Retirement planning at risk as financial adviser numbers plummet

People trying to plan for retirement could have to pay more for wealth advice or struggle to find a financial planner due to ranks dwindling, industry leaders say.

AMP and the big four banks were impacted by the financial planning scandal. Picture: Britta Campion

People trying to plan for retirement are likely to struggle to find an active wealth adviser to guide them through their accumulation phase, with the number more than halving in the past five years to only 11,000 according to fund manager Allan Gray.

The mass exodus is linked to widespread findings of misconduct during the financial services royal commission, which has seen the banks retreat from offering financial advice and the two other major players AMP and IOOF also struggle.

“It’s an enormous decline,” said Allan Gray chief operating officer Johan De Lange. “This is a country that is growing its population so this decline is not a good thing.”

Financial adviser numbers can be considered in different ways but all main methods reveal a significant drop.

Australian Securities and Investments Commission figures show 15,622 registered advisers for 2024 to date and about 198 less compared to this time last year.

According to ASIC, the number has fallen every year since a high of 27,925 at the end of 2018.

Wealth Data researcher Colin Williams believes the numbers are unlikely to return to the heady days of 28,000 because it was simply “too many,” but he believes the ramifications of the royal commission is that now there is a dearth of reasonably-priced advice.

“There is no doubt there was a lot of bad behaviour,” said Mr Williams noting the royal commission findings.

“(Now) there is a greater need for advisers that can deliver advice more cheaply.”

Mr De Lange said less advisor were “undoubtedly” a bad thing because many people were now unable to afford advice at the start of the period when they are trying to accumulate wealth to eventually retire on.

“The people that need it the most are getting it the least,” Mr De Lange said.

At today’s rates, an average cost for a financial adviser will range from between $4,000 to $6,000 per year, “so you need to have enough capital to afford the adviser in the first place,” he added.

Before the royal commission, many customers received financial advice that may have seemed at the time to be free - and was sometimes found to be flawed.

“It was never free, you just never saw it because it wasn’t transparent,” Mr De Lange said.

He said he believed Australians were much better served by the “transparency” required as a result of the regulatory outcomes that followed the royal commission.

Allan Gray does not provide financial advice but offers financial products to professional advisers.

Mr De Lange said these advisers are useful for people that are busy with day jobs and may not have the time to wrap their heads around long term investment decisions and the complexity of tax and superannuation legislations.

The reasons for the exodus are many. Anecdotal evidence suggests many felt humiliated by the wrong doings of a significant minority, but the cost of doing business may be a bigger factor.

Some advisers failed to meet the mandatory education standards introduced by the federal government in the wake of the scandal, which for some would have required going back to study to obtain a tertiary degree.

Rod Bertino from Business Health said costs have been a major consideration for those who have decided to leave.

The need to study came at a direct cost for tuition and also an indirect cost of time out of the workforce unable to service clients or bring in new ones, Mr Bertino said.

He also pointed to professional indemnity insurance “skyrocketing” with the numbers of insurers dwindling and those who remained charging more for their product post the financial advice scandal.

Another factor has been the soaring cost of holding an Australian financial services licence, with fees rising from nominal to in the order of $100,000 for some practices.

But with this dearth of financial planning options, Mr De Lange said it was likely others like industry funds might step in to fill the gap.

“This is a structural issue that will have to be fixed,” he said.