By Alice Uribe
SYDNEY–One in four financial advisers is expected to leave the Australian wealth-management sector within the next five years, as regulatory change and compliance challenges raise the costs associated with providing advice.
A new report by Investment Trends found that the number of Australian advisers has dropped to 16,500 in 2022 from 20,000 in 2021, which the research company attributed to the ever-changing regulatory landscape advisers have had to grapple with.
“Advisers have cited compliance burden as the main challenge they deal with in their business for many years now, closely followed by regulatory change/uncertainty. Ultimately this leads to an increase in the cost of providing advice, and an inability to provide that advice to those less wealthy clients who need it,” Investment Trends research director Dougal Guild told The Wall Street Journal.
“This aligns with information we see reported in industry news in relation to advisers leaving as a result of changes to education and professional standards requirements and dissatisfaction with the broader regulatory environment.”
Despite the increasing regulatory burdens and industry attrition, Investment Trends’ 2022 Adviser Business Model Report found that practice profitability has increased, with 46% of financial advisers reporting that they were more profitable in 2022, compared with 34% in 2021.
“This is encouraging as it indicates advisers are adapting to the new world. Contributing to improved practice profit margins is a continued move by advisers focusing their efforts on acquiring and retaining higher value clients,” Investment Trends said.
The federal government is reviewing Australia’s financial-advice industry to see if any regulatory changes should be made to improve the accessibility and affordability of financial advice. This comes in the wake of a yearlong Royal Commission into misconduct in the country’s banking industry, which handed down its report in 2019.
Some analysts say that wealth companies Insignia Financial Ltd. and AMP Ltd. may get a material tailwind from some of the review’s proposals, including an expansion of the market for financial advice and driving down costs, which could help restore profitability to the under-pressure advice sector.
For the first half of fiscal 2022, AMP reported it had 1,058 aligned advisers, compared with 1,356 in the year-ago period. The company’s advice unit recorded 30 million Australian dollars (US$20.4 million) in net profit after tax for the first half.
Insignia in its fiscal 2022 results said the number of advisers in Australia is unlikely 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 that it had been reshaping its business model and improving the products it inherited via the acquisition of units from Australia & New Zealand Banking Group Ltd. and National Australia Bank Ltd.
“Yes, we want to grow. I think we need to be realistic that the industry itself will go through a period of stable adviser numbers. We will be the same…our numbers will be stable and we expect that during 2023,” Mr. Mota told The Wall Street Journal in late August.
“However the growth will come from making advisers more productive…spending money on technology, and that productivity aspect to make advice more affordable and more accessible.”
Investment Trends’ report said that a move for Australian advisers to become self-licensed, and moving away from being under the umbrella of larger wealth-management companies, had eased over the past year as they weighed the benefits and additional costs and compliance requirements associated with this type of model.
“Despite this, the movement of advisers around the industry will continue, as 70% [of those] looking to leave their licensee in the next 12 months intend to move to a self-licensed model,” Investment Trends said.
AMP said that as part of its fiscal 2022 priorities, it plans to engage more with independent financial advisers, or those who are self-licensed, to boost investment flows onto its flagship North platform.
“We have improved the competitiveness of North, with cash inflows from independent financial advisers up 49% from 1H FY 2021. We’re not slowing pace, with more improvements planned for the second half as we build North to be one of Australia’s leading investment platforms for advisers and their clients,” AMP Chief Executive Alexis George said after issuing the company’s first-half results.
Write to Alice Uribe at [email protected]
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Australia Financial-Adviser Exodus Expected Over Next Five Years, Investment Trends Says – MarketWatch
By Alice Uribe