In an important and timely report published last week, Adviser Ratings, a research and advice firm which studies both individual financial advisers and the overall Australian retail advice sector, has confirmed massive changes ahead. The changes will affect the whole super industry.
And as the New Zealand advisory industry edges closer to a new regulatory regime that closely resembles the Australian model, the new study could also have lessons across the Tasman.
The ‘Adviser Musical Chairs Report’ report says that total adviser numbers are contracting – another 3 per cent in just the last three months. And a lot of advisers – about 5 per cent – have shifted to new ‘licensees’ in that period. It’s an industry sector in a state of flux.
Mark Hoven, the head of ‘wealth’ at Adviser Ratings, said last week that: “The key theme is the continuation of an unprecedented rate of movement of advisers around and out of the industry.”
The biggest shift, after the contraction in numbers, is that almost 60 per cent of advisers are now licensed by privately owned entities. In itself, that’s probably a good thing for the not-for-profit sector of the industry. But, a reduction in total numbers of advisers is not. The subtext of the report is that big super funds need to redouble their efforts to increase their adviser numbers – whether they are salaried or not.
Oddly, the heighted advisory regulatory qualification regime (where advisers have to have at least a university qualification by June next year, does not appear to be the main driver in the reduction of licensed adviser numbers.
Adviser Ratings says that: “Muscled up, ASIC is likely to target 48 licensees who represent more than half of the county’s advisers.” In the past three months, there was a 70 per cent increase in the number of advisers moving to new licensees.
The reports says: “Analysis of adviser movements in Quarter 3 of 2019 has revealed that the recent trend of declining adviser numbers has continued. Overall, adviser numbers across the industry have declined by around 700 individuals. There were 24,772 people authorised to give advice at the end of Q3, down from 25,470 at the end of the previous quarter.
“This equates to a contraction of almost 3 per cent of the number of people authorised to offer financial advice in the latest quarter,” the report says. “The number of advisers represented in the institutionally owned and aligned space continues to wither, dropping a further 2.4 per cent from Q2. Currently, just over 42 per cent of advisers in the industry are authorised by institutionally owned or aligned licensee’s, with the number authorised by privately owned licensees sitting on nearly 58 per cent.
“Adviser Ratings analysis shows that the proportion of advisers from institutions dropped from 14.5 per cent in Q2 to 13.8 per cent in Q3, aligned adviser numbers dropped from 30.1 per cent to 28.4 per cent and privately authorised advisers increased from 55.4 per cent to 57.9 per cent in the same period.”
The number of authorised financial advisers (AFAs) in NZ has remained steady at about 2,000 following a short blip upwards early in 2019.
According to the latest numbers published by the Financial Markets Authority (FMA), there were 1,998 AFAs early in November – two fewer than recorded in September.
The FMA opens up for transitional advice business licensing later in November ahead of the June 2020 start date for the Financial Services Legislation Amendment Act (FSLAA). All NZ advice firms will need at least a transitional licence by next June before the full licensing deadline set for 2022.
Greg Bright is publisher of Investor Strategy News (Australia) with additional reporting by David Chaplin