The new regulatory changes that will require advisers to be degree qualified will be one of the driving forces behind an adviser exodus from the industry over the next few years. The changes will effect both institutionally owned and aligned advisers and those which are privately owned. The departure will likely result in an advice gap that will cause heartache for both advisers and consumers as the industry adapts to the structural adjustment, but this change will also provide opportunities for technology companies and by proxy, advisers and licensees who can maintain cost efficient models by leveraging technology and smarter processes.
Adviser Ratings has previously modelled the potential financial cost to the industry (advisers) of compliance to the new regulatory regime – specifically the need for all advisers to be degree qualified by 2024. Here we look at the hard numbers of advisers at risk of leaving the industry as a result of this requirement, and the licensees most effected.
Fig.1 Adviser Experience (Years)
There is a long tail of advisers (Fig. 1) with more than 15 years of experience currently advising the Australian market. These advisers, especially those who are required to undertake a 3-year undergraduate university degree (or equivalent) would be among those advisers who are more likely to exit the advice industry.
New research from Adviser Ratings has analysed qualification data from ASIC and has devised an “at risk” evaluation, based on advisers below undergraduate level with more than 15 years’ experience. Those deemed a moderate risk have between 15-19 years’ experience, 20-24 years are graded ‘High” risk and those advisers with over 25 years’ experience are considered “Very High” risk of leaving the industry.
Using this methodology, we looked at the top 100 licensees by adviser numbers. In Figure 2, We have tabled the top 10 privately owned licensees (with 100 advisers or more) who are most at risk of an adviser exodus.
Fig. 2 Privately Owned Licensees – Proportion of Advisers “At Risk” of leaving
Although among the “Big 6”, the percentages of advisers deemed at risk is generally lower than the most effected non-aligned licensees, because of their overall size, more advisers are likely to move on from institutional licensees than others.
Fig. 3 Exit Risk Outcomes for Major Banks, IOOF & AMP
Note: IOOF has been separated to include and exclude their impending purchase of ANZ aligned licensees (M3, FSP, Elders and RI Advice)
We believe these figures are conservative given certain Certified Financial Planners (those that have been grandfathered from FPA's minimum bachelor degree requirements) are not degree qualified and other degrees will require bridging courses or new degrees (depending on final outcomes from FASEA). These advisers have not been factored into our calculations.
Correspondingly, this exodus does not factor in any impending upheaval that will emanate from the Royal Commission. We believe we will see an increasing cost base for licensees, potentially severely impacting the privately owned space that has less ability to absorb the risk, compliance and training costs.
We could feasibly be left with banks exiting advice altogether, either due to low margins, reputational harm or legislation, while smaller licensees struggle with the cost to their business. Ultimately, we anticipate these costs to flow through to the consumer negatively impacting demand at a time when the need for advice remains desperately high.
There is a possibility that this may result in future government oversight, (as is now happening in the UK, where similar industry change is already playing out), that will allow advisers to offer more scaled, affordable advice solutions.
We believe the winners out of this over time will be technology providers. Those advisers and licensees that can maintain a cost efficient model by leveraging technology and smarter processes are likely to win a swathe of orphaned clients. Further, the opportunities for digital advice providers will grow as more consumers seek help online.
This analysis was derived from information published in Adviser Ratings Industry Landscape Report
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