A new year, and another year of musical chairs for advisers and practices. As the old saying goes: “the grass is greener on the other side”.
It was another cracking quarter, dominated by global events, major regulatory updates, and ongoing corporate actions. Along the way, the adviser population shrunk by another 431, pushing numbers below 21,000 as shown in Figure 1. Promisingly, adviser exits have definitely slowed - this was the second lowest quarterly decline since the industry started net contraction in 2018 following a similar result in Q3 2020. In fact, total adviser movements for the quarter was the lowest in more than two years, with subdued results for both exits and switches. Are advisers simply taking a breather after a tumultuous 2020, or will we see a return to the relentless pace of 2019 / H1 2020?
Figure 1 – Total Adviser Population Q4 2020
Source: Q4 2020 Musical Chairs report
What happened in the last three months that defined our world? Australia recovered from COVID-19 to a “new normal” of daily activity, although flare-ups like Sydney’s recent northern beaches cluster and ongoing movement restrictions between states are constant reminders of the pervasive influence of the virus. By extension, our economy and business, in general, is slowly improving, although patchy and fragile.
It was also a busy period for government and regulators. FASEA was put on life support, however, this proposal still requires passage through Parliament and may not be actioned until mid-2021 depending on legislative priorities, perpetuating industry uncertainty about the likelihood of restrictive covenants within the code of ethics being relaxed. ASIC provided further clarity on key structural changes around scaled advice and product distribution respectively. And last rites were performed for grandfathered commissions.
Corporate actions continued at an unrelenting pace across the wealth industry and provided more evidence to support the notion that vertical integration is not a poisoned chalice for corporates or regulators. The two biggest advice players were both in action during the quarter, with US fund manager Ares Management Corp lobbing a $6b non-binding takeover offer for AMP in October while IOOF announced $1.3b of net outflows from its advice business, highlighting how there is plenty more water to flow under the bridge before that major acquisition is settled.
With the continued shrinking of the total adviser pool and plenty of real-life examples of businesses collapsing and increased mental health pressures including extreme cases of suicide, it is easy to be gloomy about prospects for the industry.
However, results from two surveys run by Adviser Ratings over the last two months brings some hope and identify a core of advisers that are excited and motivated about what the future brings. They are completing their exams and tertiary qualifications well in advance of peers and regulatory deadlines. And they report plans to grow their customer books and take on more advisers into their businesses. Anecdotally, consumer demand is also increasing, fuelled by a combination of financial stress from COVID-19, improved awareness from the government’s early access to super program, and through a greater variety of channels offering help, including expanding super fund advice programs and the emerging digital finance tools sector. As we have said before, an imbalance between demand and supply augers well for financial advisers who choose to stay.
In Q4 2020, 511 advisers (9.7% annualised) switched licensees according to Figure 2, which was comfortably the lowest rate seen in the last two years. The major adviser purges from AMP and ANZ from earlier in 2020 have potentially flared out, although we anticipate seeing more IOOF-MLC departures in Q1 2021 as negotiations on stay versus go are concluded.
Our latest survey of over 500 practice owners indicated continued strong interest in switching, although we know intent does not always translate into action. When advisers finally get serious about making the move, many are daunted by the actual effort involved or don’t know who to trust for advice.
Figure 2 – Switched adviser movements
Source: Q4 2020 Musical Chairs report
This is an abridged extract from our latest Q4 2020 Musical Chairs report that you can access here.