Big promises of more choices and lower fees look increasingly unlikely

The financial advice sector is shrinking, and infighting between big funds and advisers means nothing is going to improve anytime soon.

Minister for Financial Services Stephen Jones oversees a shrinking financial advice sector now beset with infighting. Picture: Martin Ollman

One year after Financial Services Minister Stephen Jones promised to solve the crisis inside the financial advice sector through a wide-ranging reform program, the latest data shows the total number of advisers in the market continues to drop.

Despite promises of a major clean up of the struggling sector and the widening of advice to include big industry funds there is very little sign of any progress on the biggest problem facing investors – the supply of cheap and reliable advice.

Major industry funds such as Australian Super and Aware Super are working behind the scenes to prepare for a widening of advice rules but the process for deregulation has become bogged down as the industry wrangles over whether big funds could be on the hook for unexpected costs relating to what’s called “advice fee deductions”.

That’s where industry believes the proposal as it stands could impose new requirements on funds to approve every single fee transaction based on advice.

In July last year, Minister Jones promised “a pathway” towards getting the adviser population back up towards 30,000.

But in reality today there are just 15, 606 advisers in Australia down from 15,615 at the start of the calendar year according to the latest results from the Wealth Data group which tracks industry trends.

The latest numbers follows The Australian reporting last month how ASIC had analysed the reduction of personnel in the industry suggesting the number of advisers has fallen every year since a high of 27.925 at the end of 2018.

Worse still, the number of newly minted advisers coming into the industry has slowed to a crawl.

With the financial advice workforce barely able to replenish itself, a significant number of “new” advisers are actually professionals who had moved out of the industry in recent years and are returning, lured by good income and widespread job opportunities.

As investors wait to see how it all turns out, the chances of the advice sector and big funds actually working together looks increasingly unlikely.

This week the Super Members Council issued a provocative attack on the advice industry suggesting “dodgy advisers were using cold calls and high pressure tactics to change super funds”.

Ironically, demand for advisers has never been so strong. The volume of money in superannuation continues to swell while the broad issue of wealth generational transfer has the sector expecting strong financial growth for years ahead.

“The industry really has a lot to do before it can get back into a strong growth trend, even if it is clear the demand from customers continues to grow,” said Wealth Data group head Colin Williams.

After the big banks left the industry a large volume of advisers exited and that outflow coincided with the welcome introduction of higher educational standards.

Many top advisers now have long waiting lists as the costs and difficulties of recruiting new talent means they cannot effectively service their existing clients.

At the top end of the industry, the big names dominate such as Morgan Stanley, Macquarie, Pitcher, Koda and Shadforth and the personnel shortage has ensured plenty of staff poaching activity at this level.

But advice for the masses or even the “mass affluent” remains elusive

Originally published as Big promises of more choices and lower fees look increasingly unlikely