Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Adviser numbers forecast to fall below 15k
The exodus of financial advisers from the industry is set to continue into 2022, according to research undertaken by Adviser Ratings, who in partnership with Vanguard Investments, released their Adviser Landscape report last week.
After seeing the industry lose more than 3,000 advisers in 2021, Adviser Ratings is forecasting the shedding of another 2,387 registered advisers to ultimate fall below 15,000 for the first time.
The reasons are quite straightforward, with a standout likely being the ageing demographic of the advice industry. According to their survey, the average adviser is 51, male, based in Melbourne and earning $135,000 per year. With the education standards now fully in force, those who were lagging on meeting their requirements will be forced to exit sooner rather than later, or alternatively take non-advice roles within firms.
Surveys, whilst not perfect, offer some insight into the changes occurring in the industry, which in this case highlights the somewhat cottage-like nature that continues. According to the study, 78 per cent of advice and planning practices have revenue below $1 million and 48 per cent have less than $500,000.
It is clearly difficult to build scale and efficiencies with revenue of this level, but also to deal with the increasing challenges of onboarding clients whilst meeting higher reporting and compliance requirements. The result is an average practice that has 2.2 advisers and 1.8 administration staff, with just as many outsourced as employed paraplanners suggesting this part of the advice process remains a key challenge.
The average assets under management per adviser continues to improve, moving from $66 to $79 million, primarily driven by movements in investment markets. Interestingly, the average is quite similar across every state suggesting the difference between Sydney and Melbourne and the rest of the states continues to narrow.
Some 34 per cent of advisory firms grew revenue by 15 per cent or more, whilst 68 per cent delivered outright growth. This was despite the average number of clients falling across the board from 92 in 2018 to 88 in 2021. This has been for multiple reasons, ranging from more selectivity of clients and likely the exit of significant advisory firms like the major banks.
