Barron’s rankings a pathway to better financial advice

Only 10 per cent of Australians use a financial adviser but there’s a growing recognition of the value of professional help

Illustration by Steven Moore.

This year marks the eighth annual adviser-ranking collaboration between The Australian and Barron’s magazine. Much has changed since the two News Corp publications partnered for our first list in 2017, but one constant remains: the need for financial guidance in both countries remains extremely high. In America, about 35 per cent of the population works with a financial adviser, according to Statista; in Australia that number is even lower, with Adviser Ratings placing the percentage just above 10 per cent.

Barron’s, a 103-year-old investing magazine, began ranking US advisers in 2004, with the goal of helping investors locate quality financial advice. Our view, then as now, was that wealth management is a noble and important profession whose general reputation is anchored to the industry’s worst abuses. It’s important to call out bad actors, yes. However, an equally pressing matter is helping connect those in need of financial guidance with advisers who can credibly provide it.

With the number of advisers in Australia falling by 40 per cent in the past six years to 15,500, finding an adviser is getting even more difficult, and it’s our hope that this listing can help.

What follows is an FAQ-style guide to this year’s ranking that addresses wealth management trends that matter to investors seeking a financial adviser.

The list has expanded to 150 spots this year. Why?

The number 150 represents roughly the top 1 per cent of all Australian advisers. In years past, Melbourne- and Sydney-based advisers dominated the smaller listings, which made some sense given the population and wealth concentrations in those cities. The expansion to 150 paves the way for more geographic diversity, with the percentage of Top 150 advisers in each state now aligning roughly with its national footprint. For example, Victoria is home to about 26 per cent of the nation’s population and about 27 per cent of its wealth, and about 29 per cent of the advisers on the list hail from that state. Meanwhile, Tasmania is about 2 per cent of population and wealth, and about 2 per cent of the 150 features Tasmanian-based advisers.

Does the ranking reward pure size and do advisers with large teams have a leg up in the ranking?

The single most important factor in wealth management in both the United States and Australia is the growing prominence and sophistication of advisory teams. Only a decade ago, advisers in both places tended to be “solo practitioners” – an adviser working alone or with an assistant or two. Today, advisers are building out groups of wealth professionals, and that has a number of positive benefits for clients. For starters, it creates a natural succession plan for when an adviser is no longer able or willing to head a business. Additionally, it allows an adviser to address a wide range of financial needs for clients; in addition to investing, many teams also handle taxes, trust and estate planning, and even concierge-style services. As teams grow, so does their capacity for managing clients and assets; the best teams are accounting for increasingly large shares of the wealth industry’s growth. For example, in Barron’s US ranking of the Top Private Wealth Management Teams, the total client assets managed by the top 50 teams grew from $500bn ($US328bn) in 2020 to $817bn this year. The teams grew in average staff size from 14 in 2020 to 31 this year. The Top 150 Advisers ranking rates advisers as individuals – they get “credit” in the rankings formula only for the client relationships for which they maintain primary regulatory responsibility. In that respect, the rise of teams does not directly benefit advisers in the rankings. However, to the extent an efficient team can help an adviser expand a client base more than if the adviser were working alone, the teams do indeed have an increasingly important role.

Why are there so few women in the ranking?

In Australia, as in the US, the percentage of female financial advisers hovers around 20 per cent. Among the Top 150 advisers, 21 (13 per cent) are women. Theories abound as to why the numbers remain so low. Historically, finance jobs in both the US and Australia maintained a testosterone-fuelled ethos that likely convinced many women they were not welcome. But it still does not fully explain why a profession with flexible hours that rewards empathy and emotional intelligence attracts so few females. This is changing, if slowly. As many male advisers approach retirement age, there is an opportunity for female advisers to step into advisory positions that are opening up. In addition, the massive generational wealth transfer under way is concentrating trillions of dollars into the hands of female investors, most of whom are likely to outlive their male partners, and many of whom want a female perspective on managing their money.

What are the criteria used in ranking advisers?

All advisers participating in the rankings complete a survey of 60 questions covering details of their careers and their businesses. There is no cost for participating, and the rankings are rooted in a mathematical formula that is evenly applied to all participants.

The metrics included in the formula fall into three general categories: assets, revenue and quality of practice. Assets, or funds under management, represent the amount of client money an adviser manages, and the year-over-year growth in FUM is a measure of the general health and vitality of a business. Revenue is the money advisers collect in fees, and it is a useful proxy for client satisfaction – clients attest to the value advisers are providing to them with the fees they pay and with the assets they permit the adviser to manage. Quality of practice includes a variety of data points, including the length of time an adviser has been in business, an adviser’s education and advanced degrees and certifications, the size and structure of a team relative to the number of clients, and more.

Matt Barthel is an associate editor at Barron’s