Adviser Exit Rate Accelerates In Q2 2020

The headline news from our latest Musical Chairs report is that advisers left the industry at an increasing rate during quarter 2 of 2020. The industry contraction accelerated this last quarter, enhanced by several significant corporate actions. By end Q2 2020, the adviser population had reduced to 21,631 according to Figure 1, representing a net decline of 1,198 advisers (5.2%) from Q1 2020, which is 80% higher than last quarter and, representing a 21% annualised decline, well above the overall adviser reduction of 16% experienced last year.

This quarter was characterised by the arrival and apparent passing of the first wave of the COVID-19 pandemic, although by end June there were already signs of Victoria heading towards a second wave that has since translated to a phase four shutdown in late July. The severe financial distress this has caused consumers has definitely led to an increase in demand for financial advice, evidenced both empirically through level of inquiries and anecdotally from advisers.

Further driving demand for advice was the early access to super scheme that saw $19b paid out to almost 2.5m members by end June under the first tranche. This coincided with the creation of the ASIC instrument to cap limited advice on early super access to $300; to relax related documentation obligations; and to allow non-licensed accountants and tax agents to assist consumers with these inquiries. Clearly, this was about government making urgent decisions to stem the financial crisis by reducing regulatory friction and opening up capacity to serve more consumers. However, it has added momentum to calls for clearer definitions from ASIC on limited advice and intra-fund advice carve-outs, and permanent regulatory relief on compliance obligations. With that, advisers can confidently serve this growing demand at lower cost and for a more affordable price, without the threat of blow-back from regulators or their licensee.

The eventual passing of legislation on June 17 to extend the FASEA deadlines for exams for existing advisers to end 2021, and education deadlines to end 2025, came as a massive relief for advisers. Subsequently, the six exam sittings for 2021 have been released and now advisers have a confirmed pathway to make clear-headed decisions about remaining in the industry and completing their educational compliance obligations.

Licensee Market Share
The adviser exits from the industry and the continued long-run trend of the radical mass privatisation of the licensee market remains a permanent feature of the landscape, however this quarter the institutionally owned and aligned sectors held their own against the privately-owned sector in terms of market share. The institutionally owned and aligned sector fell by a combined 361 advisers, now representing 8,225 advisers or 38% of the total market. By comparison, the privately-owned sector shrunk by 901 advisers in the last quarter but remains flat at 62% of the overall industry. Over the last quarter there has been some minor re-positioning of the different privately-owned licensee groups in terms of size and market share. Our second chart shows the change in adviser distribution by licensee type in the privately owned licensee segment. While we expect greater movement towards the “safe haven” of the larger licensees over the medium term, these same organisations are also making strategic shifts in their business plans and this is leading to some material reductions in adviser numbers, not all necessarily equating to permanent departures from the industry. Meanwhile, the 2-5 adviser segment staged a fight-back, actually increasing overall numbers by 29 (1%) while all other segments fell, culminating in a 6.3% drop in overall privately-owned sector adviser numbers.

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