100,000 quit financial advice as fees jump another 8pc

Instead of increasingly expensive professional advice, many consumers have turned to unregulated advice by following investing and finance influencers, or “finfluencers”, on digital platforms such as TikTok, YouTube and Instagram.

About 5 per cent of Australians receive all of their financial advice from social media, according to the Australian Securities and Investments Commission, which has threatened some finfluencers with jail if they don’t become licensed to provide advice.

“There is a growing gulf between Australians who say they need the services of an adviser and those with the capacity to pay,” Adviser Ratings analysts wrote in the unpublished report, seen by The Australian Financial Review.

“We expect the problem to get worse before it gets better, with a rapidly shrinking adviser workforce and an aging population. Sadly, now Australians who have stated they want advice cannot afford to pay for it. ”

‘Afterpay’ advice model

Just 6 per cent of Australians are willing or able to pay $ 2,500 a year or more, the research found, while 65 per cent of consumers would not pay more than $ 500 – about an eighth of the median fee.

Treasury’s quality of advice review this year, chaired by lawyer and Allens partner Michelle Levy, will examine the causes of rising costs of financial advice and possible solutions.

In the interim, many advice providers have evolved their fee strategies over the past year, the report found, including some trialling a so-called Afterpay model under which “smaller, piecemeal payments will increasingly replace larger fee instalments”.

In a flurry of pre-election announcements, the Coalition and Labor have agreed to grant a reprieve to financial advisers with at least 10 years’ experience, exempting them from the requirement to obtain a tertiary degree – a policy widely viewed as a chief cause of the adviser exodus.

Adviser Ratings data suggested the reprieve, if implemented, could allow 9952 advisers who might otherwise quit or retire from the industry – 2717 of whom currently have a “ceased” license – to continue providing advice.

“Swelling advice fees have not escaped the eyes of regulators, but we are unlikely to see any stabilization until compliance complexity is reduced,” the report stated.

The number of practicing financial advisers, which was 17,351 in December, was forecast to drop by 2387 this year, taking it below 15,000 for the first time since records began in 2014.

“Our latest intel suggests 2022 could be another devastating year for financial advice,” the report concluded, estimating that the exodus of professionals will begin to slow from next year and stabilize at 12,000 advisers in January 2026.

Wexit factor

Another contributor to the decline was the exit of the big four banks from wealth management, known as Wexit. The report said 2021 will be remembered as the year “bank licensees virtually ceased to exist”, with fewer than 100 financial advisers each on the books at Commonwealth Bank, Westpac, National Australia Bank and ANZ.

NAB was the last of four majors to exit the bulk of its financial advice operations, offloading its advice licensee subsidiaries in the $ 1.4 billion sale of MLC Wealth to Insignia Financial (formerly IOOF).

That transaction made Insignia the largest provider of financial advice in Australia, with about 1,300 advisers under its control at December. AMP, which was the largest provider of advice for at least a decade, had fewer than 1,200 advisers at the end of the year, down from about 3,200 in 2015.

“Given the company’s trajectory, we expect these numbers may fall below 1000,” the report concluded, referring to AMP’s reputation woes since the Hayne royal commission, which leveled criminal allegations against the firm, and changes to its longstanding adviser buyout plan, which sparked a class action lawsuit.

Small and boutique licensees continued to proliferate, with the number of firms employing between one and 10 advisers increasing from 61 per cent to 71 per cent of all entities licensed to provide advice.

The number of firms servicing accountants keen to provide financial advice to self-managed superannuation funds under a limited license fell by 9 per cent in 2021 and now represent 16 per cent of the market.

The Levy review is due to hand its findings to the Treasury before the end of the year.

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