One-third of advice practices have closed since 2018, research finds

A total of 2,828 advice practices, constituting 31 per cent of the market, have closed their doors within the last five years, according to Adviser Ratings.

Advice practices across the country, which stood at 8,995-strong in 2018, are now down to 6,167 in 2023.

While other Australian markets experienced a surge thanks to government support during COVID-19, Adviser Ratings noted that financial advice was, conversely, flagged by the government as experiencing a severe shortage.

Namely, financial investment advisers were listed as one of 66 occupations “in shortage in 2023 that were not in shortage in 2022” within Job and Skills Australia’s Skills Priority List, released last month.

“While many sectors flourished or were bolstered by government interventions, financial advice practices paradoxically grappled with a legislatively imposed recession, highlighting the complex interplay of industry-specific challenges amidst nationwide economic resilience,” Adviser Ratings said.

This was further highlighted within recent findings from the Australian Bureau of Statistics, which measured the business growth rate of 20 sectors over five years, including financial advice.

While the other 19 sectors all saw positive business growth, financial advice stood alone in the red, having lost almost a third of all practices across the country within the same period.

Notably, among them, the number of sole-adviser practices fell from 5,781 in 2018 to 3,733 in 2023.

For businesses constituting 10 or more advisers, growth was down by 43 per cent, dipping from 252 practices to 143.

A ‘renewed vision’ for advice

Despite the discernable business shortage, Adviser Ratings deemed the sector to be in “far better shape today”, with commercial credit rating agencies applauding the practices left standing for having, on average, a far better credit rating and directors of standing than the average from several years ago.

As such, the research house said there is an opportunity for “renewed purpose and direction” for the sector, buoyed by factors such as the generational wealth transfer.

With Productivity Commission modelling showing that Australia is expecting to see $3.5 trillion pass from the older generations to younger generations this decade, industry voices have said that financial advisers are in the box seat to make the most of the opportunities.

However, Adviser Ratings stressed that the industry will need time to recover.

“It will take some time to replace the 2,828 practices we lost in the last five years and the right adviser to service the hundreds of thousands of orphaned clients, let alone the influx of new ones,” the firm said.

Research by Wealth Data has provided some comfort recently, with their latest release revealing that adviser losses have slowed dramatically in 2023.

Namely, there has been a net loss of 96 advisers so far in 2023, however, this is a sizeable improvement compared with the same period last year, which saw a decrease of 1,288 advisers in the comparable period.