aside for rain days, I think financial advisers should take the same advice,” Wastle says.
Gianna Thomson, senior financial adviser at Fitzpatricks Private Wealth also admits to not being concerned about her business in the recession. “I have a strong, growing business with cash reserves and a succession plan in place for myself as the lead adviser, administration services and staff,” she says.
Financial adviser Marisa Broome of Wealth Advice agrees. She doesn’t think that advisers will feel the brunt of the recession because it’s somewhat insulated due to there not being enough financial planners to service the market as it is.
“Everyone I know in the industry is run off their feet,” Broome says. “The recession is coming right at the time when baby boomers are retiring and the need for our service has grown. It’s impossible not to be doing okay.”
However, advisers would be wise to ensure that technology is making the cost of doing business more affordable and that there’s cash reserves in the business, she says.
Wealth Planning Partners director Amanda Cassar hopes that amping up low cost marketing efforts, like social media and appearing in free online directories will insulate her firm from being impacted.
“We will also take more time in the coming months to invest in our YouTube channel so that those seeking it online can know, like and trust us even before engaging with us,” Cassar says.
