Advice will thrive and here’s why

Dubbed The Great Resignation, record numbers of people around the world are waving goodbye to their jobs having realised that, for them, enough is enough. The implications for business leaders are great, with many having to think about putting their growth plans on ice just as they were finally getting back to resurrecting their businesses.

The predicament is much the same in the advice industry where the existing adviser exodus is being exasperated by a talent shortage which is now threatening to inhibit the growth of advice firms.

And while the adviser exodus is not necessarily a side effect of the COVID-19 crisis, it definitely signals that advisers too have had enough — enough of the ever-growing regulatory burden that has been a continuous challenge for businesses striving to comply; enough of the vigorous education requirements; licensing and specialisations; enough of being overworked and underappreciated.

And with the Australian unemployment rate falling to a level not seen in over a decade, the skilled labour market is tighter than ever, giving the employee the upper hand in negotiations.

This is an additional, unwanted challenge for advice businesses.

“We have a skills shortage,” Forte Asset Solutions director, Steve Prendeville, told the ifa.

“This is reflective of actions such as limiting onboarding of new clients to one a month or at least working on inhibiting the number of clients that can be taken on. I am aware of many businesses unable to find appropriate resources such as experienced advisers, paraplanners and support staff.

“The search for talent is very competitive and we are seeing wage growth reflecting this. We are also seeing continued growth in outsourcing services being used,” Mr Prendeville notes.

He explained that more and more advice businesses are becoming aware of the need to retain staff, with many opting to engage in remuneration reviews in conjunction with exploring various reward programs and workplace environment tweaks.

“This review is not only about retention but also attraction of talent,” he says.

The end of the talent funnel

While a talent shortage has pervaded almost every industry across the country, Mr Prendeville explains that the exit of banks from the advice space has further aggravated the issue in his industry.

“The banks were the incubators for the industry. They employed a great many new starters and invested heavily in training and education,” Mr Prendeville says.

“Remuneration levels were often higher than the wider market and this attracted talent from other industries without too much lifestyle risk. There was a level of migration of bank-employed advisers after the third to fifth year where their education and experience made them search for more open APLs and new independent experiences for themselves and clients,” he explains.

“Professionals sought excellence and often, this was to be found outside of the Institutional offering. There was also the desire to evolve from employee to business owner.

“Banks are no longer employing advisers and have fully retracted from advice services with the exception of private banking. The talent funnel to independent advice has largely stopped.”

But, according to Mr Prendeville, while the industry has been depleted, it would appear that “the quality of the remaining profession has significantly improved”.

In fact, data from ARdata has suggested that the new face of advice looks markedly different to that of its predecessor, with the remaining registered advisers better educated, more qualified and more likely to “behave in ways associated with quality advice” than those that have left the industry.

ARdata’s scores suggest that 14.8 per cent of current advisers are ‘exceptional’ while only 3 per cent of the advisers that have left the industry received the same rating. Moreover, ARdata rated 26.9 per cent of remaining advisers as ‘very good’ compared to only 11.1 per cent of ceased advisers.

“The great adviser exodus needs to be understood,” Mr Prendeville says.

“The greatest number of exits were accountants who were unable to provide advice with the removal of exemptions. The second were salaried bank advisers and the third were advisers of many years of experience who had practices sub $400k in gross revenue. They were impacted by the removal of grandfathered revenue and/or institutional dealer groups did not see that a sufficient return for risk and licences were withdrawn, clients taken back or sold internally.”

According to him, the smallest cohort to leave was that of “independent advisers”.

“They were simply burnt out by the constant legislative changes and the need to re-engineer their business service offer, pricing, technology, as well as attain educational standards and manage staff and clients simultaneously.

“What we have left are dedicated professionals who have ridden this wave of change, who have invested in their business and themselves, and have reengineered their business to meet clients’ needs and can do so profitably,” Mr Prendeville says.

Jonathan Ayres, managing partner at Koda Capital, agrees.

Flight to quality

According to him, across the board, there has been a flight to quality.

“The epicentre of the great adviser exodus has been in the salaried, or aligned, licensee businesses of the formerly vertically integrated structures of large banks and institutions. Low-quality, product subsidy-aligned advisers have left the industry as the viability of these business models has been questioned and proven to be far from the being in the best interests of clients,” Mr Ayres says.

Much like Mr Prendeville, Mr Ayres explains that one of the positive legacy benefits of the old business models, where large institutions ‘owned’ advice businesses, was that they were great places for talent to get a foothold in the profession, be well-trained and pursue a career path.

“It is increasingly difficult for a small financial advisory business to both provide the structured training required, develop a career path inside the business and retain this talent over the long term to realise their investment in people,” he explains.

The advisory firm of the future, Mr Ayres adds, requires a certain amount of scale to attract, develop and retain high-quality talent.

“At Koda, we have invested in and established an Associate Program, Future Partner Program and Professional Year capability to face into the challenges of nurturing great talent.

“If high-quality talent sees Koda as a desirable place to be well-trained, accumulate great experiences, be mentored by some of the best advisers in the profession and, most importantly, a place for them to enjoy a successful and rewarding career, then the task of finding great talent becomes substantially easier.”

As for Mr Prendeville’s solution to the adviser talent shortage, he notes that introducing accountants to financial planning within the duration of their degree could help “the best and brightest” recognise the opportunities in advice.

“The lack of talent will continue to inhibit growth, but hopefully the best and brightest in accounting and commerce will see the opportunities as we do,” Mr Prendeville says.

“There should be an introduction to Financial Planning in both accounting and commerce degree courses,” he continues.

Firm crafts innovative approach to lure students

Advice businesses are largely having to turn to innovation to secure the necessary talent to continue to service a growing number of advice clients.

And, according to Mr Ayres, innovation in both business model and culture is hugely important.

“Young, dynamic and prospective talent want to be exposed to a challenging but varied environment to feel stimulated to continue growing. If talented people are stuck in repetitive, administrative-only roles with no scope to contribute to the firm’s future agenda, or feel disconnected from the purpose of the organisation, then they will naturally seek an alternative environment for their future,” Mr Ayres says.

“We work very hard on our culture to ensure that our talent feel they are doing important work and are being appreciated and recognised for the work they are doing”.

Another advice business looking outside the box is Templeton Financial Services, which, in a bid to reverse the rapid adviser exodus, has crafted a plan to lure new entrants into the industry from a young age.

Speaking to the ifa, CEO Rob McCann says Templeton Financial Services is launching a program for high school students across a limited number of Sydney schools, a move that is hoped to encourage interest in financial planning.

“We have reached out to schools as well as the Financial Planning Association of Australia, who have been fantastic and given us ready-made presentations to help recruit the next generation of advisers starting from high school,” Mr McCann explains.

According to the financial services professional, ensuring high school students understand the value of financial planning investments and risks is paramount to getting them interested in working in the financial services industry.

“We want to create opportunities for seniors at school level to undertake work experience with our advisers and to explore other opportunities should they want part-time work during their study period,” Mr McCann says.

“The industry must take steps to get school-leavers interested in doing an approved university degree in financial services. All licensees need to become involved and work with the schools and, ultimately, the universities on placement opportunities following graduation,” he notes.

Adviser exodus to persist

While the adviser exodus has seen over 11,000 professionals depart the industry since 2018, Mr McCann believes a further 2,000 to 3,000 experienced financial advisers will leave the industry by the end of this year.

“Templeton Financial Services has business plan objectives in relation to adviser numbers, the quality of those advisers, and the sorts of advice they provide. We will survive and prosper,” Mr McCann assures.

“My concerns are as an industry professional. Our industry was strongest, when we had a large number of competent advisers servicing a growing need for advice. The need for advice hasn’t diminished. In fact, every article I read on this subject is telling quite the opposite,” he continues.

“We have an aging population that is getting closer to retirement, and industry surveys tell us more and more are seeking advice. And what about aged care advice, those who seek their own selfmanaged super fund, want to put funds away for their children or grandchildren?”

And while the Labor government has promised to relax the university education standards for those with significant experience, Mr McCann is concerned about the next generation of advisers.

“Where will the next generation of advisers come from?

“I believe the new entrants’ education standards are fair. If we are ever going to become a profession, we need to embrace these standards while at the same time work towards addressing this important question,” he says.

The greatest problem, Mr McCann says is public perception of the industry and this is where “the real work has to start”.

A perfect example of this warped perception Mr McCann said is a real-life story he recently heard from a fellow adviser. Namely, the adviser shared with Mr McCann that while his son was studying a Bachelor of Finance (Financial Planning) at a local university, getting top marks and winning several awards, the faculty talked him out of completing the financial planning course, and encouraged him to switch to accounting.

“The lecturers at the Uni convinced him he was better off being an accountant than being a financial planner in the current environment”.

Turning to the stringent education requirements in the advice industry, Mr McCann’s is of the opinion that the industry is losing a lot more good advisers than bad as a result of the complex exam.

“All advisers have between 50 and 65 hours of study every year to meet their training plans. Anyone not achieving this go into a remediation situation and get reported to ASIC. So, most are up to date. This leaves the FASEA exam and the 3,000 odd who have not passed the exam, and will be terminated on 30 September 2022 if they don’t,” Mr McCann says.

“I can’t speak for all of these but have been involved with about 15 over the last 18 months who are struggling with this exam. Without exception, they know the Act, FASEA codes, and everything else they are tested on. I can say this because I have sat with them, workshopped with them, and helped them wherever I can. They do many hours [of] study on their own, but because it has been 30 or 40 years since their last formal exam, or nerves, or some other reason, they are not getting through,” he notes.

“I think the new education standards are good for the industry. However, an adviser, who has been practicing for 10+ years, looks after many millions of clients’ money, their families, never had a complaint, and is assessed by their dealer group every year as “competent”, doesn’t need to be tested in the manner this exam seeks”.

Part of the solution, Mr McCann says could be the creation of a forum where advisers can collaborate and potentially draft solutions.

“We still have a lot of work to do as an industry to change the perception of financial planning in the country’s education system and to encourage potential new entrants into the industry. Schools and universities are just one of many avenues in which the industry can do this,” Mr McCann says.

“Our industry was strongest when we had many competent advisers servicing a growing need for advice. We have undertaken the necessary changes for the future viability of the industry. “Now is the time to rebuild and urgently get fresh and motivated advisers into the industry."

The great resignation can equal new opportunities

According to Sue Viskovic, managing director at Elixir consulting, the great resignation can also bring about many opportunities, allowing firms to stop, reset, reevaluate and rework how they do business.

“Advice firms don’t sell gadgets or widgets, their commodity is advice, intellectual property and human support that’s created and delivered by their people. Therefore, the biggest asset in an advice firm is their people,” Ms Viskovic tells ifa.

“It’s so easy for firms to take that for granted when everyone has been so busy serving clients and implementing compliance changes, and so taking the time to rethink how they run their business, approach employment and improve their culture will pay off in spades.”

She explains that, with the decrease in numbers of qualified advisers, it’s critical that every advice firm takes a considered approach to how they will improve their business to better serve their clients.

“Not only in building capacity to serve more people, but in creating an attractive work environment for their team, finding ways to work better, so that delivering quality advice isn’t a chore, and making decisions for the business that will create a sustainable future,” Ms Viskovic stresses.

She highlighted the importance of innovation, noting that it comes in many forms and isn’t always necessarily tied to tech.

“Technology plays a big part, but also simply rethinking how things are done, and updating processes.

I highly recommend getting the team involved in an innovation thinktank — inviting the whole team to contribute and play a part in doing things better. Whether it be a big sweeping change like introducing a whole new way of engaging clients with something like Lumiant, or getting 20- minute efficiency gains in every client review process by automating data updates, innovation should be something that’s embraced across a firm, so that everyone has the gift of thinking ‘can we do this in a better way?’.”

Finally, Ms Viskovic expressed great optimism, noting that she expects financial advice to become a career of choice for those who want to serve people and use their technical competence to improve people’s lives.

“In the meantime, necessity being the mother of invention, we are already starting to see better solutions to engage consumers with making better financial decisions so that they can be served at every stage of their life with appropriate solutions,” she says.

“Those who are still passionate about providing advice will rebuild, and I’m excited to see the uplift in the quality of advice firms”.

This article was first published in the ifa print magazine.