2,828 Advice Practices Closed Down In 5 Years

In a stark contrast to the broader Australian economy, which experienced a surge buoyed by government support during the COVID pandemic, the financial advice sector faced its own unexpected downturn. A staggering 2,828 advice practices, constituting over 30% of the market, closed their doors. 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.

Chart 1 - 31% decline in advice practices in 5 years

Source: ABS, Adviser Ratings

Yet, as we now stand on the precipice of potential economic downturns and a massive generational wealth shift, the importance of qualified financial advice has never been more pronounced. The complexities of modern financial markets against a backdrop of geopolitical uncertainty coupled with a potential real recession across the broader economy, mean that individuals and families, now more than ever, need guidance in navigating their financial futures.

And as we’ve been continually reminded post the Retirement Income Review, as post baby boomers age, there's an imminent transfer of wealth to younger generations. This transfer not only represents significant monetary sums but also a shift in financial attitudes, investment preferences, and a need for advice that aligns with changing values.

Unfortunately, there are far fewer advice practitioners – so much so that the government through Job Skills Australia has listed financial advisers as one of 66 occupations experiencing a severe shortage.

Chart 2 - 8,995 advice practices in 2018 down to 6,167 in 2023


Source: Adviser Ratings

Despite the skill shortage, commercial credit rating agencies have actually pronounced the sector is in far better shape today, with those practices left standing on average having a far better credit rating and directors of standing than the average from several years ago. Accordingly, perhaps the profession envisaged, as part of the endless reforms or the “scorched earth” approach as described by many, is closer in practice than theory.

Chris Gilmour of Strategy First Financial Planning in Brookvale, NSW mentioned, “Striving to become a profession, something had to give, and I believe we’ve lifted the standard considerably. The unintended consequence was that we risked losing some fantastic and experienced advisers, many of whom are pivotal in setting the standard for the next generation.” He continues, “With the significant drop in adviser numbers, it’s a huge opportunity for those who are committed, refining what we do to meet the changing needs of the population. We’re very excited about the future and the quality of the people we have here shaping that.”

While, Andrew White of Tribeca Financial in Hawthorn, VIC says, “One of the results of the industry reforms is that current financial advisers have never been better educated or qualified. I can personally attest to this having recently completed these qualifications. This has significant benefits for those seeking advice.”

Jayden Post of Cruz in Melbourne, with a client base largely comprised of baby boomers, offered a unique perspective. “With intergenerational wealth transfer, we find that the earlier you can get the younger generation involved, the better outcome for the family over the long-term. Building a plan for the families with wealth, based around the values and goals of the broader family and not just the matriarch and patriarch, can provide not only a great platform for education for the children involved, but also due to the endowment affect, have a likelihood that the strategy continues once the wealth transfers occurs.”

Dishna Wijenayake, an adviser with a tech-forward approach, of Brillo Wealth Management in Hawthorn, VIC, highlighted the role of technology in this new era. “Technology has most certainly changed the way we operate. We are using a number of administrative tools to create more efficiencies within our practice to keep up with increasing demand.”

Jayden Post adds, “Technology allows us to keep a pulse on our clients’ financial health and communicate seamlessly, but it's the trust built over time, the understanding of each family's unique dynamics, and the recognition of the deeper meaning behind the wealth that remains the cornerstone of what we do. Maintaining this human connection is not just beneficial, it's essential. We will only look to adopt tech where it provides us with significant efficiency and elevates the client experience. One can’t be at the expense of the other.”

The consensus among advisers is clear: while the reforms were initially disruptive, the tides are turning. The challenges posed by potential recessionary times, the focus on retirement and the generational wealth transfer have offered a renewed purpose and direction for the sector.

However, despite the differing views, it will take some time to replace the 2,828 practices we lost in the last 5 years and the right adviser to service the hundreds of thousands of orphaned clients, let alone the influx of new ones.

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