AMP, banks lead exodus as financial planners flee the changing industry

Financial planners continue to exit the wealth management industry, with the biggest falls linked to AMP and the banks.

Financial planning appears to be becoming “an elite service” aimed mainly at wealthier people who were prepared to pay fees for advice.

Financial planners continue to exit the wealth management industry, with the biggest falls linked to AMP and the banks.

Latest data from research firm Rainmaker says the total number of financial advisers in Australia fell by 12 per cent last year to 20,880 as the industry continued to respond to stricter licensing conditions and the banning of commissions.

Industry observers warn that increasing regulation is reducing supply in the sector and driving up the cost of advice, taking it out of the reach of ordinary Australians.

The Rainmaker survey shows the biggest fall was among advisers linked to AMP Financial Planning, who fell by 323 to 841 — some 60 per cent below the high of 1414 two years ago.

The fall leaves AMP neck and neck with the SMSF Advisers Network, which is owned and operated by the National Tax and Accountants Association.

Rainmaker’s figures show SMSF Advisers Network down by 91 over the year to 839, just behind AMP, but industry analyst Adviser Ratings puts SMSF Advisers ahead of AMP, estimating that the latter’s network was down to 820 by the end of 2020.

Adviser Ratings estimates that some 250 advisers left the industry in December, with many choosing the end of the year as a retirement date.

Financial advisers linked to the big banks also continued to fall as lenders exited the wealth management industry.

Advisers linked to NAB slumped from 350 at the end of 2019 to just over 100 by the end of last year, while those linked to ANZ halved from 318 to 156, and advisers linked to Commonwealth Financial Planning were down from 351 to 226.

Rainmaker research director Alex Dunnin said the fall in the number of advisers followed the banning of sales commissions, tighter standards mandated by the Financial Adviser Standards and Ethics Authority (FASEA) and the fallout from the Hayne royal commission into misconduct in the financial industry.

“The financial planning industry is under massive challenge,” Mr Dunnin said.

He said the banning of commissions meant the business model for advisers had to change to charging fees for advice.

But with many people on lower incomes not wanting to pay for advice, planners were tending to focus on upper income bracket.

Alex Dunnin, head of research at Rainnmaker in Sydney.

“The game has fundamentally changed,” he said. “Their whole remuneration structure has changed. It has been a kick in the guts for them.

“At the same time there has been increasing scrutiny of the industry.”

He said the public now had many other sources of information.

“They are not the only game in town any more,” he said.

Mr Dunnin said AMP had once been the clear market leader in financial planning in Australia.  “They were the dominant player. They were like the Telstra of financial planning.”

But he said it had lost the most financial planners of any group in recent years.

Advisers linked to some companies had also suffered because of public relations fallout from the royal commission.

Some were leaving to join independent financial planning groups.

The Rainmaker survey shows the fastest-growing financial adviser groups in 2020 were independently owned Lifespan Financial Planning (whose advisers had risen from 199 to 265), GWM Adviser Services (a subsidiary of MLC, whose numbers rose from 355 to 420) and InterPrac Financial Planning (up from 269 to 307).

NAB is in the process of selling its MLC Wealth arm to IOOF in a deal worth some $1.4bn.

Mr Dunnin said the industry had been put under more pressure by Liberal governments than Labor, which had begun the push for stricter legislation to control the industry with its Future of Financial Advice legislation introduced in July 2012.

“The royal commission has made people cynical about financial planners,” he said.

“The industry has been under pressure to increase quality and to lower fees.

“The pressure is going to keep on going.

“Financial planning groups are going to be under massive pressure to be more efficient.

“The level of scrutiny is only going to get more intense.”

He said the changes meant financial planning was becoming “an elite service” aimed mainly at wealthier people who were prepared to pay fees for advice.

“Financial planners now tend to work with people who can afford to pay, which tends to be high income, wealthier people,” he said.

The chief executive of the Financial Planning Association, Dante De Gori, said the number of financial planners was falling due to a range of factors, including industry reform resulting from the royal commission, new FASEA standards and changes to business models.

“We expect this disruption to continue to affect the wider financial planner population over 2021,” he said.

He said the FPA had seen a fall in its membership over the past year, but it was also attracting new members with “new generations of financial planners entering the profession”. The past two years had seen the closure and amalgamation of a number of financial planning licences.

“In addition to large licensees exiting the profession, increased regulatory costs and new education requirements have increased the cost of operating a financial planning practice,” he said.

He said the FPA welcomed the recent announcement that FASEA would be wound down, with its role divided between Treasury and ASIC’s Financial Services and Credit Panel as a “step in the right direction”, allowing for a single disciplinary body for the profession.

Increasing regulation of the industry had led to a “lack of supply” of financial planners, which was putting upward pressure on the cost of advice.

“Reducing the regulatory impact of eight separate regulators and competing regulations on financial planners will have a significant and positive impact on their ability to service more Australians,” he said.

The average member of the FPA is 45 and has been a member for 11 years. Twenty seven per cent of FPA members are women.

Mr De Gori said the FPA was concerned at the amount of regulatory change on the industry which meant that planners did not have “a lot of space” to concentrate on their clients.

“We encourage the government and regulators to be mindful of the reality on the ground now and not rush change,” he said.

“We encourage the government to look forward to reducing regulatory duplication, not deregulate, but to ensure regulations and regulators are efficient and work together, rather than pulling in opposing directions.”