Financial advisers are dropping clients and hiking fees as the industry resets

One in six investors on the books of financial advisers have been removed over the last year, and those who stay are paying a lot more.

ASFA chief executive Mary Delahunty says there is an urgent need to make financial advice from trusted advisers more accessible. Picture: Aran Anderson

Financial advisers are severely culling their client lists and charging 17 per cent more in fees to those who survive the shake-out in a brutal resetting of the advice industry.

With rising costs and a huge exodus of personnel in recent years, the sector has responded with a push up-market, which will leave many investors without advice in the years ahead.

Roughly one in six advice clients have been dropped over the last year by advisers, while profit margins in the industry have lifted.

As the wider industry waits for the arrival of big super funds into the financial advice sector, a report from consultant Investment Trends spells out the new reality after years of reforms and mounting red tape.

The average client book of an adviser has dropped from around 120 investors to 99 over the last year.

Meanwhile, fee hikes have been put through that are multiples of inflation. On average the fee hike over the last year has been 17 per cent, bringing the annual cost of advice up from $4700 to $5500.

In some cases, fee increases have been astronomical. A year ago the average upfront fees faced by SMSFs dealing with specialist advisers rose by nearly 40 per cent from $2600 to $3600 and have continued to rise over the last 12 months to $3750.

“Advisers have managed to put through fee increases and we are now seeing some stability in the sector,” Irene Guiamatsia of Investment Trends says.

The financial advice industry faces new challenges from social media. Picture: AFP

The total number financial advisers has dropped from around 30,000 to 15,000 since the Hayne Royal Commission in 2017 and the shortage of skills is so severe that the Financial Advice Association Australia has recently launched a recruitment campaign to encourage young professionals to join the industry.

Guiamatsia describes the changes as a “pricing reset” in the sector, while suggesting: “There is now a deliberate shift towards quality over quantity in adviser relationships.”

The Investment Trends report comes as the advice industry faces a new challenge in the form of unlicensed “advice” promoted through social media, especially the TikTok app.

Mary Delahunty, the CEO of the Association of Superannuation Funds of Australia (ASFA),

released new data this week that showed that those aged 18 to 34 used “friend and family” as their first choice for advice followed by social media. But only six per cent had sought advice from professional advisers.

Commenting on the data, Delahunty suggests: “There is an urgent need to make financial advice from trusted advisers more accessible.”

Investors are expecting the provision of financial advice will improve and costs decrease if the government accelerates its plan to allow big super funds to provide more advice through new regulations carried in the so-called Delivering Better Financial Outcomes legislative package.

The Australian will be on hand to make the task of finding an adviser a little easier when it produces the Top Advisers List for 2024. Last year we ran a Top 100 Advisers list and this year the list will expand to a Top 150 list when it is published in November (in conjunction with Barron’s of New York).

Originally published as Financial advisers are dropping clients and hiking fees as the industry resets