Andrew Inwood

The advice profession needs to grow significantly and lift its productivity substantially to meet booming demand for financial advice as a wave of intergenerational wealth transfers begins to break.

CoreData Research founder Andrew Inwood told the 2024 Vanguard Adviser Roadshow in Sydney on Thursday morning that without productivity improvements Australia will likely need more than twice as many advisers as it currently has to service an estimated 1.7 million new clients.

Inwood said that as an unprecedented amount of wealth changes hands in coming years, without access to advice that transfer will be unplanned, chaotic, and most likely inefficient.

He said estimates of the true value of the wealth set to be transferred are necessarily rough, because much of it cannot be seen or measured. For example, wealth tied up in businesses, collectibles, art and home contents is almost impossible to accurately quantify; housing prices can be estimated at best.

Inwood said it is likely the total amount of wealth set to shift between generations is comfortably above the $3.5 trillion commonly suggested and the figure is probably closer to $4.9 trillion.

He said the size of the mass-affluent market for advice is about 11.2 million people. Right now, an estimated 12,150 fully active financial advisers each serve an average of 130 clients, collectively advising around 1.6 million clients. If only 30 per cent of the 11.2 million mass affluent individuals seek advice, that leaves 1.8 million potential clients for advice – implying the need for around 13,800 new advisers, which is more new advisers than there are current advisers.

Clearly, no adviser is going to enter the profession with 130 clients on day one, and Inwood said existing advisers need to increase productivity significantly to help address the advice gap.

Look to the UK for clues

He said the experience of advisers in the UK, where the market is about 10 years past its equivalent of the Hayne royal commission, suggests that significant increases in productivity are achievable.

Inwood said that even though the level of fee income per client is about the same in Australia and in the UK, advisers in the UK typically have a relationship with only one platform, whereas in Australia advisers use on average two or three.

UK firms tend to employ technology staff whereas in Australia tech relationships are typically outsourced; the digitisation of UK advice businesses is nearing its conclusion, whereas in Australia it is just starting; and in the UK the cost to serve client is falling whereas in Australia it continues to rise.

As a result, advisers in the UK serve an average of 228 clients each, and in Australia it’s only 144.

It is likely the clients of the future are the children of existing clients, Inwood said. Cultivating this group requires a different approach from how their parents have been served.

“Trust is layered, and it takes time,” he said.