Advice in 2021, part 4: the adviser exodus

Around 2,500 advisers are estimated to have left the industry in 2020, according to data compiled by Adviser Ratings over the course of the year, leaving a population of around 20,500 advisers remaining. With FASEA’s exam and educational standards yet to come fully into force, there’s every chance we haven’t seen the worst of what is being termed the ‘adviser exodus’.

“We are going to see more advisers leave the industry,” Synchron director Don Trapnell says.

“Having said that, I detect the winds of change starting to happen in government and ASIC circles, so maybe the pendulum has swung a bit far and is starting to swing back.”

It’s true that Minister for Superannuation, Financial Services and Fintech Jane Hume spent a great deal of 2020 expressing to advisers that she felt their pain about the regulatory burden that had been placed on them and was seeking to make things simpler.

However, Countplus chief executive Matthew Rowe is doubtful any government intervention will prevent a number of what he calls “extinction events” for the advice industry in its current form.

“Generally there’s still some pain to come and dislocation,” Mr Rowe says. 

“I think there's some extinction events and that’s around the education standards and the exam, and there’s also a big shift in the financial dynamic in terms of the economic drivers of advice with the banning of grandfathered commissions and rebates coming off.”

Mr Rowe predicts there will be between 15,000 and 17,000 advisers left by the time the new FASEA exam deadline of 1 January 2022 rolls around.

“Given that there’s a couple of thousand licensees, I think there will be consolidation,” he says.

“We’re going to shrink and I think the next three to five years will be a time of significant contraction before we start to see any growth in financial advice. There will be a lot of people losing their jobs because there’s a lot of people in the ecosystem like BDMs and product people, and they are going to be competing for a much smaller pool of advisers.”

Madison Financial Group chief executive Annick Donat believes adviser numbers could dwindle to as low as 14,000 when the full range of standards come into force in 2026, which is extremely concerning for the large number of clients likely to be left orphaned.

“What happens to those businesses, but more importantly what happens to those clients?” Ms Donat says. 

“The 60-year-olds and 70-year-olds who have been with an adviser for 30 or 40 years and say ‘yeah I get you’ve got someone else in your business, but you were there when I got married, you were there when I had my first child’, what happens to them?”

The exodus is exacerbated by the fact that the pathway into the industry is now extremely complicated, with few licensees set up to employ graduate advisers for their professional year. 

FASEA figures provided to ifa in September 2020 revealed that just 150 new advisers were enrolled in PY programs, and few firms are prioritising this for the new year with so much else on their plate, Sequoia Financial Group managing director Garry Crole says.

“The advisers are hoping that the licensee is going to be providing the professional year, but if you’re needing to replace 3-4,000 advisers leaving over two years, the licensees don't have the scope to provide professional years for that level of entrant,” Mr Crole says. 

“We might do 5 or 10, but you’re going to have a big shortage of advisers. Practices with four or five authorised reps can look to do that themselves, we will support them but they need to do it themselves if they are going to bring people through their business.”

With simplification of the regulatory regime for advisers on the agenda for both the government and ASIC in 2021, Ms Donat says eliminating duplication within the many new laws that have come into force since the royal commission is key to getting more advisers to stay in the industry.

“If we stopped and said ‘how do I get this client to know it’s going to be okay’ and build the legislation from that, we would be in a better position,” she says. 

“But that’s going to take courage, it’s going to take a really brave person, whereas I think now we have too many things to decipher and they don’t connect.”