The headline news from our latest Musical Chairs report is that advisers left the industry at an increasing rate during quarter 2 of 2020. The industry contraction accelerated this last quarter, enhanced by several significant corporate actions. By end Q2 2020, the adviser population had reduced to 21,631 according to Figure 1, representing a net decline of 1,198 advisers (5.2%) from Q1 2020, which is 80% higher than last quarter and, representing a 21% annualised decline, well above the overall adviser reduction of 16% experienced last year.
This quarter was characterised by the arrival and apparent passing of the first wave of the COVID-19 pandemic, although by end June there were already signs of Victoria heading towards a second wave that has since translated to a phase four shutdown in late July. The severe financial distress this has caused consumers has definitely led to an increase in demand for financial advice, evidenced both empirically through level of inquiries and anecdotally from advisers.
Further driving demand for advice was the early access to super scheme that saw $19b paid out to almost 2.5m members by end June under the first tranche. This coincided with the creation of the ASIC instrument to cap limited advice on early super access to $300; to relax related documentation obligations; and to allow non-licensed accountants and tax agents to assist consumers with these inquiries. Clearly, this was about government making urgent decisions to stem the financial crisis by reducing regulatory friction and opening up capacity to serve more consumers. However, it has added momentum to calls for clearer definitions from ASIC on limited advice and intra-fund advice carve-outs, and permanent regulatory relief on compliance obligations. With that, advisers can confidently serve this growing demand at lower cost and for a more affordable price, without the threat of blow-back from regulators or their licensee.
The eventual passing of legislation on June 17 to extend the FASEA deadlines for exams for existing advisers to end 2021, and education deadlines to end 2025, came as a massive relief for advisers. Subsequently, the six exam sittings for 2021 have been released and now advisers have a confirmed pathway to make clear-headed decisions about remaining in the industry and completing their educational compliance obligations.
Licensee Market Share
The adviser exits from the industry and the continued long-run trend of the radical mass privatisation of the licensee market remains a permanent feature of the landscape, however this quarter the institutionally owned and aligned sectors held their own against the privately-owned sector in terms of market share. The institutionally owned and aligned sector fell by a combined 361 advisers, now representing 8,225 advisers or 38% of the total market. By comparison, the privately-owned sector shrunk by 901 advisers in the last quarter but remains flat at 62% of the overall industry. 
Over the last quarter there has been some minor re-positioning of the different privately-owned licensee groups in terms of size and market share. Our second chart shows the change in adviser distribution by licensee type in the privately owned licensee segment. While we expect greater movement towards the “safe haven” of the larger licensees over the medium term, these same organisations are also making strategic shifts in their business plans and this is leading to some material reductions in adviser numbers, not all necessarily equating to permanent departures from the industry. Meanwhile, the 2-5 adviser segment staged a fight-back, actually increasing overall numbers by 29 (1%) while all other segments fell, culminating in a 6.3% drop in overall privately-owned sector adviser numbers.
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Comments8
"Personally I am just going to exit on 31/12/2021 if we are still required to have successfully completed the FASEA exam. FASEA is a shambles and expecting experienced quality advisers to complete an exam is joke. The industry either simplifies itself or the exit door will need to be widened. I am pretty sure I am not the only experienced adviser that has the same exit date if not before."
Marty 09:25 on 13 Aug 20
"The big fallout is going to be on 31 Dec 2021 though isn’t it. That’s when the advisers who haven’t passed the exam fall out of the system. Aren’t we looking at a reduction of maybe 4,000 on that day? May be higher given what I encountered when I sat the exam."
Peter Robinson 21:52 on 12 Aug 20
"I wonder in simple terms straight forward figures, not confusing graphs how many have left the industry, how many advisers have committed suicide I hear 16 had from Jan last year to 30 June 2029. What are the real facts again in simple easy to read terms are insurers down on written premium for risk? Its simple maths equation, if people are not purchasing life products mainly because of over compliance, no adviser, its to hard etc.. , then the risk is shift from the insurance company not paying out and these people then become reliant on the welfare system. Quick example, Bill takes a policy out for Life cover, income protection etc , his wife Mary is the beneficiary, Bill gets injured or sick, or is killed in an accident Life company pays, Mary lives of this money, If Bill is not insured then Mary would receive nothing and she is on the welfare system, tell me again how much life companies inject into the system in all claims? and then transfer some of this load to welfare, and the government, it is struggling now, imagine a few extra billion they are having to pay out every year, a simple transfer of risk from insurers to the government, no onbe has explained this to the government correctly, we can do our work, do it correctly with a proper manged system, clearly the one we have is working in the opposite. "
Rodney Cox 18:33 on 12 Aug 20
"More transparency please. A breakdown of those no longer on the register and those who are still registered but are not ‘active’ would be helpful, otherwise it’s not catching those who are currently seeking positions, or those who have taken other roles ie compliance and are biding their time until they can find an adviser role again. Without this clarity these numbers appear akin to the unemployment rate not capturing underemployment."
Barbie 17:36 on 12 Aug 20
"I have trouble reading that graph. It looks as if there have been lots of increases - in a declining market. What does it measure? Absolute movement, relative (to what?) movement, absolute numbers? Also the colours are unclear. Have you thought of not just using different colours but different lines (solid lines, dotted lines, dot/dash lines etc)? "
Cowboy 15:16 on 12 Aug 20
"I still believe without significant change to Commission structures claw back arrangements and above all these outrageous exam requirements it will be a slow but steady exit of advisers putting financial assistance and advice out of the reach financially of Mum's and Dad's"
Ken 15:16 on 12 Aug 20
"Surely you have considered that rather than a mass exodus from the industry the vast majority are just removing themselves from the adviser register and dealing only with wholesale clients? "
John 15:09 on 12 Aug 20
"More advisers always leave at the end of the financial year - but this is still depressing stuff."
Cowgirl 14:59 on 12 Aug 20