Viability of advice businesses a key concern for sector moving forward

Speaking at the Adviser Innovation Summit 2021, Samantha Hawkins said decreasing adviser numbers and low numbers of new advisers entering the industry, as well as increasing compliance and regulatory obligations are all affecting the profitability of businesses.

“The significant impact is the viability of businesses going forward,” Ms Hawkins said.

“How many of those businesses will continue to be a viable option for the owners?”

A study Praemium undertook last year alongside Business Health noted a 41 per cent decrease of profitability in businesses, which was a “significant decrease” on previous years.

The research also found that notional profit of most advice practices on average is around 28 per cent.

“We are aware of the ever-increasing and changing impact of compliance and regulatory burdens on efficiencies of business and the amount of time that advisers have to spend on that, rather than actually spending it with their clients,” Ms Hawkins said.

“But we’ve also noted in research recently is that the number of platforms advisers are using has actually increased. On average, advice practices are using 2.6 platforms and that’s increased over last four to five years from 2.1. So, sort of going the wrong direction from an efficiency point of view.”

Speaking to ifa last week, adviser and founder of Australian service On Your Own Two Feet, Helen Baker, said the “over-regulation” of the advice sector is impacting financial planners’ mental health and driving them out of the industry.

“Over-regulation is putting an enormous amount of pressure on advisers’ mental health issues, the single adviser operation is being forced to merge, and many are leaving the industry due to the financial pressures, study pressures and increased CPD demands,” Ms Baker said.

“The increased regulation means advisers have less time in front of clients, plus increased costs to the practice including the need for more back-office support.”

Meanwhile ASIC commissioner Sean Hughes defended a number of regulatory changes introduced last month, which received criticism for all taking effect at once.

“These laws are not ‘set and forget’, but reflect changing consumer and community expectations, as transmitted through the Parliament,” Mr Hughes said.

“Instead, with ongoing experience and engagement, the benefits will accrue over time.

“We hope this consumer-first mentality will become second nature for all participants in the financial markets.”

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.