This week, the financial advice profession confronted the heavy cost of past failures, as the financial and regulatory consequences of licensee collapses crystallised. The ongoing debate around the Compensation Scheme of Last Resort (CSLR) intensified, fuelled by ASIC’s continued enforcement against individuals linked to the failed Shield Master Fund. This regulatory crackdown is occurring against a backdrop of dynamic market activity. A flurry of end-of-financial-year adviser movements saw the profession’s capacity grow. At the same time, aggressive merger and acquisition (M&A) activity signals a clear trend towards consolidation and scale, creating a starkly divided industry landscape.
The Long Shadow of Misconduct: CSLR and Regulatory Fallout
The financial and reputational cost of misconduct dominated the conversation this week, placing the Compensation Scheme of Last Resort (CSLR) under intense scrutiny. The industry is grappling with the reality that, despite their own compliance, advisers will ultimately pay for the failures of others. This sentiment was echoed by the Financial Advice Association of Australia (FAAA), which argued the profession is being exposed by the failures of licensees like Shield and Guardian, raising fundamental questions about the scheme’s fairness and long-term sustainability. The issue has even drawn attention across the Tasman, with New Zealand observers noting the eyebrow-raising costs and implications of Australia's CSLR model.
The regulatory enforcement driving these costs continued unabated. In a significant development, ASIC has now banned the first advisers linked to the collapsed Shield Master Fund, with two former MWL Financial Group advisers receiving five-year bans for inappropriate advice. This follows a string of other enforcement actions, including the permanent banning of an adviser for misusing client funds and another ban for a former compliance head over failures to report fee-for-no-service misconduct. These actions underscore the regulator's zero-tolerance approach, even as reports suggest the impact of smaller-scale advice failures on the CSLR is not slowing down.
Amid the enforcement activity, the Association of Superannuation Funds of Australia (ASFA) has urged the government to pass the Delivering Better Financial Outcomes (DBFO) legislation without further delay, arguing the reforms are critical to improving access to advice, particularly for superannuation fund members.
A Profession in Flux: Adviser Numbers and Aggressive Consolidation
The structure of the advice profession is being reshaped by two powerful, and seemingly contradictory, forces. On one hand, the industry saw a significant flurry of end-of-financial-year movements, resulting in a net increase of over 120 advisers to start the new financial year. This positive growth, however, was tempered by the news that the limited advice sector is now "dead in the water" following significant losses. Furthermore, the data reveals that a third of those who pass the adviser exam are choosing not to enter practice, highlighting ongoing challenges in attracting and retaining new talent.
On the other hand, the consolidation trend is accelerating at an unprecedented pace. In one of the most significant moves of the year, two national advice firms have enacted a major merger, signalling a clear strategy of building scale to navigate the complex market. This was followed by news that the Coastal Advice Group is ramping up its M&A pipeline to triple its revenue. This drive to create "super firms" is being fuelled by expansion capital and a focus on digital presence, seen as a key strategy for growth. For those looking to buy or sell, succession planning and the expansion of service offerings are now considered key drivers for advice firm growth.
In personnel news, the Stockbrokers and Investment Advisers Association (SIAA) announced its long-serving CEO, Judith Fox, will step back from her role after six years, a significant leadership change for the sector.
Evolving Client Needs and the Adviser's Role
As the industry restructures, the focus on client outcomes and evolving needs remains paramount. New research has underscored the value of advice, with one US study confirming that financial advice can significantly reduce financial stress, a benefit that is amplified whether the advice is delivered digitally or face-to-face. This is particularly relevant for older Australians, who have expressed a desire for stronger superannuation outcomes and see financial advice as the way to achieve it.
In response to market dynamics, advised investors are making apparent shifts in their portfolios. In the first half of 2025, there was a notable trend of advised investors dumping bank holdings and increasing their allocations to ETFs. This shift is occurring as advisers are increasingly investing time and money to protect their clients from sophisticated scams, a growing and necessary part of the modern adviser's role.
On the innovation front, AMP has signalled its ambition to become a market leader in digital advice, recognising that technology will be crucial in serving a broader range of clients efficiently. This aligns with a view that the evolution of advice models bodes well for the future development of managed accounts, which offer a scalable solution for portfolio management.
Context, Looking Ahead & Takeaways
This week’s events are a direct and powerful continuation of the "bifurcation" narrative that has defined the advice profession throughout 2025. Previous updates have consistently highlighted the dual pressures of intense regulatory enforcement and the simultaneous drive for consolidation. The tangible costs of the CSLR, now linked directly to specific licensee failures like Shield, make this pressure more acute than ever. The significant merger activity reported this week is the market's clear response: scale is seen as the primary defence against rising costs and complexity. This confirms the trend of a shrinking pool of small licensees and the rise of well-capitalised "super firms."
Looking ahead, the industry's focus will be fixed on the government's promised review of the CSLR and the passage of the DBFO reforms. The aggressive M&A strategies are set to continue as firms race to build scale and market share. For individual practices, the challenge will be to define their value proposition in a market increasingly dominated by large players.
Key Takeaways:
Short-term (0–3 months):
Practices must proactively communicate their value to clients, particularly around non-portfolio benefits like scam protection and stress reduction, to justify fees in a high-cost environment. Review and bolster all compliance processes in light of ASIC's ongoing enforcement blitz.
Advisers should familiarise themselves with the latest investment trends, such as the shift to ETFs, to ensure their portfolio advice remains relevant and aligned with current advised client behaviour.
Medium-term (3–12 months):
Practice principals face a critical strategic decision: pursue a strategy of scale through M&A or specialise in a niche area where they can command premium fees. Standing still is not an option.
All firms must develop a clear digital strategy. Whether through adopting third-party tools or developing in-house capabilities, technology is no longer a differentiator but a fundamental requirement for efficient and compliant practice management.
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