Exodus of Australian financial advisers expected in next five years, according to investment trends

By Alice Uribe

SYDNEY – One in four financial advisers are expected to leave the Australian wealth management industry in the next five years as regulatory changes and compliance issues increase the costs associated with providing advice.

A new report from Investment Trends found the number of Australian advisers fell to 16,500 in 2022 from 20,000 in 2021, which the research firm attributed to the ever-changing regulatory landscape advisers have had to contend with.

“Advisors have cited the burden of compliance as the number one challenge they have faced in their business for many years now, closely followed by regulatory change/uncertainty. Ultimately this drives up the cost of compliance. provision of advice and an inability to provide that advice to less fortunate clients who need it,” Dougal Guild, director of investment trends research, told The Wall Street Journal.

“This aligns with reports we see reported in industry news about advisors leaving following changes in education requirements and professional standards and dissatisfaction with the regulatory environment. wider.”

Despite growing regulatory burdens and industry attrition, Investment Trends’ 2022 Advisor Business Model Report found firms’ profitability has increased, with 46% of financial advisors saying they were more profitable in 2022, compared to 34% in 2021.

“This is encouraging as it indicates that advisors are adapting to the new world. Contributing to improving practice profit margins is an ongoing initiative of advisors focusing their efforts on acquiring and retaining clients at more strong value,” Investment Trends said.

The Federal Government is reviewing the Australian financial advice industry to see if regulatory changes should be made to improve the accessibility and affordability of financial advice. This follows a year-long royal commission into misconduct in the country’s banking sector, which delivered its report in 2019.

Some analysts say that wealth management companies Insignia Financial Ltd. and AMP Ltd. could benefit from some of the proposals in the review, including an expansion of the financial advice market and a reduction in costs, which could help restore profitability to the under-stressed advice sector.

For the first half of fiscal 2022, AMP said it had 1,058 advisors aligned, up from 1,356 a year ago. The company’s consultancy unit reported a net profit after tax of A$30 million ($20.4 million) in the first half.

Insignia, in its 2022 financial year results, said the number of advisers in Australia is not expected to increase next year, reporting that the number of advisers in its ranks fell to 1,600 from 1,948 the previous year. .

Insignia chief executive Renato Mota said after the company’s most recent results it had reshaped its business model and improved the products it had inherited through the acquisition of Australia & New Zealand units. Banking Group Ltd. and National Australia Bank Ltd.

“Yes, we want to grow. I think we have to be realistic that the industry itself will go through a period of stable advisor numbers. We will be the same…our numbers will be stable and we expect that in 2023,” Mr. Mota told the Wall Street Journal in late August.

“However, the growth will come from making advisors more productive…by spending money on technology, and that aspect of productivity to make advice more affordable and more accessible.”

The Investment Trends report said the move by Australian advisers to become self-licensed and no longer be under the umbrella of large wealth management firms has eased over the past year as they assessed the associated benefits, additional costs and compliance requirements. with this type of model.

“Despite this, the movement of advisors around the industry will continue, as 70% [of those] looking to exit their licensee within the next 12 months intend to transition to a self-licensing model,” Investment Trends said.

AMP said as part of its fiscal 2022 priorities, it plans to engage more with independent financial advisers, or those that are self-licensed, to drive investment flows on its flagship North platform.

“We have improved North’s competitiveness, with cash inflows from independent financial advisors up 49% over the first half of fiscal 2021. We are not slowing down, with further improvements planned for the second half as we build North to be one of Australia’s leading investment platforms for advisors and their clients,” AMP Chief Executive Alexis George said after the release of the first half results of the society.

Write to Alice Uribe at [email protected]