Finding a financial adviser just got worse – here’s what to do

Everyday investors are caught in the ‘missing middle’ of a shrinking financial advice sector. And finding an adviser is only getting harder. Here’s what to do.

The financial adviser shortage is ‘an urgent issue’ says Sarah Abood, CEO of the Financial Advice Association Australia.

There was more than enough need to seek financial advice this year. Wild sharemarkets, looming new taxes and more cuts to super. It’s had it all. Yet, somehow the financial advice sector in Australia is shrinking.

The number of advisers in the market is going backwards. It’s hard to believe given all the hype from the government about a revival for the sector, but the number of advisers has dropped, again.

New figures show a dip from levels that were already regarded as precarious.

In 2019, there were more than 25,000 advisers. On Tuesday we will start the new financial year with 15,488, down from 15,545 a year ago.

“There has been a lot of expectation in the market, but the numbers are just not there,” says Colin Williams of the Wealth Data group.

As for big super funds getting involved and bringing cheap advice to the masses, the numbers inside super tell a very different story.

Rather than a build-up of an army of specialist advisers, the ranks of advisers inside super funds are shrinking too.

Industry insiders believe the total number of advisers will keep dropping in the months ahead as more experienced planners leave the industry ahead of tougher qualification standards due to come into effect in 2026.

Some industries can handle an outflow of professionals as long as new blood keeps coming through the ranks.

But this is not happening in financial advice. The demand is so weak that the number of financial planning degree courses has dropped from 39 in 2020 to just 24 today.

As Sarah Abood, the CEO at the Financial Advice Association Australia, sums it up: “It’s a real problem.

“We have pushed for wider changes in financial advice but we have had no legislative fix,” she says. “The urgent issue now is that we have a growing case of unmet demand. For example, we have 800 people retiring every day.”

To navigate your way through the shrinking financial advice sector it’s essential to understand the utterly changed landscape left behind in the wake of the Hayne Royal Commission, which triggered an exit from the sector by the major banks.

There are now three distinct tiers in financial advice.

At the top of the market there are de facto wealth managers, where the sector is going from strength to strength.

The top of the market is represented by the Top 150 adviser list published each year by The Australian in conjunction with Barron’s of New York. Big names on the list include Morgan Stanley, Macquarie, Pitcher Partners, Koda and Escala.

This sector is showing all the signals of a market in good health.

Takeover activity is alive and kicking and executive poaching is rife.

At the other end of the financial advice arena, there is entry-level advice, which is also alive and kicking.

Recent progress by groups such as Stockspot and Vanguard suggests there is a growing market for simple low-cost services that are almost exclusively based on so-called passive investing.

Under this process, investors use Exchange Traded Funds to underpin investment portfolios. Then we have what Abood at the FAAA calls “the missing middle”.

Unfortunately, this is where many investors will be left in limbo. They want more than off-the-shelf advice but they are not naturally clients of the top-shelf service advice firms where fees can be significant and generally you need a certain level of assets. Keep in mind that the average financial advice fee per annum across the industry is now around $4000.

What to do?

For the investor searching for advice the traditional channels are clear. Make sure an adviser is registered and fully qualified. After all, there are still more than 15,000 advisers out there. The problem is, that even if you have the fees available to pay for their services, they may not be taking on new clients.

If you have been waiting for Big Super to enter the market, don’t hold your breath.

The big funds have been talking for a long time about entering the space with a new class of adviser but this has not come to pass. Enabling legislation is still stuck in parliament and there is now a new minister in charge of the area after Daniel Mulino replaced Stephen Jones.

As they say in the industry, this is not advice and is information only. But for many investors the realistic solution to this changing landscape may be to actively move upmarket or downmarket.

At least by making this move you may find some useful service.

Ironically, it is cheaper for advisers under the current maze of regulations and red tape to service sophisticated investors than everyday investors. In turn, those sophisticated investors have less regulatory support.

Advisers are much more willing to take on sophisticated clients because they are cheaper to service and, of course, they have more money.

Sophisticated investor status has nothing to do with sophistication, it is strictly a material qualification. You must have more than $2.5m in assets or make more than $250,000 for two years in a row. The number of investors who can qualify for this status is growing exponentially because it is not indexed. As a result, the set financial thresholds do not mean as much as they did when they were created 23 years ago.

Alternatively, passive investment is cheap and comes with considerably less risk.

The majority of active funds in listed assets do not match the index. For those willing for a simple solution to the advice conundrum this may be an answer.

In the missing middle sits the suburban financial adviser, an increasingly endangered species.