Regulatory Pressures & Industry Response
The upcoming federal election will significantly impact the trajectory of the advice sector. The FAAA is launching an election hub that tracks candidates' positions on advice-related issues. The association has outlined five priorities for the next government, including fixing the CSLR, completing DBFO implementation, streamlining education pathways, addressing issues with the ATO portal, and establishing a financial services' razor gang" to cut red tape.
Advisers are being urged to promote the value of advice directly to MPs ahead of the election, with the FAAA emphasising that, regardless of which party wins, fixing the CSLR must be a priority.
In a significant policy reversal, the Coalition has set an ambitious target of 30,000 financial advisers, effectively doubling the current number of advisers. Shadow Treasurer Angus Taylor unveiled this goal alongside promises to streamline education requirements, reform the CSLR, and cut red tape. The Financial Advice Association Australia (FAAA) has thrown its support behind these commitments, seeing them as concrete steps toward rebuilding trust and access.
Current Financial Services Minister Stephen Jones, who will not be contesting the next election, says his government has moved the reform dial significantly, pointing to education reforms and the implementation of Delivering Better Financial Outcomes (DBFO) as key achievements. Jones has claimed his advice pathway will halve costs, though industry voices have questioned the timeline for full implementation.
The CSLR continues to generate significant concern. Shadow Financial Services Minister Luke Howarth described the scheme as "pretty well a disaster" and suggested a Coalition government would consider abolishing it entirely. Meanwhile, the scheme has triggered another AFSL cancellation, while AFCA's "but for" approach to determining eligibility for compensation has drawn criticism from the FAAA for potentially overreaching its authority.
In a move that has alarmed licensees, ASIC is consulting on plans to name firms in breach reporting data publicly. The regulator is considering unmasking AFSLs' internal dispute resolution performance, arguing that increased transparency will improve consumer outcomes. This comes as ASIC imposed penalties totalling $100,000 on three licensees for failing to supervise unregistered advisers adequately.
Practice Management & Growth
The M&A market continues to thrive with several notable transactions, including Centrepoint Alliance's acquisition of Brighter Super's comprehensive advice business, Equity Story's purchase of advisory firm Baker Young, and Prime Financial Group's acquisition of Lincoln Indicators. These moves reflect the ongoing consolidation in the advice sector, with private equity firms showing renewed interest in advice businesses.
Meanwhile, two Sydney-based AFSLs entered liquidation, highlighting the continued challenges facing some smaller licensees. In contrast, Perpetual added five senior advisers amid what has been described as a "hiring war" with Ord Minnett, demonstrating the intense competition for experienced talent.
The Federal Court handed down an $11 million penalty to a financial services provider for "cookie-cutter" advice and conflicted bonus payments related to SMSF property advice. This significant penalty serves as a stark reminder of the ongoing regulatory focus on conflicts of interest and the quality of advice outcomes.
New data shows that adviser numbers have stabilised at 15,611, with recent adviser exam results bolstering the profession. This stability marks a significant turning point after years of decline, though the profession remains well below pre-Royal Commission levels.
Client Engagement & Retention
Clients' evolving circumstances have emerged as a key barrier for advisers, according to new research from Netwealth. This challenge is particularly acute for retirees, who may face changing financial needs that require ongoing advice adjustments. Zurich has highlighted that retirees still need life insurance advice, emphasising the importance of continuing coverage into retirement.
Advisers are increasingly prioritising regular client engagement as critical for retention, with successful practices implementing structured communication programs. This focus on engagement comes as research indicates that Australian consumers prefer guidance from advisers and analyst notes over social media for financial information.
A concerning trend of 'Googled and ghosted' consultations has emerged, where prospective clients research advisers online before disappearing without engagement. This highlights the importance of managing a strong digital presence for practice growth. Meanwhile, Link Wealth has developed a school program addressing the financial literacy gap, demonstrating how practices can engage with broader community needs.
Technology & Innovation
Cybersecurity has emerged as a critical focus area, with ASIC cracking down on the cyber defences of advice firms. This regulatory attention comes amid alarming increases in system intrusions across the APAC region and warnings that SMSFs are not immune to cyber attacks. The FAAA has emphasised that multi-factor authentication is for advisers' eyes only, highlighting the importance of not sharing authentication codes with clients or other parties.
Digital advice continues to evolve, with providers shifting from super funds to advice practices. Notably, Otivo has opened its digital solution to advice practices, offering an additional channel for firms to serve clients with less complex needs. This trend reflects the growing recognition that technology can complement rather than replace comprehensive advice.
Data integration remains a major bugbear for practices, with advisers still grappling with disconnected systems. In response, Iress has boosted its information-sharing initiative with new contributors, while Class has confirmed linkages to all major share registries, improving data access for SMSF administrators.
The managed accounts sector continues to grow, though scaling advice has been identified as a challenge. Research indicates that advisers primarily seek investment philosophy and performance when selecting managed accounts providers, rather than just operational efficiency.
Notable Industry Movements
Financial Services Minister Stephen Jones has announced he will not contest the next election, sparking speculation about the frontrunners to replace him should Labor form government. Andrew Leigh and Andrew Charlton are considered leading contenders, while Daniel Mulino is also mentioned as a potential appointee.
In executive movements, Fitzpatrick's has appointed a former CFS product executive to a newly created role. At the same time, LGT Crestone has poached a Chief Risk Officer from Challenger, demonstrating the ongoing competition for experienced talent in the wealth sector.
Looking Ahead
- All eyes this week will be on the result of the upcoming Federal Election. Tight polling could still yield a range of different outcomes as Australians head to the polling booths over the week.
- Proactive adaptation to the evolving regulatory landscape is crucial, particularly given the upcoming election, the ongoing impact of the Compensation Scheme of Last Resort (CSLR) costs, and the process change required to implement Statement of Advice (SOA) reforms.
- Maintaining practice efficiency is vital to navigate these persistent costs while leveraging the robust practice profitability reported by the majority of firms. Engaging with the impending intergenerational wealth transfer is a significant opportunity, requiring tailored strategies to connect with the next generation of clients, such as Gen Z, who are more likely to seek advice after receiving an inheritance.
- Advisers should also incorporate the implications of the new Aged Care Act into their retirement planning advice as demographic shifts highlight the growing importance of aged care considerations.
- Effectively communicating value to prospective clients and collaborating with external experts can enhance service delivery and help manage complexity. Furthermore, in response to economic uncertainties, advisers should proactively communicate with clients regarding portfolio positioning and risk management.
- Embracing technology, particularly Artificial Intelligence (AI), is essential, with projections suggesting AI could significantly increase client capacity. Strengthening cybersecurity measures is paramount to protect both practice and client data against evolving threats targeting financial services and superannuation assets.
- As the managed accounts sector grows, advisers need to understand this market and navigate potential conflicts of interest.
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