More than 9000 financial advisers have had their licensee authorisation ceased in less than three years, with the vast majority permanently exiting the industry, our analysis shows.
At the end of the last quarter, the workforce headcount had fallen below the 19,000 mark. Meanwhile, more than 2000 advisers have had their authorised representative status removed by a licensee on the Financial Advisers Register (FAR) in the calendar year to date.
It’s important to note that ‘ceased advisers’ – defined as advisers whose Australian Financial Services Licence authorisation with a licensee has ended – sometimes re-emerge. In fact, in an update this Monday, the Financial Adviser Standards and Ethics Authority said more than 1840 ceased advisers on the FAR had passed the industry exam and may be re-authorised.
The exam clock is ticking
Earlier this year, Treasurer Josh Frydenberg announced advisers who have attempted the exam twice before January 2022 have until September 2022 to pass. However, with the pass rate from the September exam sitting at 60 per cent and thousands of advisers yet to cross the hurdle, we expect adviser numbers will fall much further.
Figure 1: Adviser exam pass rate
Source: AR Data; FASEA.gov.au
Indeed, Adviser Ratings’ latest forecast indicates there are many more industry exits on the horizon, with stabilisation expected only once there are around 13,500 advisers remaining in Australia by 2024.
Unfortunately, this will leave many Australians with unmet advice needs and will prove particularly problematic for Baby Boomers as they seek financial guidance through retirement.
Figure 2: Ceased advisers since 2019
Source: AR Data. Total = 11,292. A ceased adviser is defined as an adviser whose AFSL authorisation with a licensee has ceased during the quarterly sample period. Some came back again into the register over the same period, making close to net 9,000.
A fledgling profession under pressure
The busiest year for adviser departures was 2019, when advisers received more certainty around future professional expectations. As with any industry transitioning into a profession, several thousand departures were expected at this time, from those unwilling to commit to the new requirements.
Since then, however, there has been a steady outflow of advisers, driven by many factors, including impending education deadlines.
Advisers also list compliance pressures, sliding profitability and mental health concerns as chief reasons for considering a new career or retirement. Earlier this year, a report from Dr Adam Fraser’s e-lab, Deakin University and AIA found 2 in 5 advisers were considering leaving due to stress.
More recently, the pandemic has further stretched many businesses, but particularly those without the IT infrastructure to support remote working and client engagement. Together with other pressures, COVID-19 has probably been a contributing factor to exits by advisers already contemplating leaving.
Supply shortfall
As advisers exit en masse, the major hope for industry revival lies with new entrants. Unfortunately, we’re still seeing just a small supply of such talent.
In the calendar year to date, there have been 163 new entrants into the market, which does little to compensate for thousands of departures. While there is growth in the number of new advisers each quarter, it is slight. We have not seen new adviser numbers hit triple figures for a quarter since the start of 2019.
As we’ve said many times, the biggest losers in this scenario will be Australians who need financial advice but cannot receive it at a reasonable price point.
For more analysis on departures, new advisers and movement among licensees, read our latest Musical Chairs report.
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Comments10
"I passed the FASEA exam, but will still exit the industry soon. Compliance requirements and licensee system make it too difficult to operate and manage stress. The politicians won't do anything until the crisis is obvious. The future belongs to small practices. "
D 07:20 on 04 Nov 21
"Industry funds look like they have got what they wanted, removing financial planners from the equation. Now they are trying to outsource this responsibility but never looking to invest in financial planning. As long as they can advertise and use millions of millions of dollars of member funds instead of investing in providing real financial solutions. "
Stephen 15:21 on 28 Oct 21
"Count me in the upcoming retirees. It might sound pompous, but on principle I will not do Ethics exam. I have been in advisory stockbroking for nearly 30 years. If I haven't got my moral compass right by now, it is too late"
BeenThereB4 14:00 on 28 Oct 21
"With 19.8 million Australians over 18 yo and about 13,500 licenced advisers, in theory, if we allow for only half of those eligible as paying customers, there would be about 700 clients per adviser. Too many for one adviser to look after effectively - if you want meaningful client relationships. When industry trainers talk about 100-120 clients per adviser, how will this issue be addressed? Technology might help but you can't beat the importance of face-to-face communication and, with all the different tasks one has to do, there are only so many hours in a year to see people. Looks like a serious dearth of impartial advisers well into the future. And I trust the Regulators will be closely monitoring Industry Super Funds and how they distribute personal advice as representatives of the relevant ISF, not the Members. I think not. "
Andrew 13:54 on 28 Oct 21
"We need to get rid of the licensee model, this is where most of the costs are. Why can't we be like other professionals and report to a governing body, like the lawyers, accountants, doctors, psychologists etc rather than continue with this leech eating money sucking licensee model."
deflated adviser 13:15 on 28 Oct 21
"And all this because of their failure to pass a purely legal exam which adds nothing to client support or advice. Dump the livelihood penalty NOW!"
birmie 13:03 on 28 Oct 21
"To be professional? - YES that is what we all want. To serve our clients in the best way possible - YES that is what has always driven us to keep doing what we do. BUT the legislators have complicated the system so much that they have removed the ability for an adviser to provide simple advice, simply and for a client to receive advice in a timely and cost efficient manner. These legal eagles have done their profession proud - take a simple concept, complicate it, solve for the complicated version and charge a decent penny for it. Financial advisers are not like that and financial advice does not need to be like that. Very frustrated.... "
Greg 12:46 on 28 Oct 21
"It is so disappointing that a once vibrant industry full of entrepreneurs willing to take business risks has been reduced to what we see today.Banks,public servants, politicians and journalists have won.The sad thing is that none of those mentioned would have any idea of the harm they have done to many families and individuals and even more sadly,they don't care."
Scott 11:48 on 28 Oct 21
"A very interesting insight...hopefully someone puts this on the desks of Mr Frydenberg and Ms Hume for comment"
Peter 11:43 on 28 Oct 21
"It's not problematic for baby boomers, they will just need to pay more. It's what the government and ASIC have wanted. Supply and demand is the only positive for financial planners if they can manage to make it through the next 4 and a bit years."
Scott 11:30 on 28 Oct 21