The look of the licensee’s segment in the financial advice industry continues to change with recent announcements from formerly large players. CBA’s winding down of its Financial Wisdom licensee will completed its exit from all of its aligned advice businesses and follows Westpac’s announcement in March to cut 900 full-time jobs as it quits its loss-making financial advice business and restructures its wealth and insurance arms. Speculation that AMPs recent announcements could lead to 30% of its advisers leaving the company came from their own CEO.
The convulsions will have flow on effects to associated industry segments - FPA chief Dante De Gori recently estimated more than 2000 advisers from its 14,000-membership base would already be affected by recent closures or major changes to wealth businesses.
Adviser Ratings CEO Wealth, Mark Hoven expects the number of advisrs industry wide to continue to be reduced, potentially to 20,000 by the end of the year. “The number of financial advisers is shrinking, with limited new entrants and a constant trend of leaving advisers”, he said. However, not all advisers effected by the restructuring by the big players will leave and Adviser ratings has already identified a trend of adviser migration to larger, privately owned licensees.
Our chart created from data regarding migrating advisers from our Q2 Musical Chairsreport illustrates this trend.
The key to reading this chart is to note that the change in size of the top two segments on both the left and right-hand sides of the chart. These two segments represent institutionally owned and aligned licensees, and their size shrinks dramatically from left to right, reflecting the fact that 80% of adviser movement is flowing to privately-held licensees.
The lower segments in the chart identify different sized privately held licensees. You’ll note the growth of the bottom right-hand segment, which represents private licensees with 30 or more advisers. The numbers show that 300 (42%) of all advisers that have transitioned to a new licensee in Q2 have migrated to a private licensee with 30 or more advisers.
May and June this year saw number of discontinued licensees outpacing new licensee registrations for the first time in the last five years so it could be that the popularity of self-licensing may be on the wane.
No doubt, on an individual basis, licensees will have an idea of what they prefer and aim towards regarding their size. However, there are several factors that will contribute to the success or otherwise of existing licensees.
Increased regulatory oversight and falling margins are squeezing the ability of licensees to offer a full-service suite that many advisers may have enjoyed in the past. Many smaller licensees are outsourcing previously in-house elements of their businesses to external providers, including for example, investment consultants for APL construction. Some see this as an out-sourcing of risk, with potential for negative ramifications should the suitability of advice be called into question in the future. This could create an issue in the future regarding compliance and duty/obligation responsibility regarding advice.
Speaking to both advisers and BDM’s servicing the industry, there has been a recurring point made regarding the appropriate/ideal size of the licensee of the future. Some consider licensees in the 10-50 adviser range to be sub-scale. They were not as agile as the “micro” licensees yet were not big enough to benefit from scale. One industry veteran pointedly said that when ASIC get to the “bad” end of the licensee market – however long that takes – there will be a “bloodbath”.
Self-licensed advisers, or those part of similar “micro” licensees may be a legitimate model for advisers with specific service offerings, but for larger groups, it may be that the optimum size for the new breed of licensee may be somewhere north of 100 advisers.
The many hundreds of advisers who want to remain in the industry who have been impacted by the exit of the big institutions will have to go somewhere and self-licensing will not be on the radar for many. For this reason and those outlined above, larger privately-owned licensees could become the dominant licensee model after the dust from the current disorder settles.