Financial advice to get more expensive as advisers leave embattled sector

Fewer financial advisers will push fees higher and many investors left outside the system. Picture: iStock

The financial advice sector has been sinking in the court of public opinion for years: The problem now is that the industry headcount is shrinking too.

It’s not just that advisers are fleeing the industry off the back of tighter regulation and increasing costs, the deeper problem is that it cannot attract new talent: There have been just 82 new advisers minted this calendar year.

As adviser Doug Turek asks, what other profession could handle a 40 per cent drop in numbers in four years?

In 2018, there were 28,000 advisers. Some of them were very good, some of them ordinary and some – a minority – were third rate charlatans who gave the industry a bad name.

The problem in 2022 is that demand and supply are now seriously out of alignment: Ironically, it’s the customers who will pay the price.

Fees in the sector are rising by 8 per cent a year and that is if you are lucky enough to get in the door: Many advisers are now booked out while others are simply focusing on the richest and most lucrative clients.

The outcome of this personnel shortage is that fewer people will ever receive advice and that is a dangerous outcome in our complex tax system, not to mention our mandatory super system where 10 per cent of all salaries must go into superannuation.

Many of today’s financial planners started their careers in the major banks: After selling off their wealth management operations most of the big four banks have now substantially exited financial advice. The exodus of the banks leaves a large hole in the training system that traditionally provided qualified advisers.

This is not to suggest the answer is to go back to the way things were. The banks might have trained many advisers in the past, but the ultimate consequence of the sales culture pushed by the banks was the Hayne royal commission which revealed wide abuse of proper standards across the system.

Like they used to say about good wine, you can’t buy good financial advice cheaply. But you should be able to buy it, if you want it. That is becoming increasingly difficult.

Moreover, when you do buy advice, it should not include anything you do not want – and it should never carry the costs of unnecessary compliance rules.

As Sara Abood at the Financial Planning Association suggests: “At an average of $3,500 a year, it is already above the level many Australians would expect to pay.”