The authorised financial adviser (AFA) population experienced a mild recovery over 2016, a new analysis by the Financial Markets Authority (FMA) shows, acquiring a net 40 new members of the elite club.
According to the FMA research, AFA numbers rose from about 1,760 as at the end of 2015 to just over 1,800 a year later with the 80 exits outweighed by 120 new entrants. Of these, roughly 13 per cent (about 230) were not practising advisers.
About 65 per cent of AFAs are aged over 45, the FMA data shows, including 33 per cent (or 612 individuals) aged 55 or more.
While year-on-year trends were flat across most metrics covered in the FMA study, the report notes a slight downturn in advisers operating within qualifying financial entities (QFEs) and a similar small increase in those AFAs identifying as ‘sole practitioners’.
In total, sole practitioners and ‘sole adviser practices’ (defined as a business where the AFA is the only, or one of two directors, and only senior manager of a company) comprise 24 per cent of the AFA population, the study found, representing a 1 per cent increase on the 2014 figure.
QFEs claimed the largest number of AFAs (33 per cent) followed by those employed in non-QFE firms (24 per cent), shareholder or directors in multi-AFA groups (22 per cent), and stockbrokers (21 per cent).
Despite the marginal increase in AFA numbers, the FMA report shows a declining interest in actually providing advice services. The research shows the proportion of AFAs giving either “personalised or class” over all products – with the exception of mortgages – fell slightly over 2016, continuing a trend from the previous 12-month period.
About 14 per cent of AFAs provided advice on mortgages over 2016 compared to 13 per cent in the year before, the FMA study says.
At the same time, class advice behaviour patterns have changed somewhat, with declining year-on-year numbers of AFAs offering either investment planning or discretionary investment management service (DIMS) class-only advice.
However, a growing number of “AFAs say they are providing financial advice on a class basis only to a percentage of their clients”, the FMA report says.
The study reveals a subtle change in AFA client dynamics, too, with few advisers reporting large client books (300 or more) or total assets of less than $5 million (20.7 per cent compared to 24 per cent in 2015).
Clientbase growth was also anaemic over 2016 in a year where over 21 per cent of advisers reported no new clients came onboard.
A steady 43 per cent of AFAs said they were paid via product commissions while 37 per cent received “based on compliance and quality measures”, the latter figure representing a 3 per cent annual fall.
About a third of AFAs charged clients a fixed fee or hourly rate and 17 per cent received volume or set-target-based bonuses.
“More AFAs say they aren’t receiving any ‘soft commission’ than in previous years,” the FMA report says.
Advisers were also sticking to a mainly vanilla product set – dominated by managed funds, retirement savings and below investment grade bonds – although the study notes a yearly decline in most categories.
“Most AFAs provide financial advice about managed funds and retirement savings/superannuation,” the report says. “The percentage of AFAs who offer ‘none of the above’ products has increased since 2015. This indicates that there are new services on offer.”
But the study found a slight uptick in the proportion of AFAs giving advice on trustee services (up from 10 per cent to 13 per cent over the year) and borrowing to invest (9 per cent compared to 8 per cent in 2015).